ITEM 1. INTERIM FINANCIAL
STATEMENTS
Alliance BioEnergy Plus,
Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
61,164
|
|
|
$
|
62,054
|
|
Prepaid expenses
|
|
|
355,571
|
|
|
|
743,738
|
|
Deferred financing
costs
|
|
|
-
|
|
|
|
54,278
|
|
TOTAL CURRENT ASSETS
|
|
|
416,735
|
|
|
|
687,844
|
|
PROPERTY AND EQUIPMENT, AT
COST, NET OF ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
OF $77,968 AND $59,919 AT
MARCH 31, 2016 AND DECEMBER 31, 2015,
|
|
|
|
|
|
|
|
|
RESPECTIVELY
|
|
|
298,726
|
|
|
|
310,576
|
|
Other assets
|
|
|
|
|
|
|
|
|
Security deposits
|
|
|
18,965
|
|
|
|
18,965
|
|
Capitalized costs
|
|
|
202,021
|
|
|
|
202,021
|
|
Investment in and advances
to unconsolidated affiliates
|
|
|
7,472,943
|
|
|
|
7,433,024
|
|
TOTAL OTHER ASSETS
|
|
|
7,693,929
|
|
|
|
7,654,010
|
|
TOTAL ASSETS
|
|
$
|
8,409,390
|
|
|
$
|
8,824,656
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
275,060
|
|
|
$
|
387,442
|
|
Payable relating to an
acquisition related party
|
|
|
2,031,258
|
|
|
|
2,031,258
|
|
Short term note payable
related party
|
|
|
71,000
|
|
|
|
71,000
|
|
Short term note payable
other
|
|
|
-
|
|
|
|
265,000
|
|
Convertible
debentures
|
|
|
150,000
|
|
|
|
999,000
|
|
Interest payable related
party
|
|
|
9,921
|
|
|
|
9,036
|
|
Interest payable
other
|
|
|
89,055
|
|
|
|
83,946
|
|
Current liabilities of
discontinued operations
|
|
|
36,148
|
|
|
|
36,148
|
|
TOTAL CURRENT
LIABILITIES
|
|
|
2,662,442
|
|
|
|
3,882,830
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
Long term note payable
Other
|
|
|
-
|
|
|
|
1,250,000
|
|
TOTAL LONG TERM
LIABILITIES
|
|
|
-
|
|
|
|
1,250,000
|
|
TOTAL
LIABILITIES
|
|
$
|
2,662,442
|
|
|
$
|
5,132,830
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock; $0.001 par value; 10,000,000 shares authorized; zero shares issued
and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock; $0.001 par value; 100,000,000 shares authorized; 51,708,310 shares
issued and
|
|
|
|
|
|
|
|
|
outstanding
at March 31, 2016 and 41,084,279 shares issued and outstanding at December
31, 2015
|
|
|
51,708
|
|
|
|
41,084
|
|
Stock
subscription receivable
|
|
|
(5,000
|
)
|
|
|
(5,000
|
)
|
Additional
paid-in capital
|
|
|
23,889,462
|
|
|
|
21,160,997
|
|
Accumulated
deficit
|
|
|
(17,738,528
|
)
|
|
|
(17,052,797
|
)
|
Total stockholders'
equity
|
|
|
6,197,642
|
|
|
|
4,144,284
|
|
Non-controlling interest
|
|
|
(450,694
|
)
|
|
|
(452,458
|
)
|
TOTAL EQUITY
|
|
$
|
5,746,948
|
|
|
$
|
3,691,826
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
$
|
8,409,390
|
|
|
$
|
8,824,656
|
|
See accompanying notes to
financial statements
1
Alliance BioEnergy Plus,
Inc.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31, 2016
|
|
March 31,
2015
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
|
1,281,623
|
|
|
|
1,019,255
|
|
Total
operating expenses
|
|
|
1,281,623
|
|
|
|
1,019,255
|
|
|
Loss from
operations:
|
|
|
(1,281,623
|
)
|
|
|
(1,019,255
|
)
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
Equity loss in
unconsolidated affiliates
|
|
|
41,330
|
|
|
|
39,590
|
|
Amortized conversion
feature
|
|
|
92,440
|
|
|
|
-
|
|
Gain on sale of subsidiary
|
|
|
(1,163,609
|
)
|
|
|
-
|
|
Interest expense related
party
|
|
|
885
|
|
|
|
875
|
|
Interest expense and prepayment penalties
other
|
|
|
428,100
|
|
|
|
14,098
|
|
Total
other (income) expense
|
|
|
600,854
|
|
|
|
(54,563
|
)
|
|
Loss from continuing operations:
|
|
$
|
(680,769
|
)
|
|
$
|
(1,073,818
|
)
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Loss from
operations
|
|
|
3,198
|
|
|
|
21,640
|
|
Debt forgiveness
|
|
|
-
|
|
|
|
(700,000
|
)
|
Income (Loss) on discontinued operations:
|
|
$
|
(3,198
|
)
|
|
$
|
678,360
|
|
|
Net loss:
|
|
|
(683,967
|
)
|
|
|
(395,458
|
)
|
Net loss attributable to non-controlling
interest:
|
|
|
1,764
|
|
|
|
(37,209
|
)
|
Net loss attributable to
Company:
|
|
$
|
(685,731
|
)
|
|
$
|
(358,249
|
)
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Discontinued
operations
|
|
$
|
-
|
|
|
$
|
0.02
|
|
Net loss per
share:
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
44,472,179
|
|
|
|
38,664,814
|
|
See accompanying notes to
financial statements
2
Alliance BioEnergy Plus,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
Net loss from continuing
operations
|
|
|
(680,769
|
)
|
|
|
(1,073,818
|
)
|
Net income (loss) from
discontinued operations
|
|
|
(3,198
|
)
|
|
|
678,360
|
|
Net loss
|
|
$
|
(683,967
|
)
|
|
$
|
(395,458
|
)
|
Reconciliation of net loss to net cash used
in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
18,049
|
|
|
|
5,774
|
|
Amortization of non-cash
compensation
|
|
|
450,116
|
|
|
|
-
|
|
Deferred financing
costs
|
|
|
54, 278
|
|
|
|
-
|
|
Sale of
subsidiary
|
|
|
(1,163,609
|
)
|
|
|
-
|
|
Beneficial conversion
feature
|
|
|
92,440
|
|
|
|
-
|
|
Stock based compensation
for services
|
|
|
44,499
|
|
|
|
227,784
|
|
Issuance of warrants for
services
|
|
|
56,654
|
|
|
|
-
|
|
Stock based compensation
awarded under employee, director plan
|
|
|
-
|
|
|
|
240,000
|
|
Issuance of options
awarded under employee, director plan
|
|
|
190,720
|
|
|
|
-
|
|
Equity loss in
unconsolidated affiliates
|
|
|
41,330
|
|
|
|
39,590
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
8,092
|
|
|
|
99,136
|
|
Accrued interest -
other
|
|
|
41,596
|
|
|
|
-
|
|
Accounts payable and
accrued liabilities
|
|
|
14,364
|
|
|
|
33,941
|
|
Net cash (used in) operating activities continuing
operations
|
|
|
(832,240
|
)
|
|
|
(427,593
|
)
|
Changes in discontinued operations assets
and liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
|
-
|
|
|
|
13,649
|
|
Legal settlement relating
to an acquisition
|
|
|
-
|
|
|
|
(700,000
|
)
|
Net cash (used in) operating activities discontinued
operations
|
|
|
(3,198
|
)
|
|
|
(7,991
|
)
|
Net cash (used in) operating
activities
|
|
|
(835,438
|
)
|
|
|
(435,584
|
)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and
equipment
|
|
|
(6,199
|
)
|
|
|
(185,611
|
)
|
Security
deposit
|
|
|
-
|
|
|
|
(15,965
|
)
|
Investment in and
advances to an unconsolidated affiliate
|
|
|
(81,249
|
)
|
|
|
(63,980
|
)
|
Net cash (used in) investing activities continuing
operations
|
|
|
(87,448
|
)
|
|
|
(265,556
|
)
|
Net cash (used in) investing activities
discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net cash (used in) investing activities
|
|
|
(87,448
|
)
|
|
|
(265,556
|
)
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
Net proceeds from
issuance of common stock
|
|
|
1,914,470
|
|
|
|
533,000
|
|
Proceeds from issuance of
convertible debt
|
|
|
-
|
|
|
|
143,000
|
|
Payment of convertible
debt
|
|
|
(734,000
|
)
|
|
|
-
|
|
Payment of short-term
note payable other
|
|
|
(265,000
|
)
|
|
|
-
|
|
Disgorgement
fees
|
|
|
6,526
|
|
|
|
-
|
|
Net cash provided by financing activities
continuing operations
|
|
|
921,996
|
|
|
|
676,000
|
|
Net cash provided by financing activities
discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by financing
activities
|
|
|
921,996
|
|
|
|
676,000
|
|
|
Net (decrease) in cash and cash
equivalents
|
|
|
(890
|
)
|
|
|
(25,140
|
)
|
|
Cash and cash equivalent at beginning of the
period
|
|
|
62,054
|
|
|
|
205,969
|
|
Cash and cash equivalent at end of the
period
|
|
$
|
61,164
|
|
|
$
|
180,829
|
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
|
|
|
|
|
Cash paid during the period
for
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
422,991
|
|
|
$
|
14,973
|
|
Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
Supplemental schedule of non-cash activities
|
|
|
|
|
|
|
|
|
Conversion of convertible debenture to
common stock
|
|
$
|
333,301
|
|
|
$
|
-
|
|
Common stock issued for future
services
|
|
|
120,001
|
|
|
|
-
|
|
Warrants issued for future services
|
|
|
72,918
|
|
|
|
-
|
|
See accompanying notes to
financial statements
3
ALLIANCE BIOENERGY
PLUS, INC.
