NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1
|
BASIS
OF PRESENTATION AND DESCRIPTION OF BUSINESS
|
REFERENCES
TO THE COMPANY
References
to “
we
,” “
our
,” “
us
,” “
Bitzio
” or the “
Company
”
in the consolidated financial statements and in these notes to the consolidated financial statements refer to Bitzio, a Nevada
corporation, and its subsidiaries. References to
“GreenShift Corporation” or “GreenShift”
in the
consolidated financial statements and in these notes to the consolidated financial statements refer to GreenShift Corporation,
a Delaware corporation, and its subsidiaries.
SEGMENT
DESCRIPTIONS
The
Company’s operations during the fiscal year ended December 31, 2015, are classified into two reportable business segments:
agriculture (technology licensing) and lifestyle (apparel sales). Each of these segments is organized based upon the nature of
product and services offered with each segment having their own corporate operations.
CONSOLIDATED
FINANCIAL STATEMENTS
For
the period ended December 31, 2015, the accompanying consolidated financial statements include all accounts of the Company, including
its wholly-owned subsidiaries, its 51% interest in Cleo VII, Inc. and its 80% interest in GreenShift Corporation and its subsidiaries.
For the period ended December 31, 2014, the accompanying consolidated financial statements include all accounts of Bitzio, Inc.,
and its wholly-owned subsidiaries as well as its 51% interest in Cleo VII, Inc. All significant intercompany balances and transactions
have been eliminated on a consolidated basis for reporting purposes.
DESCRIPTION
OF THE BUSINESS
The
Company develops and commercializes clean technologies that facilitate the more efficient use of natural resources. We are focused
on doing so primarily in three sectors: agriculture, energy and lifestyle, of which we were only active in our agriculture and
lifestyle segments during 2015.
The
Company’s portfolio of patented and patent-pending technologies covers oil extraction and refining, renewable fuels and
chemicals, solar energy and fuels, energy and chemical detection, wearables and consumer products, among others. Our plan to bring
our technologies to market involves utilization of strategically-relevant infrastructure in targeted channels.
We
generate revenue today from our efforts in agriculture, where we license commercially-available technologies to U.S. ethanol producers,
and provide our licensees with success-driven, value-added services and other solutions based upon our expertise, know-how, technologies,
and patent position. We also generate sales in our lifestyle group by producing and selling activewear and other apparel for women
and children, an important early-adopter market for wearable technologies that we are developing. During the year ended December
31, 2015, four customers’ balances each represented over 10% of our accounts receivable, and one customer provided 56% of
total revenue in the aggregate; during the year ended December 31, 2014, two customers each provided over 10% of our revenue and
30% of total revenue in the aggregate (See Note 3,
Significant Accounting Policies
for Revenue Recognition policies, below).
In addition, we are evaluating a number of investments and acquisitions in each of our targeted sectors, each with a view toward
internalizing additional revenue, management, and infrastructure that we can leverage to bring our technologies to market.
FUTURE
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers which modifies how all entities recognize revenue
and various other revenue accounting standards for specialized transactions and industries. This update is a comprehensive new
revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the ASU to fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the possible impact of ASU 2014-15,
but does not anticipate that it will have a material impact on the Company’s consolidated financial statements.
In
June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718), Accounting for Share-Based Payments.
The amendments in ASU 2014-12 to Topic 718, provides guidance on accounting for a performance target in a share-based payment
that affects vesting and that could be achieved after the requisite service period as a performance condition under Accounting
Standards Codification (ASC) 718, Compensation - Stock Compensation. The target is not reflected in the estimation of the award’s
grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance
condition will be achieved. The Company is currently evaluating the possible impact of ASU 2014-12, but does not anticipate that
it will have a material impact on the Company’s consolidated financial statements.
In
August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under this amendment, management is now required
to determine every interim and annual period whether conditions or events exist that raise substantial doubt about an entity’s
ability to continue as a going concern within one year after the date the financial statements are issued. If management indicates
that it is probable the entity will not be able to meet its obligations as they become due within the assessment period, then
management must evaluate whether it is probable that plans to mitigate those factors will alleviate that substantial doubt. The
Company is currently evaluating the possible impact of ASU 2014-15, but does not anticipate that it will have a material impact
on the Company’s consolidated financial statements.
In
February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, or ASU No.
2015-02. The amendments of ASU No. 2015-02 were issued in an effort to minimize situations under previously existing guidance
in which a reporting entity was required to consolidate another legal entity in which that reporting entity did not have: (1)
the ability through contractual rights to act primarily on its own behalf; (2) ownership of the majority of the legal entity’s
voting rights; or (3) the exposure to a majority of the legal entity’s economic benefits. ASU No. 2015-02 affects reporting
entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject
to reevaluation under the revised consolidation model. The guidance in ASU No. 2015-02 is effective for periods beginning after
December 15, 2015. Early adoption is permitted. The Company is currently evaluating the possible impact of ASU 2014-15, but does
not anticipate that it will have a material impact on the Company’s consolidated financial statements.
ASU
2015-03 and ASU 2015-15 — In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs, or ASU No. 2015-03. The amendments of ASU No. 2015-03 were issued to reduce
complexity in the balance sheet presentation of debt issuance costs. ASU No. 2015-03 requires that debt issuance costs be presented
in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums.
The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standard. Additionally,
in August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, or ASU No. 2015-15, as ASU No. 2015-03 did not
specifically address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU
No. 2015-15 allows an entity to continue to defer and present debt issuance costs ratably over the term of the line-of-credit
arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU
No. 2015-03 and ASU No. 2015-15 is effective for financial statements issued for fiscal years beginning after December 15, 2015,
and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously
issued. The Company is currently evaluating the possible impact of ASU No. 2015-03 for the year ended December 31, 2016, which
will result in at $3.2 million reclassification of deferred financing costs out of current assets on the Company’s consolidated
financial statements.
In
July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments of ASU
2015-11 were issued in an effort to change the measurement principle for inventory from the lower of cost or market to lower of
cost and the net realizable value. The guidance in ASU 2015-11 is effective for periods beginning after December 15, 2016. Early
adoption is permitted. The Company is currently evaluating the possible impact of ASU 2015-11, but does not anticipate that it
will have a material impact on the Company’s consolidated financial statements.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued its new lease accounting guidance in Accounting
Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize
for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for annual
periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating
the impact of the adoption of this ASU to the Company’s consolidated financial statements and related disclosures.
Management
does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a
material effect on the accompanying financial statements.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The Company recorded a loss from operations of $1,682,010 for the year ended December 31, 2015. As of December 31, 2015, the Company
had $1.9 million in cash, and current liabilities exceeded current assets by about $17.3 million, which included derivative liabilities
of $11.2 million and $7.7 million in convertible debentures and notes. None of these items are required to be serviced out of
the Company’s regular cash flows.
The
$2.5 million paid by Bitzio, Inc. (“Bitzio”), to GreenShift Corporation (“GreenShift”) was drawn from
a loan of $2.9 million made to Bitzio by TCA Global Credit Master Fund, LP (“TCA”). The loan was made on December
31, 2015, pursuant to a Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”), under which TCA
may lend to Bitzio up to $5.0 million. GreenShift and each of its subsidiaries, as well as each of the other subsidiaries of Bitzio,
has executed a Guaranty Agreement dated December 31, 2015, in favor of TCA. In the Guaranty Agreement, GreenShift and each of
its subsidiaries as well as each of the other subsidiaries of Bitzio, guaranteed payment of all amounts due to TCA under the Credit
Agreement. By separate agreements, GreenShift and each subsidiary pledged all of its assets to secure the guaranty to TCA.
These
matters raise substantial doubt about the Company’s ability to continue as a going concern. Our ability to satisfy our obligations
will depend on our success in obtaining financing, our success in preserving current revenue sources and developing new revenue
sources, and our success in negotiating with the creditors. Management’s plans to resolve the Company’s working capital
deficit by increasing revenue, reducing debt and exploring new financing options. There can be no assurances that the Company
will be able to eliminate its working capital deficit and that the Company’s historical operating losses will not recur.
The accompanying financial statements do not contain any adjustments which may be required as a result of this uncertainty.
NOTE
3
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS
OF PRESENTATION
The
accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”).
PRINCIPLES
OF CONSOLIDATION
All
significant intercompany balances and transactions were eliminated in consolidation. The financial statements for the period ended
December 31, 2015, have been consolidated to include the Company’s wholly-owned subsidiaries, as well as GreenShift Corporation
and its subsidiaries. The financial statements for the periods ended December 31, 2014, have been consolidated to include the
Company’s wholly-owned subsidiaries.
SEGMENT
INFORMATION
We
determined our reporting units in accordance with FASB ASC 280, “
Segment Reporting
” (“ASC 280”).
We evaluate a reporting unit by first identifying its operating segments under ASC 280. We then evaluate each operating segment
to determine if it includes one or more components that constitute a business. If there are components within an operating segment
that meet the definition of a business, we evaluate those components to determine if they must be aggregated into one or more
reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, we determine
if the segments are economically similar and, if so, the operating segments are aggregated. We currently have two separate operating
segments and reporting units. In our agriculture segment, we generate revenue by licensing commercially-available technologies
to U.S. ethanol producers, and providing our licensees with success-driven, value-added services and other solutions based upon
our expertise, know-how, technologies, and patent position. We also generate sales in our lifestyle segment by producing and selling
activewear and other apparel for women and children, an important early-adopter market for wearable technologies that we are developing.
No sales of any kind occur, and no costs of sales of any kind are incurred, in the absence of a license agreement in our agriculture
segment. A single management team that reports to the chief operating decision maker comprehensively manages the entire business
in each segment. With the exception of the segment classifications noted above, we do not operate any material separate lines
of business or separate business entities with respect to our technologies, products and services; nor do we accumulate discrete
financial information according to the nature or structure of any specific technology, product and/or service. Instead, management
reviews the agriculture and lifestyle segments as distinct operating segments, using financial and other information rendered
meaningful only by the fact that such information is presented and reviewed in the aggregate.
REVENUE
RECOGNITION
In
our lifestyle segment, we recognize revenue when the following conditions are satisfied: (i) delivery of the product has occurred
and (ii) collection is reasonably assured. Under each our lifestyle segment, orders are received via national sales representatives,
in house wholesale sales departments and various retail platforms. Once the order is received, they are either automatically or
manually inputted into our production system. Our production system generates production orders which our production team takes
and produces based on the purchase order terms. Revenue is recognized only when the orders have been shipped. Generally, all orders
are paid upon shipment via credit card or wire transfer. For a small percentage, the orders are shipped on terms of less than
30 days. Revenue is recognized at the time of shipment and a related receivable is booked. We experience less than 2% of annual
sales in returns. For orders where goods are considered damaged, these items are swapped with new merchandise. Under our agriculture
segment, GreenShift recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the price is fixed or determinable, and collection is reasonably assured. GreenShift recognizes revenue from licensing
of GreenShift’s corn oil extraction technologies when corn oil sales occur. Licensing royalties are recognized as earned
by calculating the royalty as a percentage of gross corn oil sales by the ethanol plants. For the purposes of assessing royalties,
the sale of corn oil is deemed to occur when shipped, which is when four basic criteria have been met: (i) persuasive evidence
of a customer arrangement; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured, and (iv) product
delivery has occurred, which is generally upon shipment to the buyer of the corn oil. To the extent revenues are generated from
GreenShift’s licensing support services, GreenShift recognizes such revenues when the services are completed and billed.
GreenShift provides process engineering services on fixed price contracts. These services are generally provided over a short
period of less than three months. Revenue from fixed price contracts is recognized on a pro rata basis over the life of the contract
as they are generally performed evenly over the contract period. GreenShift additionally performs under fixed-price contracts
involving design, engineering, procurement, installation, and start-up of oil recovery and other production systems. Revenues
and fees on these contracts are recognized using the percentage-of-completion method of accounting. During 2014 and 2015, our
percentage-of-completion methods included the efforts-expended percentage-of-completion method and the cost-to-cost method. The
efforts-expended method utilizes using measures such as task duration and completion. The efforts-expended approach is used in
situations where it is more representative of progress on a contract than the cost-to-cost or the labor-hours method (see below).
GreenShift also used the cost-to-cost method which is used to determine the percentage of completion of a project based on the
actual costs incurred. Earnings are recognized periodically based upon our estimate of contract revenues and costs in providing
the services required under the contract. The percentage of completion method must be used in lieu of the completed contract method
when all of the following are present: reasonably reliable estimates can be made of revenue and costs; the construction contract
specifies the parties’ rights as to the goods, consideration to be paid and received, and the resulting terms of payment
or settlement; the contract purchaser has the ability and expectation to perform all contractual duties; and the contract contractor
has the same ability and expectation to perform. Under the completed contract method income is recognized only when a contract
is completed or substantially completed. The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,”
represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings
on uncompleted contracts,” represents billings in excess of revenues recognized.
EQUITY
INVESTMENTS
Equity
investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted
for using the equity method. The Company’s share of its equity method investee’s earnings or losses is included in
other income in the accompanying Consolidated Statements of Operations.
RECEIVABLES
AND CREDIT CONCENTRATION
Accounts
receivable are uncollateralized, non-interest-bearing customer obligations due under normal trade terms requiring payment within
30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Accounts receivable in excess
of 90 days old are evaluated for delinquency. In addition, we consider historical bad debts and current economic trends in evaluating
the allowance for bad debts. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s
remittance advice or, if unspecified, are applied to the oldest unpaid invoices. The carrying amount of accounts receivable has
been reduced by a valuation allowance that has been set up in the amount $51,000 and $10,000 as of December 31, 2015 and 2014,
respectively. Management will continue to review the valuation allowance on a quarterly basis.
INVENTORIES
Under
our agriculture segment, GreenShift maintains an inventory of equipment and components used in systems designed to extract corn
oil from licensed ethanol production facilities. The inventory, which consists of equipment and component parts, is held for sale
to GreenShift’s licensees on an as needed basis. Inventories are stated at the lower of cost or market, with cost being
determined by the specific identification method. Inventories at December 31, 2015 consist of the following:
|
|
2015
|
|
|
|
|
|
|
Equipment inventory
|
|
$
|
455,000
|
|
During
the year ended December 31, 2015, GreenShift evaluated the inventory on its books and determined that a write-down to market was
necessary. As a result, GreenShift wrote down inventory by $236,896 in 2015, which was expensed under cost of goods sold as a
loss on inventory valuation.
Under
our lifestyle segment, the Company’s inventory is stated at the lower of cost or estimated realizable value, with cost primarily
determined on a weighted-average cost basis on the first-in, first-out (“FIFO”) method. The Company continuously evaluates
the composition of its inventory, assessing slow-turning product. Estimated realizable value of inventory is determined based
on an analysis of historical sales trends of our individual products and a forecast of future demand, giving consideration to
the value of current orders in-house relating to the future sales of inventory. Estimates may differ from actual results due to
quantity, quality, and mix of products in inventory, customer demand, and market conditions. The Company’s historical estimates
of these costs and any provisions have not differed materially from actual results. As of December 31, 2015 and 2014, an inventory
reserve had not been deemed necessary, and therefore, not recorded. As of December 31, 2015 and 2014, inventory consisted of $154,688
and $121,513 in finished goods, $7,515 and $79,923 in work in process, and $18,279 and $17,980 in raw materials.
CASH
AND EQUIVALENTS
We
consider all highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash and
cash equivalents. Cash and cash equivalents consist primarily of money market funds and other short-term investments with original
maturities of not more than three months stated at cost, which approximates market value.
PROPERTY
AND EQUIPMENT
Property
and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements
are amortized over the lesser of the life of the lease or their useful lives. Gains and losses on depreciable assets retired or
sold are recognized in the consolidated statement of operations in the year of disposal, and repair and maintenance expenditures
are expensed as incurred. Property, plant and equipment are stated at cost. Expenditures for major renewals and improvements which
extend the life or usefulness of the asset are capitalized. Once an asset has been completed and placed in service, it is transferred
to the appropriate category and depreciation commences. The Company uses the straight line method for depreciation and depreciates
equipment over the estimated useful life of the assets: office and computer equipment over 3-5 years and corn oil extraction systems
over a 10 year period. Gains and losses on depreciable assets retired or sold are recognized in the statement of operations in
the year of disposal, and repair and maintenance expenditures are expensed as incurred. Property and equipment are stated at cost
and include amounts capitalized under capital lease obligations.
INTANGIBLE
ASSETS
The
Company accounts for its intangible assets pursuant to ASC 350-20-55-24, “
Intangibles – Goodwill and Other”
.
Under ASC 350, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated
useful lives or contractual terms. Intangibles with indefinite lives are evaluated at least annually for impairment by comparing
the asset’s estimated fair value with its carrying value, based on cash flow methodology. Intangibles with definite lives
are subject to impairment testing in the event of certain indicators. Impairment in the carrying value of an asset is recognized
whenever anticipated future cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount
of the impairment recognized is the difference between the carrying value of the asset and its fair value. At December 31, 2015,
the Company’s balance sheet included intangible assets with an aggregate carrying value of $224,589 as compared to $589,044
at December 31, 2014.