NOTES TO FINANCIAL
STATEMENTS
March 31,
2016
NOTE 1 ORGANIZATION
AND BUSINESS DESCRIPTION
Alliance Bioenergy Plus,
Inc (the Company) is a technology company focused on emerging technologies in
the renewable energy, biofuels and new technologies sectors. From inception
through December 5, 2014, the Company was known as Alliance Media Group
Holdings, Inc. At inception (March 28, 2012), the Company was organized as a
vehicle to engage in the commercial production, distribution and exploitation of
Motion Pictures and other Entertainment products. However, in December 2013, a
wholly owned subsidiary of the Company, AMG Renewables, LLC (AMG Renewables),
acquired the controlling interest (51%) in AMG Energy Group, LLC (AMG Energy),
which owns a fifty percent (50%) interest of Carbolosic, LLC (Carbolosic),
which holds an exclusive worldwide license to the University of Central
Floridas patented technology (U.S. Patent 8,062,428) known as CTS. The CTS
technology is a mechanical/chemical, dry process for converting cellulose
material into sugar for use in the biofuels industry as well as other fine
chemical manufacturing. The Companys goal in acquiring the interest in AMG
Energy is to develop the CTS technology to a commercial scale and then seek to
license the technology to prospective licensees. In September 2014, the Company
determined to focus all of the Companys resources and personnel on the
Companys renewable energy holdings and future energy technologies and to divest
the Company of its entertainment-related assets and subsidiaries. The principal
reason for such action was the recognition that the Companys
entertainment-related assets were generating substantial losses and contributing
little value compared to the potential management saw in the energy-related
activities and to provide a clear focus and direction to the Company moving
forward. The Company therefore determined at that time to divest and sell off,
close down or discontinue the operations of its entertainment-related
subsidiaries. Subsequently, the Company determined that the name Alliance Media
Group Holdings, Inc. was no longer relevant to the new business direction of the
Company and, effective December 5, 2014, amended the Companys Articles of
Incorporation to change the name of the Company to Alliance Bioenergy Plus,
Inc., which is more appropriately descriptive of the new business direction of
the Company.
Plan of
Operation
The Company is focused on
one industry Renewable Energy. Through its wholly-owned subsidiary, AMG
Renewables, LLC, which in turn owns controlling interests in AMG Energy Group,
LLC, and Ek Laboratories, Inc., the Company has a strategy that includes growth
in its energy-related activities as well as mergers and acquisitions and
start-up activities which are focused on development of an increasing revenue
stream, secure market share and enhancement of shareholder value.
AMG RENEWABLES,
LLC
AMG Renewables, LLC, a
Florida limited liability company (AMG Renewables), is a wholly-owned
subsidiary of the Company, created for the purpose of managing and developing
the Companys renewable energy technology enterprises. AMG Renewables had one
wholly-owned subsidiary, Carbolosic Plant 1, LLC, a Florida limited liability
company (Carbolosic Plant 1), and two majority owned subsidiaries, AMG Energy
Group, LLC, a Florida limited liability company (AMG Energy) and Ek
Laboratories, Inc., a Florida corporation (EK) formerly known as Central
Florida Institute of Science and Technology, Inc.
●
|
On December 26, 2013,
AMG Renewables acquired the controlling interest (51%) in AMG Energy Group
from certain related parties for a consideration comprising $2,200,000
cash and delivery of 7,266,000 shares of Company Common Stock. In
connection with the transaction, an amount which the Company owed to AMG
Energy ($214,894) for various loans and consulting fees was eliminated in
the acquisition. On December 26, 2013, 7,000,000 shares of Company common
stock were delivered to AMG Energy Solutions, Inc. (a related party) and
the remaining 266,000 shares of Company common stock were delivered on
June 18, 2014 to Wellington Asset Holdings, Inc. As of March 31, 2016, the
Company has paid $168,742 of the $2,200,000 cash payable on account of
this transaction, and as of such date, the Company has not paid the
remaining amount, which amount has been recorded on the books of the
Company as a related party payable relating to an acquisition.
|
|
|
●
|
AMG Energy owns a fifty percent (50%)
interest of Carbolosic, LLC, a Delaware limited liability company
(Carbolosic), which holds an exclusive worldwide license to the
University of Central Floridas patented technology (U.S. Patent 8,062,428) known as CTS. The CTS
technology is a mechanical/chemical, dry process for converting cellulose
material into sugar for use in the biofuels industry as well as other fine
chemical manufacturing. The Companys goal is to develop this CTS
technology to a commercial scale and then seek to license the technology
to prospective licensees.
|
4
|
On May 13, 2015, AMG
Energy entered into a series of agreements with various unrelated third
parties, wherein AMG Energy sublicensed the CTS technology to Naldogen
(Pty) Ltd., an existing South African company, which will be renamed
Carbolosic Energy SA PTY LTD (Carbolosic SA). Carbolosic SA shall be
solely devoted to exploitation of the CTS technology in South Africa,
Lesotho, Swaziland and Botswana and the term of the sublicense is
coterminous with the master license (i.e. through July 1, 2032). The
consideration for the grant of the sublicense is $25,000,000 (License
Fee), which was to be paid or guaranteed by March 1, 2016. In addition to
the license fee, the sublicense holder will pay AMG Energy a royalty of
3.5% of the revenues on the first CTS plant developed and a 5.0% royalty
on the revenues of additional plants developed. Until the $25,000,000
payment has been received, the Company does not consider all of the events
required under the agreement to have been completed. Therefore the Company
has not recorded and of the fee in the accompanying financial statements.
Contemporaneously,
Carbolosic SAs shareholders entered into an agreement whereby, among
other matters, it was agreed that ownership of Carbolosic SA shall be
43.5% for Tes Projects (Pty) Ltd, a South African company (Tes), 24.5 %
for Spearhead Capital Ltd, a Seychelles company (Spearhead), 7.5% for
Jupiter Trust, a South African Trust (Jupiter) and 24.5% for Alliance
BioEnergy Plus, Inc. TES, Spearhead and Jupiter are all unrelated to the
Company. The interests of Tes and Jupiter are delivered in consideration
of the funding or guarantee of funding of the License Fee; Spearheads
interest is in consideration of facilitating the Sublicense transaction;
and the Companys interest is in exchange for the delivery to Carbolosic
SA of a 24.5% interest in one of the Companys CTS sugar extracting plants
to be developed in the United States.
In February 2016, due
to economic and political turmoil in South Africa, members of Tes Projects
(Pty) Ltd and Jupiter Trust resigned from management and from the Board of
Carbolosic SA and returned all ownership interest in Carbolosic SA to the
Carbolosic SA treasury. Spearhead Capital intends to continue operations
of Carbolosic SA but at this time there is no guarantee that they will be
successful in securing the needed funds or contracts to do so. The Company
will evaluate its position in Africa in the coming months and decide on a
path forward.
|
|
|
●
|
Carbolosic Plant 1 was created in October
2014 for the purpose of being a full scale facility for converting
cellulose material into sugar for use in the biofuels industry as well as
other fine chemical manufacturing located in Palm Beach County, FL. In
March 2016, Carbolosic Plant 1 was sold to Carbolosic Energy 1, LLLP, a
non-related third party, in exchange for satisfaction of the outstanding
$1,250,000 loan and accrued interest between Carbolosic Plant 1 and
Carbolosic Energy 1, LLLP.
|
|
|
●
|
EK, was created in December 2014 under the
name Central Florida Institute of Science and Technology, Inc. and changed
its name to Ek Laboratories, Inc. on June 05, 2015. EK was formed as a
wholly owned subsidiary of AMG Energy, to serve as a demonstration and
research facility to further develop the CTS process, its uses, and
develop new technologies.
|
The Company believes that
its management and consultants have significant experience in the bio-fuels,
renewable energy and chemical manufacturing industries. As of the date of
filing, the Company has not generated any revenues from its renewable energy
business.
NOTE 2 GOING CONCERN
The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern, which assumes the Company will realize its assets
and discharge its liabilities in the normal course of business. The Company has
not generated any revenue, has incurred losses since inception, has a working
capital deficiency of $2,245,707 and may be unable to raise further equity. At
March 31, 2016 the Company had incurred accumulated losses of $17,738,528 since
its inception. The Company expects to incur significant additional liabilities
in connection with its start-up activities. The Companys ability to continue as
a going concern is dependent upon its ability to obtain the necessary financing
to meet its obligations and repay its liabilities when they become due and to
generate sufficient revenues from its operations to pay its operating expenses.
These Financial Statements do not include any adjustments related to the
recoverability and classifications of recorded asset amounts, or amounts and
classifications of liabilities that might result from this uncertainty. There
are no assurances that the Company will continue as a going concern.
5
Management believes that
the Companys future success is dependent upon its ability to achieve profitable
operations, generate cash from operating activities and obtain additional
financing. There is no assurance that the Company will be able to generate
sufficient cash from operations, sell additional shares of stock or borrow
additional funds. The Companys inability to obtain additional cash could have a
material adverse effect on its financial position, results of operations, and
its ability to continue in existence. These financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
The Company intends to
raise additional capital, sell licenses to its CTS technology and continue
constructing its full scale demonstration facility which, once operational, is
expected to generate cash flow in amounts sufficient to cover the Companys
operating expenses and debt service.
Through its private offerings, the Company raised
$3,730,390 from inception through December 31, 2015 and raised an additional
$1,914,470 in the three months ended March 31, 2016.
NOTE 3 SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying
consolidated financial statements of the Company were prepared in accordance
with generally accepted accounting principles in the U.S. (U.S. GAAP) and
include the assets, liabilities, revenues and expenses of the Companys
majority-owned subsidiaries over which the Company exercises control.
Intercompany transactions and balances were eliminated in consolidation.
Principles of
Consolidation
The accompanying
consolidated financial statements include the accounts of the Company and its
subsidiaries, after elimination of intercompany accounts and transactions.
Investments in business entities in which the Company lacks control but has the
ability to exercise significant influence over operating and financial policies
are accounted for using the equity method. The Companys proportionate share of
net income or loss of the entity is recorded in the Consolidated Statements of
Operations.
Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates presented and reported amounts
of revenues and expenses during the reporting periods presented. Significant
estimates inherent in the preparation of the accompanying Consolidated Financial
Statements include estimates of impairment assessment of identifiable intangible
assets and valuation allowance for deferred tax assets. Estimates are based on
past experience and other considerations reasonable under the circumstances.
Actual results may differ from these estimates.
Cash and Cash
Equivalents
All highly liquid
investments with maturities of three months or less at the date of purchase are
considered to be cash equivalents.
Stock Compensation
The Company recognizes the
cost of all share-based payments under the relevant authoritative accounting
guidance. Share-based payments include any remuneration paid by the Company in
shares of the Companys common stock or financial instruments that grant the
recipient the right to acquire shares of the Companys common stock. For
share-based payments to employees, which consist only of awards made under the
stock option plan described below, the Company accounts for the payments in
accordance with the provisions of ASC Topic 718, Stock Compensation (formerly
referred to as SFAS No. 123(R)). Share-based payments to consultants, service
providers and other non-employees are accounted for in accordance with ASC Topic
718, ASC Topic 505, Equity Payments to Non-Employees or other applicable
authoritative guidance.
6
Stock-based Compensation
Valuation Methodology
Stock-based compensation
resulting from the issuance of common stock is calculated by reference to the
valuation of the stock on the date of issuance, the expense being recognized as
the compensation is earned. Stock-based compensation expenses related to
employee options and warrants granted to non-employees are recognized as the
stock options and warrants are earned. The fair value of the stock
options or warrants granted is estimated at the grant date, using the
Black-Scholes option pricing model, and the expense is recognized on a
straight-line basis over the shorter of the period over which services are to be
received or the life of the option or warrant. The grant date fair value of
employee share options and similar instruments is estimated using the
Black-Scholes option pricing model on the basis of the fair value of the
underlying common stock on the measurement date, adjusted for the unique
characteristics of those equity instruments, using the assumptions noted in the
table below. The fair value of the common stock is determined by the
then-prevailing closing market price. Expected volatility was based on the
historical volatility of the Companys closing day market price per share. The
expected term of options and warrants was based upon the life of the option, and
the risk-free rate used was based on the U.S. Treasury Daily Yield Curve Rate.
The stock compensation
issued for services during the three months ended March 31, 2016, was valued on
the date of issuance. The following assumptions were used in calculations of the
Black-Scholes option pricing models for warrant-based stock compensation issued
in the three months ended March 31, 2016:
|
|
01/01/16
|
|
01/04/16
|
|
01/25/16
|
|
02/01/16
|
|
03/01/16
|
|
03/25/16
|
|
03/31/16
|
Risk-free interest rate
|
|
|
1.76
|
%
|
|
|
1.73
|
%
|
|
|
1.47
|
%
|
|
|
1.38
|
%
|
|
|
1.31
|
%
|
|
|
1.91
|
%
|
|
|
1.21
|
%
|
Expected life
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
10
years
|
|
|
|
5
years
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
175.11
|
%
|
|
|
174.97
|
%
|
|
|
176.42
|
%
|
|
|
175.99
|
%
|
|
|
175.28
|
%
|
|
|
176.15
|
%
|
|
|
175.87
|
%
|
ALLM common stock fair value
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.40
|
|
|
$
|
0.37
|
|
|
$
|
0.33
|
|
|
$
|
0.33
|
|
|
$
|
0.30
|
|
Accounting and Reporting
of Discontinued Operations
As required by the FASB ASC
Subtopic 205.20, per ASU 2014-08, Discontinued Operations, a component of an
entity or a group of components of an entity, or a business or nonprofit
activity can be classified as discontinued operations if the disposal represents
a strategic shift that has (or will have) a major effect on an entitys
operations and financial results when any of the following occurs: (i) the
criteria in paragraph 205.20.45.1E to be classified as held for sale is met (ii)
the component is disposed of by sale, or (iii) the component is disposed of
other than by sale in accordance with paragraph 360.10.45.15 (for example, by
abandonment or in a distribution to owners in a spinoff). Certain components to
be disposed of other than by sale shall continue to be classified as held and
used until it is disposed of, per the requirements of ASC Subtopic 360.10.
Depreciation on these assets ceases upon their classification as held and
used. The Company adopted ASU No. 2014-08 effective September 1, 2014.
Property and Equipment
Property and equipment are
stated at cost less accumulated depreciation. Depreciation is provided for on a
straight-line basis over the useful lives of the assets, generally 5 to 7 years.
Expenditures for additions and improvements are capitalized; repairs and
maintenance are expensed as incurred.
Convertible Instruments
The Company evaluates and
account for conversion options embedded in convertible instruments in accordance
with ASC 815 Derivatives and Hedging Activities.
Applicable GAAP requires
companies to bifurcate conversion options from their host instruments and
account for them as free standing derivative financial instruments according to
certain criteria. The criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly
and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value under other
GAAP with changes in fair value reported in earnings as they occur and (c) a
separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument.
The Company accounts for
convertible instruments (when we have determined that the embedded conversion
options should not be bifurcated from their host instruments) as follows: The
Company records when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the
differences between the fair value of the underlying common stock at the
commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over
the term of the related debt to their stated date of redemption.
7
Common Stock Purchase
Warrants and Other Derivative Financial Instruments
The Company classifies as equity any contracts that require
physical settlement or net-share settlement or provide it with a choice of
net-cash settlement or settlement in the Companys own shares (physical
settlement or net-share settlement) provided that such contracts are indexed to
its own stock as defined in ASC 815-40 (Contracts in Entitys Own Equity). The
Company classifies as assets or liabilities any contracts that require net-cash
settlement (including a requirement to net cash settle the contract if an event
occurs and if that event is outside the Companys control) or give the
counterparty a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement). The Company assesses the classification of
its common stock purchase warrants and other free-standing derivatives at each
reporting date to determine whether a change in classification between assets
and liabilities is required.
Non-controlling interest
in consolidated subsidiaries
The accompanying
consolidated financial statements include the accounts of Alliance BioEnergy
Plus, Inc. and those subsidiaries that the Company has the ability to control
either through voting rights or means other than voting rights. For these
subsidiaries, the Company records 100% of the revenues, expenses, cash flows,
assets and liabilities in its consolidated financial statements. For
subsidiaries that the Company controls but hold less than 100% ownership, a
non-controlling interest is recorded in the consolidated income statement to
reflect the non-controlling interests share of the net income (loss), and a
non-controlling interest is recorded in the consolidated balance sheet to
reflect the non-controlling interests share of the net assets of the
subsidiary.
Investments in
non-consolidated affiliates
Investments in
non-consolidated affiliates are accounted for using the equity method or cost
basis depending upon the level of ownership and/or the Company's ability to
exercise significant influence over the operating and financial policies of the
investee. When the equity method is used, investments are recorded at original
cost and adjusted periodically to recognize the Company's proportionate share of
the investees' net income or losses after the date of investment. When net
losses from an investment are accounted for under the equity method exceed its
carrying amount, the investment balance is reduced to zero and additional losses
are not provided for. The Company resumes accounting for the investment under
the equity method if the entity subsequently reports net income and the
Company's share of that net income exceeds the share of net losses not
recognized during the period the equity method was suspended. Investments are
written down only when there is clear evidence that a decline in value that is
other than temporary has occurred.
The Companys investment in
Carbolosic, LLC is accounted for using the equity method of accounting. The
Company monitors its investment for impairment at least annually and make
appropriate reductions in the carrying value if it determines that an impairment
charge is required based on qualitative and quantitative information.
Impairment of Long Lived
Assets
Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable. If events or
changes in circumstances indicate that the carrying amount of an asset group may
not be recoverable, the Company compares the carrying amount of the asset group
to future undiscounted net cash flows, excluding interest costs, expected to be
generated by the asset group and their ultimate disposition. If the sum of the
undiscounted cash flows is less than the carrying value, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset
group exceeds the fair value of the asset group. Assets to be disposed of are
reported at the lower of the carrying amount or fair value, less costs to sell.
Income Taxes
The Company uses the asset
and liability method of accounting for income taxes in accordance with ASC Topic
740, Income Taxes. Under this method, income tax expense is recognized for the
amount of: (i) taxes payable or refundable for the current year and (ii)
deferred tax consequences of temporary differences resulting from matters that
have been recognized in an entitys financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the results of
operations in the period that includes the enactment date. A valuation allowance
is provided to reduce the deferred tax assets reported if based on the weight of
the available positive and negative evidence, it is more likely than not some
portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30
clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. ASC Topic
740.10.40 provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The
Company has no material uncertain tax positions for any of the reporting periods
presented.
8
Profit (Loss) per Common
Share:
Basic profit (loss) per
share amounts have been calculated using the weighted-average number of common
shares outstanding during each reporting period. Diluted loss per share has been
calculated using the weighted-average number of common shares plus the
potentially dilutive effect of securities such as outstanding options and
warrants. The computation of potential common shares has been performed using
the treasury stock method. The warrants and options are antidilutive for all
periods presented. When net loss is reported, diluted and basic net loss per
share amounts are the same as the impact of potential common shares is
antidilutive.
Fair Value Measurements
The Company adopted the
provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which
defines fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value and expands disclosure of fair value
measurements.
The estimated fair value of
certain financial instruments, payables to related parties, and accounts payable
and accrued expenses are carried at historical cost basis, which approximates
their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value
as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. ASC 820 also establishes a fair value hierarchy, which
requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. ASC 820 describes three levels
of inputs that may be used to measure fair value:
Level 1 quoted prices in
active markets for identical assets or liabilities
Level 2 quoted prices for
similar assets and liabilities in active markets or inputs that are observable
Level 3 inputs that are
unobservable (for example cash flow modeling inputs based on assumptions)
Recent Accounting
Pronouncements
From time to time, new
accounting pronouncements are issued by the Financial Accounting Standards Board
or other standard setting bodies that may have an impact on the Companys
accounting and reporting. The Company believes that such recently issued
accounting pronouncements and other authoritative guidance for which the
effective date is in the future either will not have an impact on its accounting
or reporting or that such impact will not be material to its financial position,
results of operations, and cash flows when implemented.