LONG-LIVED
ASSETS
Under
our agriculture segment, GreenShift assesses the valuation of components of its property and equipment and other long-lived assets
whenever events or circumstances dictate that the carrying value might not be recoverable. GreenShift bases its evaluation on
indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors that may be present. If such factors indicate that the carrying amount
of an asset or asset group may not be recoverable, GreenShift determines whether an impairment has occurred by analyzing an estimate
of undiscounted future cash flows at the lowest level for which identifiable cash flows exist. If the estimate of undiscounted
cash flows during the estimated useful life of the asset is less than the carrying value of the asset, GreenShift recognizes a
loss for the difference between the carrying value of the asset and its estimated fair value, generally measured by the present
value of the estimated cash flows.
Under
our lifestyle segment, long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess
the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the
carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the
use and eventual disposition of the asset. Indicators of impairment include significant underperformance relative to historical
or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes
in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular
asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an
undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is
performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment
charge is recorded for the excess of carrying value over fair value.
PROPERTY
AND EQUIPMENT
Property
and equipment are recorded at historical cost less accumulated depreciation, unless impaired. Depreciation is charged to operations
over the estimated useful lives of the assets using the straight-line method. Upon retirement or sale, the historical cost of
assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.
Expenditures for repairs and maintenance are charged to expense as incurred.
BUSINESS
ACQUISITIONS
Business
acquisitions are accounted for under the purchase method of accounting. During 2015, the Company accounted for its acquisitions
of Skipjack, Punkzgear and GreenShift and its subsidiaries on the basis that they were between entities under common control.
During 2014, Bitzio accounted for all of its acquisitions under purchase method accounting. Under that method, assets and liabilities
of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the
cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill.
We make significant judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially
with respect to acquired intangibles. Using different assumptions in determining fair value could materially impact the purchase
price allocation and our financial position and results of operations. Results of operations for acquired businesses are included
in the financial statements from the date of acquisition.
ACCUMULATED
OTHER COMPREHENSIVE INCOME
Comprehensive
loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers
the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded
in determining net loss, but rather are reported as a separate component of stockholders’ equity (deficit). Currently the
Company has no other comprehensive income.
INCOME
TAXES
Income
taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences
between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance
is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. All of the subsidiaries
are consolidated for state income tax purposes.
BASIC
AND DILUTED INCOME (LOSS) PER SHARE
Basic
and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders
by the weighted average number of common shares outstanding during the period. Our potentially dilutive shares, which include
outstanding common stock options, common stock warrants, convertible preferred stock and convertible debentures, have not been
included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the
results would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per
share. There were 13,844,616 such potentially dilutive shares excluded for the year ended December 31, 2015. Due to the net loss
for the year ended December 31, 2014, all such shares were excluded for that year as they would be anti-dilutive. The following
is a reconciliation of weighted common shares outstanding used in the calculation of basic and diluted net income per common share:
|
|
Year Ended 12/31/2015
|
|
|
Year Ended 12/31/2014
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
13,009,764
|
|
|
$
|
(4,040,122
|
)
|
Adjustments for dilutive shares:
|
|
|
|
|
|
|
|
|
Interest savings
|
|
|
510,773
|
|
|
|
791,681
|
|
Preferred Stock dividend
|
|
|
8,767
|
|
|
|
—
|
|
Reversal of derivative (gains) losses
|
|
|
(2,875,835
|
)
|
|
|
2,044,298
|
|
Net income - Adjusted
|
|
|
10,653,469
|
|
|
|
(1,204,143
|
)
|
Weighted average shares used for basic net income per common share
|
|
|
5,722,789,471
|
|
|
|
856,939,107
|
|
Incremental diluted shares
|
|
|
223,315,928,910
|
|
|
|
—
|
|
Weighted average shares used for diluted net income
per common share
|
|
|
229,038,618,381
|
|
|
|
856,939,107
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
USE
OF ESTIMATES
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
(i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the
financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. We use estimates and
assumptions in accounting for the following significant matters, among others:
-
|
Allowances
for doubtful accounts;
|
|
|
-
|
Valuation
of acquired assets;
|
|
|
-
|
Inventory
valuation and allowances;
|
|
|
-
|
Fair
value of derivative instruments and related hedged items;
|
|
|
-
|
Useful
lives of property and equipment and intangible assets;
|
|
|
-
|
Asset
retirement obligations;
|
|
|
-
|
Long
lived asset impairments, including goodwill;
|
|
|
-
|
Contingencies;
|
|
|
-
|
Fair
value of options and restricted stock granted under our stock-based compensation plans; and,
|
|
|
-
|
Tax
related items
|
Actual
results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements.
We periodically review estimates and assumptions, and the effects of revisions are reflected in the period in which the revision
is made. The revisions to estimates or assumptions during the periods presented in the accompanying consolidated financial statements
were not considered to be significant.
DEFERRED
REVENUE
Under
our agriculture segment, deposits from customers are not recognized as revenues, but as liabilities, until the following conditions
are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services or when
assets received in such exchange are readily convertible to cash or claim to cash or when such goods/services are transferred.
When such income item is earned, the related revenue item is recognized, and the deferred revenue is reduced. To the extent revenues
are generated from GreenShift’s licensing support services, GreenShift recognizes such revenues when services are completed
and billed.
FINANCIAL
INSTRUMENTS
The
carrying values of accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values
due to their short term maturities. The carrying values of the Company’s long-term debt approximate their fair values based
upon a comparison of the interest rate and terms of such debt to the rates and terms of debt currently available to the Company.
It was not practical to estimate the fair value of the convertible debt. In order to do so, it would be necessary to obtain an
independent valuation of these unique instruments. The cost of that valuation would not be justified in light of the materiality
of the instruments to the Company.
DERIVATIVE
FINANCIAL INSTRUMENTS
Certain
of the Company’s debt and equity instruments include embedded derivatives that require bifurcation from the host contract
under the provisions of ASC 815-40, Derivatives and Hedging. Under the provisions of these statements, the Company records the
related derivative liabilities at fair value and records the accounting gain or loss resulting from the change in fair values
at the end of each reporting period. Change in the derivatives instruments resulted in gain of $3,916,310 for the year ended December
31, 2015.
In
connection with the Company’s Convertible Notes beginning in November 2013, the Company became contingently obligated to
issue shares in excess of the 4.2 billion authorized by shareholders. Consequently, the ability to settle these obligations with
shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability.
Based on ASC 815-10-15-74, Series E shares to EXO and Series F shares, are not considered by the company as a derivative, as the
conversion option underlying the Series E shares issued to TCA is not a “tainted” derivative. They are convertible
preferred stock for which the conversion option is more akin to equity and as such is being classified in stockholders’
equity as a standalone instrument. In addition, based on ASC 718,
Stock-based Compensation
and ASC 505-50,
Equity-based
Payments to Non-Employees
, the company excluded the employee options from the derivative liability accounting.
The
Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled
first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split,
to have an issuance date to coincide with the event giving rise to the additional shares. Using this sequencing policy, all instruments
convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to November 18,
2013 are derivative liabilities with the exception of the noted Series E and F preferred shares (that were issued in conjunction
with the acquisition of GreenShift) and any employee and director options, for which other accounting guidance is applicable.
FAIR
VALUE INSTRUMENTS
Effective
July 1 2009, the Company adopted ASC 820,
Fair Value Measurements and Disclosures
. This topic defines fair value for certain
financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that
require or permit fair value measurements. The Company accounted for the convertible debentures in accordance with ASC 480,
Distinguishing
Liabilities from Equity
, as the conversion feature embedded in the convertible debentures could result in the note principal
and related accrued interest being converted to a variable number of the Company’s common shares.
Effective
July 1 2009, the Company adopted ASC 820-10-55-23A,
Scope Application to Certain Non-Financial Assets and Certain Non-Financial
Liabilities
, delaying application for non-financial assets and non-financial liabilities as permitted. ASC 820 establishes
a framework for measuring fair value, and expands disclosures about fair value measurements. In January 2010, the FASB issued
an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant
transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 roll
forward disclosure. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three levels as follows:
Level
1
|
quoted
prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of
the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities
and exchange-based derivatives
|
|
|
Level
2
|
inputs
other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable
through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed
income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges
|
|
|
Level
3
|
unobservable
inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the
measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models
|
The
fair value of certain of the embedded conversion liabilities was determined using the present value model calculating fair value
based on the conversion discount as well as the present value based on term and bond rate. During the year ended December 31,
2014, following assumptions were used: (1) conversion discounts of 10% to 50%; (2) term of less than one year to 8 years and (3)
bond rate of 10%. During the year ended December 31, 2015, the following assumptions were used: (1) conversion discounts of 10%;
(2) term of less than one year to 7 years and (3) bond rate of 10%. Fluctuations in the conversion discount percentage have the
greatest effect on the value of the conversion liabilities valuations during each reporting period. As the conversion discount
percentage increases for each of the related conversion liabilities instruments, the change in the value of the conversion liabilities
increases, therefore increasing the liabilities on the Company’s balance sheet. The higher the conversion discount percentage,
the higher the liability. A 10% change in the conversion discount percentage would result in more than a $2,088,439 change in
our Level 3 fair value.
The
fair value of embedded conversion feature of 320,000 shares of Series E Preferred Stock determined using a Black-Scholes Simulation.
This model requires the input of highly subjective assumptions, including the expected price volatility, which is based on the
historical volatility of a peer group of publicly traded companies. Changes in the subjective input assumptions can materially
affect the estimate of fair value of the warrants and the Company’s results of operations could be impacted.
The
following assumptions were used in calculations of the Black-Scholes model for the year ended December 31, 2015 and 2014:
|
|
For the Year Ended
December 31, 2015
|
|
|
For the Year Ended
December 31, 2014
|
|
Annual dividend yield
|
|
|
-%
|
|
|
|
-%
|
|
Expected life (years)
|
|
|
1.00
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
0.65%
|
|
|
|
-%
|
|
Expected volatility
|
|
|
334%
|
|
|
|
-%
|
|
The
following table presents the embedded derivatives, the Company’s only financial assets or liabilities measured and recorded
at fair value on the Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy
during the year ended December 31, 2015:
Embedded derivative liabilities as of December 31, 2015
|
|
|
|
|
Level 1
|
|
$
|
—
|
|
Level 2
|
|
|
—
|
|
Level 3
|
|
|
11,185,625
|
|
Total
|
|
$
|
11,185,625
|
|
The
following table reconciles, for the period ended December 31, 2015, the beginning and ending balances for financial instruments
that are recognized at fair value in the consolidated financial statements:
Balance of embedded derivative as of December 31, 2013
|
|
$
|
827,158
|
|
Additions related to embedded conversion features of convertible debt issued
|
|
|
777,150
|
|
Change in fair value of conversion features
|
|
|
2,044,298
|
|
Reductions in fair value due to principal conversions
|
|
|
(436,406
|
)
|
Balance of embedded derivatives at December 31, 2014
|
|
|
3,212,200
|
|
Additions related to embedded conversion features of convertible debt issued
|
|
|
13,343,898
|
|
Change in fair value of conversion features
|
|
|
(2,820,677
|
)
|
Reductions in fair value due to repayments/redemptions
|
|
|
(1,669,533
|
)
|
Change in fair value of conversion features
|
|
|
(368,674
|
)
|
Reductions in fair value due to principal conversions
|
|
|
(511,589
|
)
|
Balance at December 31, 2015
|
|
$
|
11,185,625
|
|
STOCK
BASED COMPENSATION
The
Company accounts for stock, stock options and stock warrants issued for services and compensation by employees under the fair
value method. For non-employees, the fair market value of the Company’s stock is measured on the date of stock issuance
or the date an option/warrant is granted as appropriate under ASC 718 “Compensation – Stock Compensation”. The
Company determined the fair market value of the warrants/options issued under the Black-Scholes Pricing Model. Effective July
1, 2006, the Company adopted the provisions of ASC 718, which establishes accounting for equity instruments exchanged for employee
services. Under the provisions ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of
the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of
the equity grant).
COMMON
CONTROL
On
December 31, 2015, FLUX Carbon Corporation (“FCC”) transferred its ownership interest in Viridis Capital LLC (“Viridis”)
to the Company in exchange for an 80% equity interest in Bitzio. Viridis was the owner of 800,115 shares of GreenShift Corporation
(“GreenShift”) Series D Preferred Stock at the time of the transfer. On the same date, the Company acquired the beneficial
ownership interest in 187,029 shares of GreenShift Series D Preferred Stock from EXO Opportunity Fund LLC (“EXO”)
in exchange for 200,000 shares of the Company’s Series E Preferred Stock. On December 31, 2015, the Company acquired 100,000
shares of GreenShift’s Series G Preferred Stock for $2.5 million in cash, plus an additional 700,000 shares of GreenShift’s
Series G Preferred Stock in exchange for the surrender of Bitzio’s beneficial ownership interest in 987,144 shares of GreenShift’s
Series D Preferred Stock. At the completion of the foregoing transactions, the Company was the beneficial owner of 800,000 shares
of GreenShift’s Series G Preferred Stock, and FCC was the beneficial owner of 800,000 shares of the Company’s Series
F Preferred Stock. FCC is owned by Kevin Kreisler, our Chairman and Chief Executive Officer, as well as the Chairman and Chief
Executive Officer of GreenShift prior to and after closing of the above. Mr. Kreisler was additionally the manager of 112359 Factor
Fund LLC (“Factor Fund”), the Company’s lender and collateral agent in respect of the Company’s secured
loans at the time these transactions were completed. The Company accordingly accounted for these transactions on the basis that
they were between entities under common control.
On
February 26, 2015, Lexi –Luu Designs, Inc. entered a Securities Purchase Agreement with Skipjack Dive and Dancewear Inc.
where Lexi –Luu Designs, Inc. acquired 100% of the outstanding capital Stock of Skipjack Dive and Dancewear Inc. in exchange
for $100,000. This amount was booked as accounts payable to Hubert J.Blanchette.
In
addition on March 3, 2015, Lexi –Luu Designs, Inc. entered a securities purchase agreement with Punkz Gear, Inc. where Lexi
–Luu Designs, Inc. acquired 100% of the outstanding capital Stock of Punkz Gear Inc. in exchange for a $200,000 Subordinated
Secured Convertible Debenture (Note) convertible at the rate of $0.10 per share into 2,000,000 million shares of Buyer common
stock. This Note was payable to Hubert J. Blanchette. Hubert J. Blanchette was and is the CEO of Lexi- Luu Designs, Inc at the
time of the above transactions and as of December 31, 2015. In both the Skipjack Dive and Dancewear Inc and Punkz Gear acquisitions,
the sole selling shareholder of these entities Hubert J. Blanchette was also the CEO of the buying company, Lexi-Luu Designs.
Lexi-Luu Designs Inc was the also the issuing entity, and its CEO of Lexi-Luu Designs Inc. and the CEO of Skipjack Dive and Dancewear
Inc. and Punkz Gear, Inc. was and is Hubert J. Blanchette, who retained control of the board and management at the time of the
acquisition. As a result, both of these acquisitions were deemed between entities under common control.
During
the year ended December 31, 2015, for our agriculture segment, four customers’ balances each represented over 10% of our
accounts receivable and one customer provided 56% of total revenue in the aggregate; during the year ended December 31, 2014,
two customers each provided over 10% of our revenue and 30% of total revenue in the aggregate. The Company maintains cash balances
with financial institutions that at times may exceed the limits insured by the Federal Deposit Insurance Corporation. Accounts
receivable are uncollateralized, non-interest-bearing customer obligations due under normal trade terms requiring payment within
30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer.
NOTE
5
|
STOCKHOLDERS’
EQUITY
|
PREFERRED
STOCK
The
Company is authorized to issue 25,000,000 shares of preferred stock, of which 2,500,000 shares are designated as Series A Convertible
Preferred Stock, 1,000,000 shares are designated as Series B Convertible Preferred Stock, 999 shares are designated as Series
C Preferred Stock, 520,000 shares of Series E Preferred Stock, and 800,000 shares of Series F Preferred Stock, par value of $0.001.
SERIES
B PREFERRED STOCK
As
of the years ended December 31, 2015 and 2014, there were 0 and 1,000,000 shares of Series B Preferred Stock issued and outstanding.
Each holder of the Series B Shares will participate in any dividend payable to the holders of the common stock on an as-converted
basis. The holders of the Series B Shares have voting rights equivalent to the number of shares of common stock into which the
Series B Shares are convertible, or 19.8% (in the aggregate) of the Company’s common stock outstanding after the conversion,
measured on the date of conversion. In the event of liquidation, following the sale or disposition of all or substantially all
of the Company’s assets, holders of Series B Shares shall be entitled to receive $1.50 per preferred share. The Series B
Shares are also redeemable at the rate of $1.50 per share. On November 18, 2013 the Company sold 500,000 shares of Series B Preferred
Stock to 112359 Factor Fund, LLC (“Factor Fund”) for a total of $250,000. During the year ended December 31, 2014,
Factor Fund purchased 500,000 additional shares of Series B Preferred Stock for $250,000. In February 2015, Factor Fund assigned
its interest in the Series B Shares to its former members, FLUX Carbon Starter Fund LLC (“FCSF”) and Five Nine Group
LLC (“59G”). FCSF and 59G later surrendered their respective interests in the Series B Shares on December 31, 2015
(see Note 9,
Debt Obligations
, below).