NOTE 4 INVESTMENT IN
UNCONSOLIDATED AFFILIATES
On December 26, 2013, AMG
Renewables, LLC, a Florida limited liability company (AMG Renewables), a
wholly-owned subsidiary of the Company, acquired the controlling interest (51%)
in AMG Energy Group, LLC a Florida limited liability company (AMG Energy) from
certain related parties. AMG Energy owns a fifty percent (50%) interest of
Carbolosic, LLC, a Delaware limited liability company (Carbolosic), which
holds an exclusive worldwide license to the University of Central Floridas
patented technology (U.S. Patent 8,062,428) known as CTS. The CTS technology
is a mechanical/chemical, dry process for converting cellulose material into
sugar for use in the biofuels industry as well as other fine chemical
manufacturing. The results of AMG Renewables and AMG Energy are consolidated in
the Companys financial statements. AMG Energys investment in Carbolosic is
accounted for using the equity method of accounting.
On May 13, 2015, The
Company entered an agreement with Carbolosic SAs shareholders whereby, among
other matters, it was agreed that ownership of Carbolosic SA shall be 43.5% for
Tes Projects (Pty) Ltd, a South African company (Tes), 24.5 % for Spearhead
Capital Ltd, a Seychelles company (Spearhead), 7.5% for Jupiter Trust, a South
African Trust (Jupiter) and 24.5% for Alliance BioEnergy Plus, Inc. TES,
Spearhead and Jupiter are all unrelated to the Company. The interests of Tes and
Jupiter are delivered in consideration of the funding or guarantee of funding of
the License Fee; Spearheads interest is in consideration of facilitating the
Sublicense transaction; and the Companys interest is in exchange for the
delivery to Carbolosic SA of a 24.5% interest in one of the Companys CTS sugar
extracting plants to be developed in the United States. The Companys investment
in Carbolosic SA is accounted for using the equity method of accounting.
9
The following is a
condensed balance sheet of the unconsolidated affiliates as of March 31, 2016
and December 31, 2015 and a comparative statement of operations for the three
months ending March 31, 2016 and 2015.
Condensed Balance Sheet
of Non-Consolidated Affiliates
|
March
31, 2016
|
|
December
31, 2015
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
49
|
|
|
$
|
83
|
|
Total Current Assets
|
|
49
|
|
|
|
83
|
|
Other Assets
|
|
|
|
|
|
|
|
Prepaid
Expenses
|
|
35,000
|
|
|
|
-
|
|
Total Other Assets
|
|
35,000
|
|
|
|
-
|
|
TOTAL ASSETS
|
$
|
35,049
|
|
|
$
|
83
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
276,092
|
|
|
$
|
238,399
|
|
Interest
payable
|
|
16,827
|
|
|
|
12,864
|
|
Current notes payable
|
|
617,748
|
|
|
|
539,189
|
|
TOTAL CURRENT LIABILITIES
|
|
910,667
|
|
|
|
790,452
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(875,618
|
)
|
|
|
(790,369
|
)
|
TOTAL EQUITY
|
|
(875,618
|
)
|
|
|
(790,369
|
)
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
|
$
|
35,049
|
|
|
$
|
83
|
|
|
Condensed Statement of Operations of
Non-Consolidated Affiliates
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
March
31, 2016
|
|
March
31, 2015
|
Revenues
|
$
|
-
|
|
|
$
|
-
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
Royalties
|
|
17,500
|
|
|
|
10,000
|
|
General
and administrative
|
|
90,132
|
|
|
|
67,002
|
|
Total
operating expenses
|
|
(107,632
|
)
|
|
|
(77,002
|
)
|
|
Other expenses
|
|
|
|
|
|
|
|
Interest
expense
|
|
3,963
|
|
|
|
2,178
|
|
Total
other expenses
|
|
(3,963
|
)
|
|
|
(2,178
|
)
|
|
|
|
|
|
|
|
|
Loss from operations
|
$
|
(111,595
|
)
|
|
$
|
(79,180
|
)
|
NOTE 5 DEBT
Short Term Notes Payable
- Related Parties
Throughout 2013, the
Company issued unsecured short-term notes payable to various related parties,
including officers and directors of the Company, with a term of one year, which
have since been extended. At March 31, 2016 there was one consolidated note
outstanding to Palm Beach Energy Solutions, LLC. The note has an outstanding
principal balance of $71,000 and bears interest at a rate of 5% per annum. As of
March 31, 2016 and December 31, 2015, the total interest accrued on the note was
$9,921 and $9,036 respectively.
Short Term Notes Payable
Other
On July 7, 2015, the
Company entered into a six month (6) promissory note with St. George
Investments, LLC with a face amount of $265,000 less an original issue discount
of $65,000. This note does not accrue interest, however in the event of default,
the note shall bear interest at the lesser of the rate of eighteen percent (18%)
per annum or the maximum rate permitted by law compounding daily. In addition, a
ten percent (10%) broker commission was paid to Wellington Shields & Co.
LLC, which is being amortized over the life of the note. In January 2016, the
company repaid this note in full. The total amount paid was $306,890, which
represented a $265,000 principal balance and $41,890 in default interest and
early payment penalties.
10
Long Term Notes Payable
Other
During the year ended
December 31, 2014, Carbolosic Plant 1, LLC, a wholly owned subsidiary, entered
into an agreement with Carbolosic Energy 1, LLLP to begin receiving long term
loans, pursuant to the U.S. EB-5 Immigrant Investor Program, to develop a CTS
demonstration facility. These loans were to be issued in multiple advances, each
in an amount greater than or equal to $500,000 up to the target loan amount of
$33,000,000. The initial term on each of these loans was five (5) years from the
date of each advance and bear interest at a rate of 4.31% per annum. The Company
could earn a 0.51% rate discount if the first five years of interest due to
lender was paid within 15 days of each advance. In addition, these loans could
not be prepaid and were secured by all assets of the Company. The Company
received two (2) long term notes payable, with a combined principal balance of
$1,250,000 in the year ended December 31, 2014. The company had taken advantage
of the 0.51% rate discount on one of these notes payable, with a principal
amount of $500,000, and issued a $95,000 interest payment to the Lender on
December 9, 2014. In January 2015, the Company made a $4,162 interest payment
towards the second note. In March 2016, Carbolosic Plant 1 was sold to
Carbolosic Energy 1, LLLP, a non-related third party, in exchange for
satisfaction of the outstanding $1,250,000 loan and $36,488 interest. In
connection with the transaction, an amount which the Company had prepaid to
Carbolosic Energy 1, LLLP ($122,879) for future marketing and interest was
eliminated in the sale.
Convertible Debt
On June 30, 2015, the
Company entered into a convertible debenture with Iconic Holdings, LLC with a
principal balance of $165,000 due on or before June 30, 2016. This note provided
for guaranteed interest of ten percent (10.0%) of the principal balance
outstanding. In addition to the guaranteed interest, in the event of default
additional interest would accrue at the rate equal to the lower of eighteen
percent (18.0%) per annum or the highest rate permitted by law. This note could
only be prepaid within the first 180 days along with a prepayment penalty of one
hundred ten percent (110%) and increasing ten percent (10%) every sixty (60)
days to a maximum of one hundred thirty percent (130%). After 180 days, the note
could be converted into the Companys common stock at a conversion rate equal to
sixty percent (60%) of the lowest trading price during the preceding 15
consecutive trading days prior to date of conversion. In addition, in order to
obtain this note, the Company issued Iconic Holdings, LLC a five (5) year common
stock purchase warrant agreement for up to 50,000 shares with an exercise price
of $0.75 per share. These warrants were fully granted and vested at time of
issuance and are being amortized over the life of the agreement. In January
2016, Iconic Holdings, LLC converted $95,000 of the principal balance into
891,042 shares of unrestricted common stock and the remaining balance of the
note was repaid in full. The total amount paid was $140,950, which represented a
$70,000 principal payment and $70,950 in interest and early payment penalties.
On July 10, 2015, the
Company entered into a convertible debenture with JSJ Investments, Inc with a
principal balance of $150,000 due on or before January 10, 2016. The note
accrues interest at a rate of twelve percent (12%) per annum and is convertible
into the Companys common stock one hundred eighty (180) days after the maturity
date, in whole or in part at the option of the holder at a conversion price
equal to the lower of $0.24 or the lowest trading day price during the twenty
(20) trading days preceding the conversion date, less a forty-five percent (45%)
discount. After the maturity date, the note cannot be repaid without the
holders consent and the payment premium increases to one hundred fifty percent
(150%). Upon an event of default or after the maturity date, the interest rate
shall adjust to eighteen percent (18%) per annum and compound quarterly. In
addition, a ten percent (10%) broker commission was paid to Wellington Shields
& Co. LLC, which is being amortized over the life of the note. In January
2016, JSJ Investments attempted to convert a portion of the debt in violation of
a mutually agreed upon amendment to the note and mutually agreed upon standstill
agreement between the Company and JSJ Investments. The shares in question were
returned and cancelled after being notified by the Companys attorney. In March
2016, JSJ Investments made a second attempt to convert a portion of its debt in
violation of the mutually agreed upon amendment to the note. Shares were not
converted this time. A third attempt, made in late March 2016, converted $25,000
for 195,924 shares of unrestricted common stock. The conversion violated the
terms of the debt agreement and the Company and its counsel have notified JSJ of
the violation of the agreement and have recouped all of the issued
shares. In April 2016, the Company paid the debenture in full with a payment of
$239,055, which represented a $150,000 principal payment and $89,055 in interest
and penalties.