SERIES
C PREFERRED STOCK
As
of December 31, 2014 there were 999 shares of Series C Preferred Stock issued and outstanding. Holders of the Series C Shares
will not participate in any dividend payable to the holders of the common stock, but have voting rights equivalent to the product
obtained by dividing (a) the number of votes that the holders of all voting securities other than Series C Shares outstanding
on the record date for the stockholder action are entitled to cast by (b) nine hundred ninety-eight (998), with the result that
all 999 shares of Series C Shares together will have 50.1% of the voting power of the Company. In the event of liquidation, following
the sale or disposition of all or substantially all of the Company’s assets, holders of Series B Shares shall be entitled
to receive $0.01 per preferred share. The Series C Shares were deemed to have been automatically redeemed as of November 29, 2015,
for no additional consideration.
SERIES
E PREFERRED STOCK
On
December 31, 2015, the Company filed with the Nevada Secretary of State a Certificate of Designation designating 520,000 shares
of preferred stock as Series E Preferred Stock. Each outstanding share of Series E Preferred Stock will have a preference on liquidation
of Ten Dollars ($10). The holder of a share of Series E Preferred Stock will have the right to convert the Ten Dollar value of
the share into common stock at a conversion price equal to 85% of the average closing bid price for Bitzio common stock during
the five trading days preceding conversion, except that no conversion is permitted that will result in the holder becoming the
beneficial owner of more than 4.99% of Bitzio’s outstanding common stock. Holders of Series E Preferred Stock have no voting
rights by reason of those shares, nor do they have any right to participate in any dividends paid by Bitzio. On December 31, 2015,
the Company issued EXO Opportunity Fund LLC (“EXO”) 200,000 shares of Series E Preferred Stock in exchange for beneficial
rights to 187,029 shares of GreenShift Series D Preferred Stock as part of the transactions related to the GreenShift merger.
On December 31, 2015 the Company issued TCA Global Credit Master Fund, LP, for advisory fees, 320,000 shares of Series E Preferred
Stock with a stated value at $3,200,000, for which the underlying conversion feature was valued as a derivative liability at a
value greater than this amount of $3,435,737, with the excess treated as preferred dividends. The discount on this redeemable
preferred stock of approximately $3.2 million will be amortized through December 31, 2016, the earliest redemption date. In the
event that TCA does not realize net proceeds from the sale of these Series E preferred shares or the common shares upon conversion
of the preferred shares (the “Advisory Fee shares”) equal to the $3,200,000 fee value by the maturity date of the
credit facility, these Advisory fee shares will become subject to mandatory redemption by TCA. TCA may convert portions of principal
and interest due under the TCA Note into shares of Bitzio common stock at a conversion price equal to 85% of the lowest daily
volume weighted average price of Bitzio common stock during the five trading days preceding conversion provided, however, that
no conversion is permitted that will result in the Note-holder becoming the beneficial owner of more than 4.99% of Bitzio’s
outstanding common stock.
The
$2.9 million loan made on December 31, 2015 is, and any future loan will be, reflected in a Senior Secured Revolving Convertible
Promissory Note (the “TCA Note”), which has a maturity date of December 31, 2016. The TCA Note bears interest at 11%
per annum. The Credit Agreement required that Bitzio pay an advisory fee to TCA in the amount of $3,200,000. Payment was made
on December 31, 2015 by the issuance of 320,000 shares of Series E Preferred Stock to TCA. On December 31, 2015, the Company filed
with the Nevada Secretary of State a Certificate of Designation designating 520,000 shares of preferred stock as Series E Preferred
Stock. Each outstanding share of Series E Preferred Stock will have a preference on liquidation of Ten Dollars ($10). The holder
of a share of Series E Preferred Stock will have the right to convert the Ten Dollar value of the share into common stock at a
conversion price equal to 85% of the average closing bid price for Bitzio common stock during the five trading days preceding
conversion, except that no conversion is permitted that will result in the holder becoming the beneficial owner of more than 4.99%
of Bitzio’s outstanding common stock. Holders of Series E Preferred Stock have no voting rights by reason of those shares,
nor do they have any right to participate in any dividends paid by Bitzio. On December 31, 2015, the Company issued EXO Opportunity
Fund LLC (“EXO”) 200,000 shares of Series E Preferred Stock in exchange for beneficial rights to 187,029 shares of
GreenShift Series D Preferred Stock. On December 31, 2015 the Company issued TCA Global Credit Master Fund, LP, 320,000 shares
of Series E Preferred Stock with a stated value at $3,200,000, for which the underlying conversion feature was valued as a derivative
liability at a value greater that this amount of $3,435,737 with the excess treated as preferred dividends. The discount on this
redeemable preferred stock of approximately $3.2 million will be amortized through December 31, 2016, the earliest redemption
date. A Preferred Dividend of $235,737 was immediately recognized at the time of the transaction. To secure its obligations under
the Note and Credit Agreement, Bitzio pledged to TCA all of its assets, as did each of Bitzio’s subsidiaries. The agreements
with TCA provide TCA with the right to seek redemption of its Series E shares by the Company in the event of default. In the event
of a default under the TCA Note or with the consent of Bitzio, TCA may convert portions of principal and interest due under the
TCA Note into shares of Bitzio common stock at a conversion price equal to 85% of the lowest daily volume weighted average price
of Bitzio common stock during the five trading days preceding conversion; provided, however, that no conversion is permitted that
will result in the Note-holder becoming the beneficial owner of more than 4.99% of Bitzio’s outstanding common stock.
The
fair value of the embedded conversion features of 320,000 shares of Series E Preferred Stock was determined using a Black-Scholes
Simulation. This model requires the input of highly subjective assumptions, including the expected price volatility, which is
based on the historical volatility of a peer group of publicly traded companies. Changes in the subjective input assumptions can
materially affect the estimate of fair value of the warrants and the Company’s results of operations could be impacted.
The
following assumptions were used in calculations of the Black-Scholes model for the year ended December 31, 2015 and 2014:
|
|
For the Year Ended
December 31, 2015
|
|
|
For the Year Ended
December 31, 2014
|
|
Annual dividend yield
|
|
|
-%
|
|
|
|
-%
|
|
Expected life (years)
|
|
|
1.00
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
0.65%
|
|
|
|
-%
|
|
Expected volatility
|
|
|
334%
|
|
|
|
-%
|
|
SERIES
F PREFERRED STOCK
On
December 31, 2015, the Company filed with the Nevada Secretary of State a Certificate of Designation designating 800,000 shares
of preferred stock as Series F Preferred Stock. Each outstanding share of Series F Preferred Stock may be converted by the holder
into shares of Bitzio common stock. The conversion ratio is such that the full 800,000 Series F shares convert into common shares
representing 80% of the fully diluted common shares outstanding after the conversion (which includes all common shares outstanding
plus all common shares potentially issuable upon the conversion of all derivative securities not held by the holder). The holder
of Series F shares may cast the number of votes at a shareholders meeting or by written consent that equals the number of common
shares into which the Series F shares are convertible on the record date for the shareholder action. In the event the Board of
Directors declares a dividend payable to Bitzio common shareholders, the holders of Series F shares will receive the dividend
that would be payable if the Series F shares were converted into Bitzio common shares prior to the dividend. In the event of a
liquidation of Bitzio, the holders of 800,000 Series F shares will receive a preferential distribution equal to 80% of the net
assets available for distribution to the shareholders.
WARRANTS
The
following table summarizes all warrant activity for the year ended December 31, 2015 and 2014:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise
Price
|
|
Balance outstanding at December 31, 2013
|
|
|
22,561,948
|
|
|
$
|
0.33
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
|
|
|
—
|
|
Expired
|
|
|
(7,973,332
|
)
|
|
|
—
|
|
Balance outstanding at December 31, 2014
|
|
|
14,588,616
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2014
|
|
|
14,588,616
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2014
|
|
|
14,588,616
|
|
|
$
|
0.35
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(744,000
|
)
|
|
|
0.40
|
|
Balance outstanding at December 31, 2015
|
|
|
13,844,616
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2015
|
|
|
13,844,616
|
|
|
$
|
0.35
|
|
The
following table discloses information regarding outstanding and exercisable options and warrants at December 31, 2014:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Remaining Weighted
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Average Contractual
|
|
|
Number of
|
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
Option Shares
|
|
|
Exercise Price
|
|
|
Term (Years)
|
|
|
Option Shares
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.20 - $0.29
|
|
|
2,000,000
|
|
|
$
|
0.20
|
|
|
|
0.92
|
|
|
|
2,000,000
|
|
|
$
|
0.20
|
|
$0.30 - $0.39
|
|
|
11,774,616
|
|
|
$
|
0.37
|
|
|
|
0.72
|
|
|
|
11,774,616
|
|
|
$
|
0.37
|
|
$0.40 - $0.49
|
|
|
70,000
|
|
|
$
|
0.40
|
|
|
|
1.00
|
|
|
|
70,000
|
|
|
$
|
0.40
|
|
|
|
|
13,844,616
|
|
|
$
|
0.35
|
|
|
|
0.75
|
|
|
|
13,844,616
|
|
|
$
|
0.35
|
|
COMMON
STOCK
During
the year ended December 31, 2015, the Company issued 3,493,226,298 shares upon conversion of $328,256 in debt payable, and 878,833,333
shares for accrued salaries. During the year ended December 31, 2014 the Company issued 1,870,277,969 shares in conversion of
notes payable of $912,132, 2,500,000 shares for cash of $2,500, 50,000,000 shares of its common stock to Angie Daza as a result
of the acquisition of Cleo VII, Inc., and 850,000,000 shares of its common stock pursuant to the share exchange agreements (see
Note 7,
Goodwill and Intangible Assets
and Note 9,
Debt Obligations
, below).
During
the years ended December 31, 2015 and 2014, the Company agreed to issue a third party 7,200,000 shares (600,000 shares per month
for twelve months) and 10,400,000 shares (1,000,000 shares per month from January 2015 to August 2015, then 600,000 shares per
month for the remaining four months), respectively, of common stock for service rendered in the amount of $36,000 and $52,000,
respectively. The Company also accrued 302,500,000 and 32,500,000 shares, respectively, of common stock based on employment agreements
for amounts of $30,250 and $20,938, respectively. As of December 31, 2015 and 2014, the Company recorded common stock to be issued
of $204,188 and $120,438, representing 327,795,812 and 49,345,812 shares of common stock issuable for services, which is included
in additional paid in capital.
The
Company has total deposits in the amount of $469,730 as of the year ending December 31, 2015. For the year ended December 31,
2015, of this amount $400,000 has been classified under current assets.
NOTE
7
|
GOODWILL
AND INTANGIBLE ASSETS
|
In
November 2013, the Company entered into a Distribution Agreement with E-motion Apparel, Inc., which designs women’s apparel
and accessories. The agreement grants Bitzio the exclusive worldwide right to distribute E-motion Apparel’s products using
the E-motion Apparel trademarks, copyrights and trade dress. The agreement also provides that Bitzio will make a five year non-interest-bearing
$75,000 working capital loan to E-motion Apparel, and will pay a license fee of $300,000 to E-motion Apparel. The Distribution
Agreement was replaced by the acquisition agreement on July 18, 2014.
On
July 16, 2014, the Company acquired 100% of the stock of Lexi Luu Designs, Inc. (“LL”), in exchange for 500,000,000
shares of Company common stock, plus a subordinate term note in the amount of $300,000 payable from LL on or before December 31,
2017, subject to compliance with applicable provisions of the Company’s senior loan agreements. We accounted for the transaction
as an equity purchase. $183,629 of the purchase price paid was allocated among the assets and liabilities and the difference was
allocated to intangible assets in the amount of $690,629. As of December 31, 2015 and 2014, the net carrying amount is $186,376
and $531,690, respectively. The associated intangible asset is being amortized over a life of 2 years.
On
July 18, 2014, the Company acquired 100% of the stock of E-motion Apparel, Inc. (“EA”), in exchange for 350,000,000
shares of Company common stock, plus a subordinate term note in the amount of $300,000 payable from EA on or before December 31,
2017, subject to compliance with applicable provisions of the Company’s senior loan agreements. We accounted for the transaction
as an equity purchase. $26,235 of the purchase price paid was allocated among the assets and liabilities and the difference was
allocated to intangible assets in amount of $74,235. As of December 31, 2015 and 2014, the net carrying amount is $20,236 and
$57,354. The associated intangible asset is being amortized over a life of 2 years.
Under
our agriculture segment, GreenShift accounts for its intangible assets pursuant to ASC 350-20-55-24, “
Intangibles –
Goodwill and Other”
. Under ASC 350, intangibles with definite lives continue to be amortized on a straight-line basis
over the lesser of their estimated useful lives or contractual terms. Intangibles with indefinite lives are evaluated at least
annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology.
Intangibles with definite lives are subject to impairment testing in the event of certain indicators. Impairment in the carrying
value of an asset is recognized whenever anticipated future cash flows (undiscounted) from an asset are estimated to be less than
its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its
fair value.
The
Company’s intangible assets at December 31, 2015 and 2014, respectively, include the following:
|
|
2015
|
|
|
2014
|
|
License fees
|
|
$
|
150,000
|
|
|
$
|
—
|
|
Patent
|
|
|
50,000
|
|
|
|
—
|
|
Website
|
|
|
45,076
|
|
|
|
—
|
|
Customer relation
|
|
|
764,864
|
|
|
|
764,864
|
|
Accumulated amortization
|
|
|
(785,351
|
)
|
|
|
(175,820
|
)
|
Intangible assets, net
|
|
$
|
224,589
|
|
|
$
|
589,044
|
|
Amortization
of intangible assets is computed using the straight-line method and is recognized over the estimated useful lives of the intangible
assets. Amortization of intangible assets was $385,634 and $209,085 for the twelve months ended December 31, 2015 and 2014, respectively.
Estimated amortization expense for future years is as follows:
2016
|
|
$
|
209,814
|
|
2017
|
|
|
3,202
|
|
2018
|
|
|
3,202
|
|
2019
|
|
|
3,202
|
|
2020
|
|
|
3,202
|
|
Thereafter
|
|
|
1,967
|
|
Total
|
|
$
|
224,589
|
|
NOTE
8
|
PROPERTY
AND EQUIPMENT
|
Depreciation
expense for the years ended December 31, 2015 and 2014 was $4,392 and $3,150, respectively. Property, plant and equipment consisted
of the following:
|
|
2015
|
|
|
2014
|
|
Furniture and fixtures
|
|
$
|
1,404
|
|
|
$
|
1,404
|
|
Machinery and equipment
|
|
|
27,967
|
|
|
|
4,470
|
|
Computer equipment
|
|
|
1,504
|
|
|
|
—
|
|
Sub-total
|
|
|
30,875
|
|
|
|
5,874
|
|
Less accumulated depreciation
|
|
|
(7,542
|
)
|
|
|
(3,150
|
)
|
Total
|
|
$
|
23,333
|
|
|
$
|
2,724
|
|
The
following is a summary of the Company’s financing arrangements as of December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Current portion of long term debt:
|
|
|
|
|
|
|
|
|
Mortgages and other term notes
|
|
$
|
—
|
|
|
$
|
—
|
|
Current portion of notes payable
|
|
|
402,322
|
|
|
|
677,572
|
|
Current portion of notes payable – related party
|
|
|
310,100
|
|
|
|
163,666
|
|
Note discounts
|
|
|
(47,341
|
)
|
|
|
(349,891
|
)
|
Total current portion of long term debt
|
|
$
|
665,081
|
|
|
$
|
491,347
|
|
|
|
|
|
|
|
|
|
|
Current portion of convertible debentures:
|
|
|
|
|
|
|
|
|
TCA Global Credit Master Fund, L.P., 11% interest, conversion at 85% of market
|
|
$
|
2,900,000
|
|
|
|
—
|
|
Better Half Bloodstock, Inc., 0% interest, conversion at 90% of market
|
|
|
50,000
|
|
|
|
—
|
|
Dakota Capital, 6% interest, conversion at 90% of market
|
|
|
549,723
|
|
|
|
—
|
|
EFG Bank, 6% interest, conversion at 90% of market
|
|
|
117,948
|
|
|
|
—
|
|
Empire Equity, 6% interest, conversion at 90% of market
|
|
|
113,768
|
|
|
|
—
|
|
Epelbaum Revocable Trust, 6% interest, conversion at 90% of market
|
|
|
91,252
|
|
|
|
—
|
|
JMC Holdings, LP, 6% interest, conversion at 90% of market
|
|
|
140,380
|
|
|
|
—
|
|
David Moran & Siobhan Hughes, 6% interest, conversion at 90% of market
|
|
|
2,399
|
|
|
|
—
|
|
Susan Schneider, 6% interest, conversions at 90% of market
|
|
|