11
On July 10, 2015 the
Company entered into a secured convertible debenture with Group 10 Holdings, LLC
with a principal balance of $275,000, less a ten percent (10%) original issue
discount and was due on or before July 10, 2016. Group10 Holdings, LLC was
granted a security interest in the South African agreement sub-licensed by AMG
Energy Group. This note accrued interest at a rate of twelve percent (12%) per
annum and was convertible into the Company common stock one hundred eighty (180)
days after the issuance date in whole or in part at the option of the holder at
a conversion price equal to forty-two cents ($0.42); provided, however, that if
the closing price was less than forty cents ($0.40) for any three (3)
consecutive trading days, then the conversion price shall adjust to the lowest
trading day price during the thirty-five (35) trading days prior, less a
forty-five percent (45%) discount. Repayment of the note included a prepayment
penalty if the note was paid back within the first one hundred eighty (180) days
and could not be repaid after day one hundred eighty (180) without the holders
consent. The prepayment penalty if paid back within the first ninety (90) days
was equal to one hundred five percent (105%) of the principal balance; paid
between day ninety-one (91) and day one hundred twenty (120) the prepayment
penalty was equal to one hundred fifteen percent (115%) of the principal
balance; paid between day one hundred twenty-one (121) and day one hundred
seventy-nine (179) the prepayment penalty increased to one hundred twenty-five
percent (125%) of the principal balance. In addition, a ten percent (10%) broker
commission was paid to Wellington Shields & Co. LLC, which is being
amortized over the life of the note. In January 2016, Group 10 Holdings, LLC
converted $20,000 of its principal balance into 157,418 shares of unrestricted
common stock and the Company paid the remaining debenture in full with a payment
of $340,468, which represented a $255,000 principal payment and $85,068 in
interest and early payment penalties.
On July 27, 2015, the
Company entered into a convertible debenture with Adar Bays, LLC with a
principal balance of $100,000 due on or before March 27, 2016. The note accrued
interest at a rate of eight percent (8%) per annum and was convertible into the
Companys common stock commencing on the 6 month anniversary of the note, in
whole or in part at the option of the holder at a conversion price equal to
sixty percent (60%) of the lowest trading day price during the twenty (20)
trading days preceding the conversion date. The note also carried a payment
premium, wherein if the note was paid before the ninetieth (90) day, then a
premium of one hundred thirty-five percent (135%) in addition to outstanding
interest was due. If paid between day ninety-one (91) and one hundred fifty-one
(151) the premium increased to one hundred forty percent (140%) and if paid
between day one hundred fifty-two (152) and the maturity date, then the premium
increased to one hundred forty-five percent (145%). After the maturity date, the
note could not be repaid without the holders consent and the payment premium
increased to one hundred fifty percent (150%). Upon an event of default or after
the maturity date, the outstanding principal due shall increase by ten percent
(10%) and the interest rate shall adjust to twenty-four percent (24%) per annum.
In addition, a ten percent (10%) broker commission was paid to Wellington
Shields & Co. LLC, which is being amortized over the life of the note. In
January 2016, the Company paid the debenture in full with a payment of $149,022,
which represented a $100,000 principal payment and $49,022 in interest and early
payment penalties.
On July 27, 2015, the
Company entered into a convertible debenture with Union Capital, LLC with a
principal balance of $100,000 due on or before March 27, 2016. The note accrued
interest at a rate of eight percent (8%) per annum and was convertible into the
Companys common stock commencing on the 6 month anniversary of the note, in
whole or in part at the option of the holder at a conversion price equal to
sixty percent (60%) of the lowest trading day price during the twenty (20)
trading days preceding the conversion date. The note also carried a payment
premium, wherein if the note was paid before the ninetieth (90) day, then a
premium of one hundred thirty-five percent (135%) in addition to outstanding
interest was due. If paid between day ninety-one (91) and one hundred fifty-one
(151) the premium increased to one hundred forty percent (140%) and if paid
between day one hundred fifty-two (152) and the maturity date, then the premium
increased to one hundred forty-five percent (145%). After the maturity date, the
note could not be repaid without the holders consent and the payment premium
increased to one hundred fifty percent (150%). Upon an event of default or after
the maturity date, the outstanding principal due shall increase by ten percent
(10%) and the interest rate shall adjust to twenty-four percent (24%) per annum.
In addition, a ten percent (10%) broker commission was paid to Wellington
Shields & Co. LLC, which is being amortized over the life of the note. In
January 2016, the Company paid the debenture in full with a payment of $148,748,
which represented a $100,000 principal payment and $48,748 in interest and early
payment penalties.
On July 27, 2015, the
Company entered into a convertible debenture with LG Capital Funding, LLC with a
principal balance of $105,000 due on or before March 27, 2016. The note accrued
interest at a rate of eight percent (8%) per annum and was convertible into the
Companys common stock commencing on the 6 month anniversary of the note, in
whole or in part at the option of the holder at a conversion price equal to
sixty percent (60%) of the lowest trading day price during the fifteen (15)
trading days preceding the conversion date. The note also carried a payment
premium, wherein if the note was paid before the ninetieth (90) day, then a
premium of one hundred thirty-five percent (135%) in addition to outstanding
interest was due. If paid between day ninety-one (91) and one hundred fifty-one
(151) the premium increased to one hundred forty percent (140%) and if paid
between day one hundred fifty-two (152) and the maturity date, then the premium
increased to one hundred forty-five percent (145%). After the maturity date, the
note could not be repaid without the holders consent and the payment premium
increased to one hundred fifty percent (150%). Upon an event of default or after
the maturity date, the outstanding principal due shall increase by ten percent
(10%) and the interest rate shall adjust to twenty-four percent (24%) per annum.
In addition, a ten percent (10%) broker commission was paid to Wellington
Shields & Co. LLC, which is being amortized over the life of the note. In
January 2016, the Company paid the debenture in full with a payment of $156,462,
which represented a $105,000 principal payment and $51,462 in interest and early
payment penalties.
12
On August 10, 2015, the
Company entered into a convertible debenture with Vis Vires Group, Inc. with a
principal balance of $104,000 due and payable on or before May 4, 2016. The note
accrued interest at a rate of eight percent (8.0%) per annum and was convertible
into the Companys common stock, after 180 days, in whole or in part at the
option of the holder at a conversion rate equal to the average of the three (3)
lowest trading day prices during the ten (10) trading days preceding the
conversion date, less a thirty-nine percent (39%) discount. The note also
carried a prepayment penalty of one hundred thirty percent (130%) of the then
outstanding principal and interest balance due, if the note was paid back within
the first one hundred eighty (180) days. After the first 180 days, the then
outstanding principal and interest balance shall bear interest at a rate of
twenty-two percent (22.0%) per annum and could not be paid until maturity. In
January 2016, the Company paid the note in full with a payment of $139,303,
which represented a $104,000 principal payment and $35,303 in interest and early
payment penalties.
NOTE 6 STOCKHOLDERS
EQUITY
In November 2015, the
Company commenced a new offering of units valued at eight-five (85%) percent of
the average of the last three days closing market share price. Each unit
consists of one (1) share of common stock, one (1) three-year Series C warrant
convertible to .5 common share at an exercise price of $0.45 and one (1)
three-year series D warrant convertible to .5 common share at an exercise price
of $0.65. At December 31, 2015, the Company had sold 960,897 units for aggregate
proceeds of $312,000. During the three months ended March 31, 2016 the company
sold an additional 500,000 units for aggregate proceeds of $89,000. The offering
is ongoing.
During the three months
ended March 31, 2016, an additional $115,000 of the Companys convertible debt
converted to 1,048,460 shares of common stock. The company assesses the value of
the beneficial conversion feature of its convertible debt by determining the
intrinsic value of such conversions, under ASC 470, at the time of issuance. At
the time of issuance of the convertible debt instruments set out above, the fair
value of the stock was greater than the conversion price, and therefore a total
value of $218,301 was attributed to the beneficial conversion feature.
In January 2016, the
Company commenced a new offering of units valued at $0.24 per share. Each unit
consist of one (1) share of common stock and one (1) five-year Series E warrant
convertible to one (1) common share at an exercise price of $0.45. During the
three months ended March 31, 2016, the Company has sold 1,225,001 units for
aggregate proceeds of $294,000. The offering is ongoing.
In March 2016, the Company
commenced a new offering of units valued at $765,735. Each unit consists of
three million seven hundred seventeen thousand seven hundred eighty-five
(3,717,785) shares of common stock and four million five hundred thousand
(4,500,000) five-year series F warrants convertible to one (1) share of common
stock each at an exercise price of $0.25. As of the date of filing, the Company
has sold 2 units totaling 7,435,570 shares of common stock and 9,000,000
warrants for aggregate proceeds of $1,531,470.
During the three months
ended March 31, 2016, the Company issued 415,000 shares of Company common stock
for services valued at $164,500.
During the three months
ended March 31, 2016, the Company issued an aggregate of 425,000 warrants for
services. Using a Black-Scholes asset pricing model, these warrants were valued
at $129,572. These warrant agreements have terms ranging from three years (3) to
five years (5) with exercise prices ranging from forty-five cents ($0.45) to two
dollars ($2.00) per share.
During the three months
ended March 31, 2016, the Company issued options to its independent directors to
purchase an aggregate of 35,400 shares of common stock for a period of three (3)
years at an average exercise price of $0.45. In addition, the Company also
approved employee stock options to purchase 250,000 shares of common stock at an
average exercise price of $0.30 and a term of five (5) years. In addition,
333,334 options issued under an employment agreement became fully vested. Using
a Black-Scholes asset pricing model, these agreements were valued at $190,720.
During the three months
ended March 31, 2016, the Company received $6,526 in disgorgement from certain
shareholders and officers.
NOTE 7 SEGMENT
INFORMATION
The company operates in one
segment and does not have any revenue to date.
NOTE 8 - COMMITMENTS AND
CONTINGENCIES
Lease
The Company has leased
office space pursuant to a lease for a period of thirty-six (36) months from
August 5, 2015 through July 31, 2018. Annual rent commenced at approximately
$48,925 per annum and increases on a year-to-year basis by three percent (3%)
over the Base Year. In addition, the Company is obligated to pay an amount equal
to 3.76% of the operating expenses of the building together with sales tax on
all amounts.