10,510
|
|
|
|
—
|
|
Mountainville Ltd., 6% interest, conversions at 90% of market
|
|
|
1,190,446
|
|
|
|
—
|
|
TRK Management LLC, 6% interest, no conversion discount
|
|
|
100,000
|
|
|
|
—
|
|
Cantrell Winsness Technologies, LLC, 2% interest, conversion at 100% of market
|
|
|
75,000
|
|
|
|
—
|
|
Minority Interest Fund (II), LLC, 6% interest, conversion at 90% of market
|
|
|
1,517,830
|
|
|
|
—
|
|
Long Side Ventures, 6% interest, conversion at 90% of market
|
|
|
85,000
|
|
|
|
—
|
|
Related Party Debenture, 6% interest, no conversion discount
|
|
|
59,440
|
|
|
|
—
|
|
112359 Factor Fund LLC, 6% interest, net of discount
|
|
|
—
|
|
|
|
690,184
|
|
FLUX Carbon Starter Fund LLC, 6% interest, no conversion discount
|
|
|
255,000
|
|
|
|
—
|
|
Five Nine Group LLC, 6% interest, no conversion discount
|
|
|
250,000
|
|
|
|
—
|
|
Asher Enterprises, Inc. 8% interest, conversion at 59% of market, net of discount
|
|
|
|
|
|
|
16,798
|
|
Donald Wachelka, 8.5% interest, conversion at $0.10
|
|
|
-
|
|
|
|
50,000
|
|
Convertible note related party, conversion at $0.05
|
|
|
—
|
|
|
|
150,000
|
|
Settlement Contingency Debentures
|
|
|
240,000
|
|
|
|
101,000
|
|
Total current portion of convertible debentures
|
|
$
|
7,748,696
|
|
|
$
|
1,007,982
|
|
|
|
|
|
|
|
|
|
|
Long term convertible debentures:
|
|
|
|
|
|
|
|
|
Gerova Asset Backed Holdings, LP, 2% interest, no conversion discount
|
|
$
|
175,000
|
|
|
$
|
—
|
|
Cantrell Winsness Technologies, LLC, 2% interest, conversion at 100% of market
|
|
|
325,000
|
|
|
|
—
|
|
Long Side Ventures, 6% interest, conversion at 90% of market
|
|
|
225,586
|
|
|
|
—
|
|
EXO Opportunity Fund, LLC, 6% interest, conversion at 90% of market
|
|
|
4,500,000
|
|
|
|
—
|
|
Note discount
|
|
|
(4,500,000
|
)
|
|
|
—
|
|
Total long term convertible debentures
|
|
$
|
725,586
|
|
|
$
|
—
|
|
A
total of $12,974,282 in principal from the convertible debt noted above is convertible into the common stock of the Company. The
following chart is presented to assist the reader in analyzing the Company’s ability to fulfill its fixed debt service requirements
as of December 31, 2015 and the Company’s ability to meet such obligations:
Year
|
|
Amount
|
|
2016
|
|
$
|
8,461,118
|
|
2017
|
|
|
4,625,000
|
|
2018
|
|
|
600,586
|
|
2019
|
|
|
—
|
|
2020
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
Total minimum payments due under current and long term obligations
|
|
$
|
13,686,704
|
|
TCA
CREDIT LINE
On
December 31, 2015, Bitzio and each of its subsidiaries entered into a Senior Secured Revolving Credit Facility Agreement (the
“Credit Agreement”) with TCA Global Credit Master Fund, LP (“TCA”). Pursuant to the Credit Agreement,
TCA loaned $2,900,000 to Bitzio on December 31, 2015. The Credit Agreement contemplates that the lending limit may be increased
to $5,000,000, on Bitzio’s request and at TCA’s discretion, provided that amount of loans outstanding under the Credit
Agreement will be capped based upon lending ratios specified in the Credit Agreement. A total of $2,500,000 from the amount loaned
on December 31, 2015 was used by Bitzio to purchase the Series G shares from GreenShift, as described above (see Note 5,
Shareholder’s
Equity
, above).
The
$2.9 million loan made on December 31, 2015 is, and any future loan will be, reflected in a Senior Secured Revolving Convertible
Promissory Note (the “TCA Note”), which has a maturity date of December 31, 2016. The TCA Note bears interest at 11%
per annum. In the event of a default under the TCA Note or with the consent of Bitzio, TCA may convert portions of principal and
interest due under the TCA Note into shares of Bitzio common stock at a conversion price equal to 85% of the lowest daily volume
weighted average price of Bitzio common stock during the five trading days preceding conversion; provided, however, that no conversion
is permitted that will result in the Note-holder becoming the beneficial owner of more than 4.99% of Bitzio’s outstanding
common stock. The Credit Agreement required that Bitzio pay an advisory fee to TCA in the amount of $3,200,000. Payment was made
on December 31, 2015 by the issuance of 320,000 shares of Series E Preferred Stock to TCA. To secure its obligations under the
Note and Credit Agreement, Bitzio pledged to TCA all of its assets, as did each of Bitzio’s subsidiaries.
FACTOR
FUND DEBENTURE
On
August 5, 2014, the Company issued a $650,000 convertible debenture to 112359 Factor Fund LLC (“Factor Fund”) for
$325,000 in cash, paid between August 2014 and May 2015. The debenture carried interest at 8% per annum, and converted into Company
common stock at a conversion price equal to 100% of the average of the five (5) lowest closing market prices for the common stock
for the sixty trading days preceding conversion, but may not convert into a number of shares that would result in the holder owning
beneficially more than 9.99% of the Company’s outstanding shares. On February 26, 2015, Factor Fund assigned the balance
due under the foregoing debenture in two equal $325,000 portions to its members, Five Nine Group LLC (“Five Nine”)
and FLUX Carbon Starter Fund LLC (“FCSF”). On the same date, the Company additionally issued convertible debentures
with a principal balance of $534,888 to Factor Fund in exchange for debentures issued to Factor Fund in prior periods. The issued
amount was then assigned in two equal portions to Factor Fund’s members, Five Nine and FCSF. A total of $592,444 was due
as of February 26, 2015, to each Five Nine and FCSF as a result of the foregoing transactions. Of the amount assigned to FCSF,
$108,560 of principal plus $16,440 of interest was transferred to Long Side Ventures LLC (“LSV”). The holder of each
debenture may convert the principal and interest accrued on the A&R Debentures into common stock at a conversion price equal
to 100% of the average of the five (5) lowest closing market prices for the common stock for the sixty trading days preceding
conversion, but may not convert into a number of shares that would result in the holder owning beneficially more than 4.99% of
the Registrant’s outstanding shares. The Company accounted for the foregoing transfers as an extinguishment of debt and
recorded a loss on extinguishment of $938,489.
On
December 31, 2015, Five Nine and FCSF agreed to exchange 100% of their respective right, title and interest, in to and under all
amounts assigned from Factor Fund and otherwise due to each party in exchange for two $250,000 debentures, one each issued to
Five Nine and FCSF. The holder of each debenture may convert the principal and interest accrued on the A&R Debentures into
common stock at a conversion price equal to 100% of the average of the five (5) lowest closing market prices for the common stock
for the sixty trading days preceding conversion, but may not convert into a number of shares that would result in the holder owning
beneficially more than 9.99% of the Registrant’s outstanding shares. Per ASC 470-50-40-10 the exchange of debt instruments
between or a modification of a debt instrument by a debtor and a creditor in a non troubled debt situation is deemed to have been
accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of
the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of
the original instrument. The company found that the present value of the cash flows of the new debt instrument was at least 10%
different from the present value of the remaining cash flows of the original instrument. Therefore, debt extinguishment accounting
rules apply. Accordingly, the reissued convertible notes payable were initially recorded at fair value, with a gain on extinguishment
of debt of $639,667 for the difference in the fair value of the new notes compared to the carrying value of the old notes.
YA
GLOBAL INVESTMENTS, L.P.
On
December 31, 2015, YA Global Investments, LP (“YA Global”) and GreenShift entered into a Settlement Agreement pursuant
to which YA Global split its outstanding debt into two debentures, a $14,196,897 debenture and a $5,000,000 debenture; and then
accepted, in satisfaction of $14,196,897 of principal and interest accrued on debentures previously issued by GreenShift, a cash
payment of $2,000,000, and the execution of a participation agreement by GreenShift and its affiliates. The $5 million debenture
was assigned to EXO Opportunity Fund LLC (“EXO”) on the same date. The participation agreement provides that, for
an indefinite term, GreenShift and its subsidiaries will pay to YA Global an amount equal to 15% of all payments received by the
Company from any new licensees issued in connection with its intellectual properties, including any amounts awarded in the Company’s
pending and future infringement matters, net of any legal fees and expenses incurred in obtaining the settlement or award. The
balance due to YA Global, including all convertible debt, was paid and satisfied in full as a result of the foregoing transactions.