13
EK Laboratories leases
office and warehouse space in Longwood, FL, which serves as the Companys
research and demonstration facility. The lease period is for thirty-six (36)
months from February 1, 2015 through January 31, 2018. Annual rent commences at
approximately $70,620 per annum and increases on a year-to-year basis by five
percent (5%) over the prior year. The Company also has the right to purchase the
property during the lease term.
Rent expense for the three
months ended March 31, 2016 and March 31, 2015 was $31,496 and $34,428
respectively.
NOTE 9 RELATED PARTY
TRANSACTIONS
Related
Transactions
1) Mark W. Koch, Daniel de
Liege and Johan Sturm are principals of AMG Energy Solutions, Inc, which owns
43% of AMG Energy Group, LLC. The company owns the remaining 51% of AMG Energy
Group, LLC (see NOTE 4, above). Mark W. Koch and Johan Sturm are greater than 5%
shareholders in the Company.
2) Short-term notes payable
issued to related parties are described in NOTE 5.
3) In January 2015, the
Company entered into a consulting agreement with a company owned by Mark W. Koch
named Prelude Motorsports, Inc, which calls for semi-monthly payments of
$10,000. Under the terms of the consulting agreement, the consultant will review
and provide input on a variety of areas including corporate structure, marketing
materials, website and promotional pieces; provide introductions to various
organizations and individuals who might support the Companys business
development efforts.
The officers and directors
for the Company are involved in other business activities and may, in the
future, become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between the Company and their other business interest. The Company has not
formulated a policy for the resolution of such conflicts.
NOTE 10 DISCONTINUED
OPERATIONS
On September 1, 2014, the
Company determined the need to focus its resources and personnel on the
Companys renewable energy holdings and future energy technologies and to divest
the company of its entertainment-related assets and subsidiaries. The principal
reasons for such action is the expense, liability and losses that have been
generated by the entertainment-related assets and to provide a clear focus and
direction to the Company moving forward. Specifically, the Board approved the
divesting, selling off, closing down or discontinuing of the operations of its
entertainment-related subsidiaries, including but not limited to Prelude
Pictures Entertainment, LLC, AMG Live, LLC, AMG Restaurant Operations, LLC
(including The New York Sandwich Company, LLC), AMG Music, LLC, AMG Releasing,
LLC and AMG Television, LLC.
14
Below is a reconciliation
of the total assets and liabilities of the discontinued operations, which are
presented separately on the balance sheet.
|
March 31,
|
|
December 31,
|
|
2016
|
|
2015
|
Carrying amounts of major classes of
assets included as part of discontinued
|
|
|
|
|
|
operations
|
|
|
|
|
|
Prepaid
expenses
|
|
-
|
|
|
-
|
Total assets of the discontinued
operation
|
$
|
-
|
|
$
|
-
|
|
Carrying amounts of major classes of
liabilities included as part of discontinued
|
|
|
|
|
|
operations
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
36,148
|
|
$
|
36,148
|
Total liabilities of the discontinued
operation
|
$
|
36,148
|
|
$
|
36,148
|
Below is a reconciliation
of the net loss of the discontinued operations, which are presented separately
on the statement of operations.
|
Three months ended
|
|
March
31,
|
|
March
31,
|
|
2016
|
|
2015
|
Major line items constituting pretax
profit (loss) of discontinued operations
|
|
|
|
|
|
|
|
Revenue
|
|
-
|
|
|
|
-
|
|
Selling,
general and administrative
|
|
(3,198
|
)
|
|
|
(21,640
|
)
|
Debt
forgiveness from legal settlement
|
|
-
|
|
|
|
700,000
|
|
Gain (Loss) from discontinued
operations
|
$
|
(3,198
|
)
|
|
$
|
678,360
|
|
NOTE 11 SUBSEQUENT
EVENTS
The Company has evaluated
subsequent events through the date the financial statements were available to be
issued. Based on this evaluation, the Company has identified the following
subsequent events:
Since April 1, 2016, the Company has issued 250,000 shares of common stock for services valued at $65,000.
Since April 1, 2016, the
Company has issued an aggregate of 510,000 warrants for services. Using a
Black-Scholes asset pricing model, these warrants were valued at $123,845. These
warrant agreements have a term of five years (5) and an exercise price of
forty-five cents ($0.45) per share.
Since April 1, 2016, the
Company has sold 208,433 units for aggregate proceeds of 50,024 through its
January 2016 offering.
On April 20, 2016 the entered into an agreement with the newly formed
innovative technology fund of JMJ Financial Group, out of their California office. The Agreement provides a line of credit
to the Company of up to $1,000,000 and may be drawn down over the course of one year and that the Company issue one million
three hundred eighty eight thousand eight hundred and eighty six warrants with a five year term and cashless exercise price
equal to the lesser of $.30 per share or the lowest trade price in the preceding ten trading days. Using a Black-Scholes
asset-pricing model, these warrants were valued at $352,878. The terms of the agreement provide that any draw be in the form
of a convertible note that matures at twelve months and carries a one-time interest rate of ten percent. Ninety eight
percent of the notes may be paid early at one hundred and eighty days from their issuance for an early payment penalty of
thirty percent. After one hundred and eighty days repayment requires the holders consent. The notes may be converted into
shares of the Company at a discount of twenty five percent to the lowest trade price in the preceding ten days, only after
180 days from the Effective Date of the Agreement. The notes also carry a one-time ten percent original issue discount.
On April 25, 2016 the
Company drew $500,000 against the aforementioned agreement under the terms and
conditions previously disclosed.
On April 25, 2016, the
Company repaid its convertible debenture with JSJ Investments, Inc. The total
amount paid was $239,055 representing a $150,000 principal payment and $89,055
in interest and penalties.
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion
should be read in conjunction with our unaudited financial statements and the
notes thereto.
15
Forward-Looking
Statements
This quarterly report
contains forward-looking statements and information relating to the Company that
are based on the beliefs of its management as well as assumptions made by, and
information currently available to, its management. When used in this report,
the words "believe," "anticipate," "expect," "estimate," intend, plan and
similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. These statements reflect
management's current view of the Company concerning future events and are
subject to certain risks, uncertainties and assumptions, including among many
others: a general economic downturn; a downturn in the securities markets;
federal or state laws or regulations having an adverse effect on proposed
transactions that the Company desires to effect; Securities and Exchange
Commission regulations which affect trading in the securities of "penny stocks";
and other risks and uncertainties. Should any of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in this report as anticipated,
estimated or expected. The accompanying information contained in this
registration statement, including, without limitation, the information set forth
under the heading Managements Discussion and Analysis and Plan of Operation --
Risk Factors" identifies important additional factors that could materially
adversely affect actual results and performance. You are urged to carefully
consider these factors. All forward-looking statements attributable to the
Company are expressly qualified in their entirety by the foregoing cautionary
statement.
Business
Overview
Alliance Bioenergy Plus,
Inc (the Company) is a technology company focused on emerging technologies in
the renewable energy, biofuels and new technologies sectors. From inception
through December 5, 2014, the Company was known as Alliance Media Group
Holdings, Inc. At inception (March 28, 2012), the Company was organized as a
vehicle to engage in the commercial production, distribution and exploitation of
Motion Pictures and other Entertainment products. However, in December 2013, a
wholly owned subsidiary of the Company, AMG Renewables, LLC (AMG Renewables),
acquired the controlling interest (51%) in AMG Energy Group, LLC (AMG Energy),
which owns a fifty percent (50%) interest of Carbolosic, LLC (Carbolosic),
which holds an exclusive worldwide license to the University of Central
Floridas patented technology (U.S. Patent 8,062,428) known as CTS. The CTS
technology is a mechanical/chemical, dry process for converting cellulose
material into sugar for use in the biofuels industry as well as other fine
chemical manufacturing. The Companys goal in acquiring the interest in AMG
Energy is to develop the CTS technology to a commercial scale and then seek to
license the technology to prospective licensees. In September 2014, the Company
determined to focus all of the Companys resources and personnel on the
Companys renewable energy holdings and future energy technologies and to divest
the Company of its entertainment-related assets and subsidiaries. The principal
reason for such action was the recognition that the Companys
entertainment-related assets were generating substantial losses and contributing
little value compared to the potential management saw in the energy-related
activities and to provide a clear focus and direction to the Company moving
forward. The Company therefore determined at that time to divest and sell off,
close down or discontinue the operations of its entertainment-related
subsidiaries. Subsequently, the Company determined that the name Alliance Media
Group Holdings, Inc. was no longer relevant to the new business direction of the
Company and, effective December 5, 2014, amended the Companys Articles of
Incorporation to change the name of the Company to Alliance Bioenergy Plus,
Inc., which is more appropriately descriptive of the new business direction of
the Company.
Plan of Operation
The Company is focused on
one industry Renewable Energy. Through its wholly-owned subsidiary, AMG
Renewables, LLC, which in turn owns controlling interests in AMG Energy Group,
LLC, and EK Laboratories, Inc., the Company has a strategy that includes growth
in its energy-related activities as well as mergers and acquisitions and
start-up activities which are focused on development of an increasing revenue
stream, secure market share and enhancement of shareholder value.
AMG RENEWABLES,
LLC
AMG Renewables, LLC, a
Florida limited liability company (AMG Renewables), is a wholly-owned
subsidiary of the Company, created for the purpose of managing and developing
the Companys renewable energy technology enterprises. AMG Renewables has two
majority owned subsidiaries, AMG Energy Group, LLC, a Florida limited liability
company (AMG Energy) and Ek Laboratories, Inc, a Florida corporation
(EK).
●
|
On December 26, 2013, AMG Renewables acquired
the controlling interest (51%) in AMG Energy Group from
certain related parties for a consideration comprising
$2,200,000 cash and delivery of 7,266,000 shares of
Company Common Stock. In connection with the transaction, an
amount which the Company owed to AMG
Energy ($214,894) for
various loans and consulting fees was eliminated in the acquisition. On
December 26,
2013, 7,000,000 shares of Company
common stock were delivered to AMG Energy Solutions, Inc. (a related
party) and the remaining 266,000 shares of Company common stock were
delivered on June 18, 2014 to
Wellington Asset Holdings, Inc. As
of the date of filing, the Company has paid $168,742 of the $2,200,000
cash
payable on account of this transaction, and as of such date,
has not yet paid the remaining amount, which amount
has
been recorded on the books of the Company as a related party payable
relating to an acquisition.
|
16
●
|
Carbolosic Plant 1, LLC was created in October 2014 as a
wholly owned subsidiary of AMG Renewables for the
purpose of being a full scale facility for converting
cellulose material into sugar for use in the biofuels industry as
well as other fine chemical manufacturing. In March 2016,
Carbolosic Plant 1 was sold to Carbolosic Energy 1,
LLLP, a non-related third party, in exchange for satisfaction
of the outstanding $1,250,000 loan and $36,488
interest between Carbolosic Plant 1 and Carbolosic Energy 1,
LLLP. In connection with the transaction, an
amount which the Company had prepaid to Carbolosic Energy 1,
LLLP ($122,879) for future marketing and
interest was eliminated in the sale.
|
|
|
●
|
AMG Energy owns a fifty percent (50%) interest of
Carbolosic, LLC, a Delaware limited liability company
(Carbolosic), which holds an exclusive worldwide license to
the University of Central Floridas patented
technology (U.S. Patent 8,062,428) known as CTS. The CTS
technology is a mechanical/chemical, dry
process for converting cellulose material into sugar for use
in the biofuels industry as well as other fine chemical
manufacturing. The Companys goal is to develop this CTS
technology to a commercial scale and then seek to
license the technology to prospective licensees.
|
|
|
|
On May 13, 2015, AMG Energy entered into a series of
agreements with various unrelated third parties, wherein
AMG
Energy sublicensed the CTS technology to Naldogen (Pty) Ltd., an existing
South African company, which
will be renamed Carbolosic Energy
SA PTY LTD (Carbolosic SA). Carbolosic SA shall be solely devoted to
exploitation of the CTS technology in South Africa, Lesotho,
Swaziland and Botswana and the term of the
sublicense is coterminous with the master license (i.e.
through July 1, 2032). The consideration for the grant of the
sublicense is $25,000,000 (License Fee), which was to be
paid or guaranteed by March 1, 2016. In addition to
the
license fee, the sublicense holder will pay AMG Energy a royalty of 3.5%
of the revenues on the first CTS
plant developed and a 5.0%
royalty on the revenues of additional plants developed. Until the
$25,000,000
payment has been received, the
Company does not consider all of the events required under the agreement
to have
been completed. Therefore the
Company has not recorded and of the fee in the accompanying financial
statements.
|
|
|
|
Contemporaneously, Carbolosic SAs shareholders entered
into an agreement whereby, among other matters, it
was
agreed that ownership of Carbolosic SA shall be 43.5% for Tes Projects
(Pty) Ltd, a South African company
(Tes), 24.5 % for
Spearhead Capital Ltd, a Seychelles company (Spearhead), 7.5% for
Jupiter Trust, a South
African Trust (Jupiter) and
24.5% for Alliance BioEnergy Plus, Inc. TES, Spearhead and Jupiter are all
unrelated to the Company. The interests of Tes and Jupiter
are delivered in consideration of the funding or
guarantee of funding of the License Fee; Spearheads interest
is in consideration of facilitating the Sublicense
transaction; and the Companys interest is in exchange for
the delivery to Carbolosic SA of a 24.5% interest in
one
of the Companys CTS sugar extracting plants to be developed in the United
States.
|
|
|
|
In February 2016, due to economic and political turmoil in
South Africa, members of Tes Projects (Pty) Ltd and
Jupiter Trust resigned from management and from the Board of
Carbolosic SA and returned all ownership interest
in
Carbolosic SA to the Carbolosic SA treasury. Spearhead Capital intends to
continue operations of Carbolosic
SA but at this time there
is no guarantee that they will be successful in securing the needed funds
or contracts to
do so. The Company will evaluate
its position in Africa in the coming months and decide on a path
forward.
|
|
|
|
On July 29, 2015, Alliance BioEnergy Plus, Inc. (the
Company) entered into two agreements with Renewable
Resources Development of America, LLC (RRDA) related to the
development of facilities by RRDA in North
and
South America which will utilize the Companys Cellulose to Sugar (CTS)
technology. RRDA is engaged
in construction and finance of
facilities for municipal solid waste recovery and plastics, metals and
paper
recycling, chemical extraction
from ore for manufacturing and cellulose material conversion into sugars
for
manufacture of bio-fuels, bio-plastics and other products. In
connection with its business plan, RRDA is
developing facilities using cellulose conversion
technology.
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In this regard, the Company and RRDA entered into a
Non-Exclusive Development Agreement (Development
Agreement) pursuant to which RRDA will utilize the CTS
technology in the plants it develops. Under the
Development Agreement, the Company would license its
intellectual property to RRDA and provide certain
consulting and educational services to RRDA. The specific
terms of the license have yet to be determined. It is
currently RRDAs plan to develop up to 56
plants.
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In addition, the Company and RRDA simultaneously entered into a Finance Agreement
(Finance Agreement)
pursuant to which the Company
would receive $4 million cash in exchange for the following: (a) RRDA shall receive a number of shares of Company Common
Stock such that at the closing of the financing RRDA would own ten percent (10%) of the number of issued and outstanding
shares of the Common Stock of the Company; (b) RRDA would receive a Warrant to purchase two (2) million shares of Company
Common Stock on terms to be agreed; (c) the license fee payable to the Company on account of the first plant being developed
by RRDA in Georgia would be waived and (d) RRDA will designate two (2) persons to be appointed to the Companys Board of
Directors.
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In March 2016, the Company
canceled the Finance Agreement with RRDA due to a lack of funding in a
timely
manner. The Development Agreement remains in
effect and any opportunities brought to the Company under this
agreement will be subject to the same terms and
conditions as any other license opportunity, including the
proposed plant in Vidalia,
Georgia.
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EK, was created in December 2014 under the name
Central Florida Institute of Science and Technology, Inc. and
changed its name to Ek Laboratories, Inc. on
June 05, 2015. EK was formed as a wholly owned subsidiary of
AMG
Energy, to serve as a demonstration and research facility to further
develop the CTS process, its uses, and
develop new
technologies.
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The Company believes that
its management and consultants have significant experience in the bio-fuels,
renewable energy and chemical manufacturing industries. As of this date, the
Company has not generated any revenues from its renewable energy business.
Capital Formation
From January 1, 2016
through the date of filing, the Company has issued 665,000 shares of Company
common stock for services valued at $229,500.
From January 1, 2016
through the date of filing, the Company issued an aggregate of 935,000 warrants
for services. Using a Black-Scholes asset pricing model, these warrants were
valued at $253,417. These warrant agreements have terms of five years (5) with
exercise prices ranging from forty-five cents ($0.45) to two dollars ($2.00) per
share.
From January 1, 2016
through the date of filing, the Company issued options to its independent
directors to purchase an aggregate of 35,400 shares of common stock for a period
of three (3) years at an average exercise price of $0.45. In addition, the
Company also approved employee stock options to purchase 250,000 shares of
common stock at an average exercise price of $0.35 and a five year (5) term. In
addition, 333,334 options became fully vested during the period. Using a
Black-Scholes asset pricing model, these agreements were valued at $190,720.
In November 2015, the
Company commenced a new offering of units valued at eight-five (85%) percent of
the average of the last three days closing market share price. Each unit
consists of one (1) share of common stock, one (1) three-year Series C warrant
convertible to .5 common share at an exercise price of $0.45 and one (1)
three-year series D warrant convertible to .5 common share at an exercise price
of $0.65. From January 1, 2016 through the date of filing, the company has sold
500,000 units for aggregate proceeds of $89,000. The offering is ongoing.
In January 2016, the
Company commenced a new offering of units valued at $0.24 per share. Each unit
consist of one (1) share of common stock and one (1) five-year Series E warrant
convertible to one (1) common share at an exercise price of $0.45. As of the
date of filing, the Company has sold 1,433,434 units for aggregate proceeds of
$344,024. The offering is ongoing.
In March 2016, the Company
commenced a new offering of units valued at $765,735. Each unit consists of
three million seven hundred seventeen thousand seven hundred eighty-five
(3,717,785) shares of common stock and four million five hundred thousand
(4,500,000) five-year series F warrants convertible to one (1) share of common
stock each at an exercise price of $0.25. As of the date of filing, the Company
has sold 2 units totaling 7,435,570 shares of common stock and 9,000,000
warrants for aggregate proceeds of $1,531,470.
From January 1, 2016
through the date of filing, $115,000 of the Companys convertible debt converted
to 1,048,460 shares of common stock. The company assesses the value of the
beneficial conversion feature of its convertible debt by determining the
intrinsic value of such conversions, under ASC 470, at the time of issuance. At
the time of issuance of the convertible debt instruments set out above, the fair
value of the stock was greater than the conversion price, and therefore a total
value of $218,301 was attributed to the beneficial conversion feature.
18
In April 2016, the Company
issued 1,388,886 warrants to acquire a convertible note. Each warrant is
convertible into one (1) share of common stock at an exercise price of $0.30 per
share or the lowest trade price in the preceding 10 trading days. The term on
these warrants is 5 years. Using a Black-Sholes asset pricing model, the
warrants were valued at $352,878.
Going
Concern
The Company has incurred
losses since inception, has a working capital deficiency, and may be unable to
raise further equity. At March 31, 2016 the Company had a working capital
deficiency of $2,245,707 and had incurred accumulated losses of $17,738,528
since its inception. The Company expects to incur significant additional losses
in connection with its continued start-up activities. As a result, the report of
the Companys independent registered public accounting firm on the Companys
financial statements for the period ended December 31, 2015 contains an emphasis
of matter paragraph regarding the Companys ability to continue as a going
concern based upon recurring operating losses and its need to obtain additional
financing to sustain operations. The Companys ability to continue as a going
concern is dependent upon its ability to obtain the necessary financing to meet
its obligations and repay its liabilities when they become due and to generate
sufficient revenues from its operations to pay its operating expenses.
Furthermore, these Financial Statements do not include any adjustments related
to the recoverability and classifications of recorded asset amounts, or amounts
and classifications of liabilities that might result from this
uncertainty.
Through its private
offerings, the Company raised $1,162,209 for the year ended December 31, 2015
and an additional $1,914,470 in the three months ended March 31,
2016.
Results of
Operations
Comparison of the
period ended March 31, 2016 to March 31, 2015
For the three months ended
March 31, 2016, the Companys general and administrative expenses increased by
approximately $262,368 to $1,281,623 from $1,019,255 in the three months ended
March 31, 2015. This increase is primarily the result of a $291,930 increase in
professional fees, $80,349 increase in loan fees and $37,367 increase in
marketing fees, while simultaneously decreasing payroll expense by $150,615 and
decreasing travel $16,696. Of the $1,280,066 general and administrative expense,
approximately 60% or $763,989 is non-cash equity compensation.
Interest expense increased
in the three months ended March 31, 2016 by approximately $414,012 to $428,985
from $14,973 during the three months ended March 31, 2015. The increase was the
result of $401,661 in early payment penalties and $27,324 interest accrued on
notes payable.
For the three months ended
March 31, 2016, the Companys equity loss in its unconsolidated affiliates
increased $1,740 to $41,330 from $39,590 during the three months ended March 31,
2015.
The Companys discontinued
operations showed a loss of $3,198 for the three months ended March 31, 2016,
compared to a $678,360 gain incurred in the three months ended March 31, 2015.
This loss was the result of legal fees in connection with ongoing litigation.
These amounts are the result of the Companys decision in September 2014 to
divest the Company of its entertainment-related assets and subsidiaries and to
focus all of the Companys resources and personnel on the Companys renewable
energy holdings and future energy technologies.
Research and development
(R&D) expenses for the three months ended March 31, 2016 were $4,234 as
opposed to zero for the three months ended March 31, 2015. The increase in
R&D expenses is the result of the opening of Ek Laboratories, Inc. in June
2015 and its purchases of gasses and other fine grade materials used in the CTS
process.
Liquidity and Capital
Resources
Liquidity
As of March 31, 2016 the
Company had $61,164 in cash and total stockholders equity was $6,197,642. Total
debt from continuing operations, including advances, accounts payable and other
notes payable at March 31, 2016, together with interest payable thereon, was
$2,626,294 a decrease of $2,470,388 from $5,096,682 at December 31, 2015. This
decrease is attributable to the satisfaction of $1,250,000 in long term debt and
the repayment of $1,114,000 in convertible debt.
During the three months
ended March 31, 2016, the Companys continuing operating activities used
$832,240 in cash. This use can be attributed to the sale of Carbolosic
Plant 1 which resulted in an aggregate net amount of $1,163,609.
19
During the three months
ended March 31, 2016 the Companys investing activities used $87,448 in cash,
which $81,249 was advanced to Carbolosic, LLC mainly for payment of the minimum
annual royalty.
During the three months
ended March 31, 2016, the Company generated $921,996 through its financing activities.
This can primarily be attributed to the retirement of $734,000 in convertible debt and $265,000 in notes payable, while simultaneously raising $1,914,470
through its ongoing offerings.
Capital
Resources
At this time, the Company
has limited liquidity and capital resources. To continue funding the Companys
operations, the company will need to generate revenue and/or will require
additional funding for ongoing operations and to finance such projects it may
identify. As of March 31, 2016, the Company has raised $1,914,470 in addition to
$3,730,390 raised through December 31, 2015 for a total of $5,644,860 through
its private placement offerings. However, there is no guarantee that the company
will be able to raise any additional capital on terms acceptable to the
Company.
The inability to obtain
this funding either in the near term and/or longer term will materially affect
the ability of the Company to implement its business plan of operations and
jeopardize the viability of the Company. In that case, the Company may need to
reevaluate and revise its operations.
Critical Accounting
Policies
Basis of
Presentation
The accompanying
consolidated financial statements of the Company were prepared in accordance
with generally accepted accounting principles in the U.S. (U.S. GAAP) for
interim financial information set forth in Regulation S-X and include the
assets, liabilities, revenues and expenses of the Companys majority-owned
subsidiaries over which the Company exercises control. Intercompany transactions
and balances were eliminated in consolidation. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements. In the
opinion of management, all adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation, have been included. Operating
results for the three months ended March 31, 2016 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2016 or any
other period. For further information, refer to the financial statements and
footnotes thereto for the period ended December 31, 2015.
Principles of
Consolidation
The Companys consolidated
financial statements include the accounts of the Company and its subsidiaries,
after elimination of intercompany accounts and transactions. Investments in
business entities in which the Company lacks control but has the ability to
exercise significant influence over operating and financial policies are
accounted for using the equity method. The Companys proportionate share of net
income or loss of the entity is recorded in the Consolidated Statements of
Earnings.
Use of
Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates presented and reported amounts
of revenues and expenses during the reporting periods presented. Significant
estimates inherent in the preparation of the accompanying Consolidated Financial
Statements include estimates of impairment assessment of identifiable intangible
assets and valuation allowance for deferred tax assets. Estimates are based on
past experience and other considerations reasonable under the circumstances.
Actual results may differ from these estimates.
Stock
Compensation
The Company recognizes the
cost of all share-based payments under the relevant authoritative accounting
guidance. Share-based payments include any remuneration paid by the Company in
shares of the Companys common stock or financial instruments that grant the
recipient the right to acquire shares of the Companys common stock. For
share-based payments to employees, which consist only of awards made under the
stock option plan described below, the Company accounts for the payments in
accordance with the provisions of ASC Topic 718, Stock Compensation (formerly
referred to as SFAS No. 123(R)). Share-based payments to consultants, service
providers and other non-employees are accounted for under in accordance with ASC Topic
718, ASC Topic 505, Equity Payments to Non-Employees or other applicable
authoritative guidance
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Convertible
Instruments
The Company evaluates and
accounts for conversion options embedded in convertible instruments in
accordance with ASC 815 Derivatives and Hedging Activities.
Applicable GAAP requires
companies to bifurcate conversion options from their host instruments and
account for them as free standing derivative financial instruments according to
certain criteria. The criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly
and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value under other
GAAP with changes in fair value reported in earnings as they occur and (c) a
separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument.
The Company accounts for
convertible instruments (when we have determined that the embedded conversion
options should not be bifurcated from their host instruments) as follows: The
Company records when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the
differences between the fair value of the underlying common stock at the
commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over
the term of the related debt to their stated date of redemption.
Recent Accounting
Pronouncements
From time to time, new
accounting pronouncements are issued by the Financial Accounting Standards Board
or other standard setting bodies that may have an impact on the Companys
accounting and reporting. The Company believes that such recently issued
accounting pronouncements and other authoritative guidance for which the
effective date is in the future either will not have an impact on its accounting
or reporting or that such impact will not be material to its financial position,
results of operations, and cash flows when implemented.
In June 2014, the FASB
issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of
Certain Financial Reporting Requirements, Including an Amendment to Variable
Interest Entities Guidance in Topic 810, Consolidation. The amendments in this
Update remove the definition of a development stage entity from the Master
Glossary of the Accounting Standards Codification, thereby removing the
financial reporting distinction between development stage entities and other
reporting entities from GAAP. In addition, the amendments eliminate the
requirements for development stage entities to (1) present inception-to-date
information in the statements of income, cash flows, and shareholder equity, (2)
label the financial statements as those of a development stage entity, (3)
disclose a description of the development stage activities in which the entity
is engaged, and (4) disclose in the first year in which the entity is no longer
in a development stage that in prior years it had been in the development stage.
The amendments also clarify
that the guidance in Topic 275, Risks and Uncertainties, is applicable to
entities that have not commenced planned principal operations. Finally, the
amendments remove paragraph 810-10-15-16. Paragraph 810-10-15-16 states that a
development stage entity does not meet the condition in paragraph
810-10-15-14(a) to be a variable interest entity if (1) the entity can
demonstrate that the equity invested in the legal entity is sufficient to permit
it to finance the activities that it is currently engaged in and (2) the
entitys governing documents and contractual arrangements allow additional
equity investments. The amendments in this Update also eliminate an exception
provided to development stage entities in Topic 810, Consolidation, for
determining whether an entity is a variable interest entity on the basis of the
amount of investment equity that is at risk. The amendments to eliminate that
exception simplify GAAP by reducing avoidable complexity in existing accounting
literature and improve the relevance of information provided to financial
statement users by requiring the application of the same consolidation guidance
by all reporting entities. The elimination of the exception may change the
consolidation analysis, consolidation decision, and disclosure requirements for
a reporting entity that has an interest in an entity in the development stage.
The amendments related to the elimination of inception-to-date information and
the other remaining disclosure requirements of Topic 915 should be applied
retrospectively except for the clarification to Topic 275, which shall be
applied prospectively. For public business entities, those amendments are
effective for annual reporting periods beginning after December 15, 2014, and
interim periods therein. Early application of each of the amendments is
permitted for any annual reporting period or interim period for which the
entitys financial statements have not yet been issued (public business
entities) or made available for issuance (other entities). Upon adoption,
entities will no longer present or disclose any information required by Topic
915. The Company adopted ASU No. 2014-10 effective July 31, 2014.
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Off-Balance Sheet
Arrangements
The Company does not have
any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on its financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Seasonality
The Companys operating
results are not affected by seasonality.
Inflation
The Companys business and
operating results are not affected in any material way by inflation.
Contractual
Obligations
As a smaller reporting
company as defined by Item 10 of Regulation S-K, the Company is not required to
provide this information.