On
the same date, GreenShift deposited $400,000 in cash into escrow in anticipation of settling an additional $2,939,000 in principal
and interest due from GreenShift to various assignees of YA Global (“YAGI Assignees”). The relevant agreement provided
that the YAGI Assignees had until March 31, 2016, to accept their respective share of the settlement amount. All but three of
the assignees, corresponding to about $25,000 in debt, accepted the settlement terms as of such date; in turn corresponding to
a total of an additional $2,914,000 in debt elimination during the first quarter 2016 (see Note 22,
Subsequent Events
,
below).
The
terms of the $5 million debenture assigned to EXO and the $25,000 balance due to the YA Global assignees noted above are nearly
identical. Each debenture bears interest at 6% per annum, and each holder has the right, but not the obligation, to convert any
portion of the debenture into GreenShift’s common stock at a rate equal to 90% of the lowest daily volume weighted average
price of GreenShift’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The
debentures mature on December 31, 2017. The debentures also contain a “buy-in” provision in regards to potential cash-settled
portion of any conversion.
GreenShift
accounted for the foregoing debentures in accordance with ASC 815,
Derivatives and Hedging
, as the conversion feature embedded
in each debenture could result in the note principal being converted to a variable number of GreenShift’s common shares.
GreenShift
determined the aggregate value of the YAGI Assignee debentures at December 31, 2014, to be $1,605,782 which represented the aggregate
face value of the debentures of $1,445,266 plus the present value of the conversion feature. During the year ended December 31,
2015, GreenShift made payments against the YAGI Assignee debentures which resulted in a $25,227 reduction of the fair value of
the conversion liability for the period. In addition, the value was reduced by $400,804 for conversion features eliminated upon
retirement of the related debentures (see below) as well as a reduction of $16,655 due to conversions during the period. During
the year ended December 31, 2015, a value of $16,655 was recognized for conversion features and accretion to fair value for new
debentures assigned during the period. The carrying value of the YAGI Assignee debentures was $2,518,167 as of December 31, 2015,
including principal of $2,266,426 and the value of the conversion liability. The present value of the liability for the conversion
feature has reached its estimated settlement value of $251,760 as of December 31, 2015. Interest expense of $122,156 for these
obligations was accrued for the year ended December 31, 2015.
GreenShift
is prohibited under its loan agreements from issuing common shares at prices lower than those afforded to EXO in the absence of
EXO’s prior consent. The EXO Debenture provides for adjustments to the conversion price to the extent that GreenShift issues
equity at a lower price in the future. As a result, in any such event, EXO would have the right to receive common shares upon
conversion of the EXO Debenture at rates equal to the relevant lower rates. A note discount of $5,000,000 and a derivative liability
of $7,484,632 were recorded at the time of the assignment. GreenShift accounted for the EXO Debenture in accordance with 815-40,
Derivatives and Hedging
, as the conversion feature embedded in the EXO Debenture could result in the note principal being
converted to a variable number of GreenShift’s common shares. The balance of the EXO Debenture (including the related note
discount) was $4,500,000 at December 31, 2015. At December 31, 2015, GreenShift valued the conversion features using a Black-Scholes
model with a weighted probability calculation of the conversion price reset feature and the following assumptions: dividend yield
of zero, years to maturity of 2.0 years, Discount rate of 0.14 percent, and annualized volatility of 296%. During the year ended
December 31, 2015, the change in the fair value of the derivative resulted in an accounting gain of $248,463. As of December 31,
2015, the fair value of the derivative liability was $6,736,169.
As
of December 31, 2010, GreenShift had convertible debentures payable to Minority Interest Fund (II), LLC (“MIF”) in
an aggregate principal amount of $3,988,326 (the “MIF Debenture”) and convertible debentures payable to Viridis Capital
LLC in an aggregate principal amount of $518,308 (the “Viridis 2010 Debenture”). Effective October 1, 2015, MIF assigned
$557,500 of its convertible debt to EXO (the “EXO Debenture”). As of December 31, 2015, MIF assigned $100,000 of its
balance to TKR Management LLC. During the year ended December 31, 2014, $95,390 and $70,812 in principal was converted into common
stock as of December 31, 2015 and 2014, respectively. As of December 31, 2015, the balances of the EXO, TKR, MIF and Viridis Debentures
were $0, $100,000, $1,517,830, and $0, respectively.
During
the year ended December 31, 2015, GreenShift issued a $400,000 convertible debt to Cantrell Winsness Technologies, LLC (“CWT”
and the “CWT Debenture”) in exchange for all amounts accrued under the technology agreement and CWT’s interest
in the Series F Preferred Stock. CWT shall have the right, but not the obligation, to convert any portion of the convertible debenture
into GreenShift’s common stock at $0.001 per share. The CWT Debenture matures December 31, 2018. The balance of the CWT
Debenture was $400,000 at December 31, 2015.
During
the year ended December 31, 2012, GreenShift incurred $175,000 in convertible debt to Gerova Asset Back Holdings, LP (“Gerova”
and the “Gerova Debenture”). Gerova shall have the right, but not the obligation, to convert any portion of the convertible
debenture into GreenShift’s common stock at a rate equal to 100% of the closing market price for GreenShift’s common
stock for the day preceding the conversion date. The Gerova Debenture matures December 31, 2018. Gerova delivered a release in
favor of GreenShift in respect of any and all amounts that may have been due under GreenShift’s former guaranty agreement
with Gerova. The balance of the Gerova Debenture was $175,000 at December 31, 2015. Interest expense of $3,500 for these obligations
was accrued for the year ended December 31, 2015.
During
the year ended December 31, 2013, Minority Interest Fund (II), LLC assigned $200,000 of its convertible debt to Nicholas J. Morano,
LLC (“Morano” and the “Morano Debenture”). Morano shall have the right, but not the obligation, to convert
any portion of the accrued interest into GreenShift’s common stock at 100% of the market price for GreenShift’s common
stock at the time of conversion. During the year ended December 31, 2014, $75,746 in principal was converted into common stock.
Morano released GreenShift from its obligation to pay off the remaining balance on the debenture. The balance of principal and
interest due under the Morano Debenture was $0 at December 31, 2015.
Effective
December 31, 2015, Minority Interest Fund (II), LLC assigned $100,000 of its convertible debt to TRK Management, LLC (“TRK”
and the “TRK Debenture”). TRK shall have the right, but not the obligation, to convert any portion of the accrued
interest into GreenShift’s common stock at 100% of the market price for GreenShift’s common stock at the time of conversion.
The balance of the TRK Debenture was $100,000 at December 31, 2015.
ASHER
ENTERPRISE INC.
On
March 4, 2014, the Company issued an 8% convertible promissory note in the aggregate principal amount of $37,500 to an accredited
investor. The note has a maturity date of December 10, 2014. The note is convertible into shares of our common stock at a conversion
price of 59% of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding
a conversion date. The Company accounted for the conversion feature as a derivative valued at $253,302, of which $37,500 was recorded
as a debt discount to be amortized over the life of the note. The remaining $215,802 was expensed immediately to interest expense.
As of December 31, 2014, the note and accrued interest was fully repaid.
On
April 14, 2014, the Company issued an 8% convertible promissory note in the aggregate principal amount of $37,500 to an accredited
investor. The note has a maturity date of January 18, 2015. The note is convertible into shares of our common stock at a conversion
price of 59% of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding
a conversion date. During the year ended December 31, 2014, the Company recorded an interest expense of $1,500. The Company accounted
for the conversion feature as a derivative valued at $48,244, of which $37,500 was recorded as a debt discount to be amortized
over the life of the note. The remaining $10,744 was expensed immediately to interest expense. During the year ended December
31, 2014, the Company recorded an interest expense of $1,500. During the year ended December 31, 2014 $37,500 of principal was
converted into 494,361,111 shares of the Company’s common stock.
On
May 5, 2014, the Company issued an 8% convertible promissory note in the aggregate principal amount of $32,500 to an accredited
investor. The note has a maturity date of February 9, 2015. The note is convertible into shares of our common stock at a conversion
price of 59% of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding
a conversion date. During the nine months ended September 30, 2015, the Company recorded an interest expense of $1,635. The Company
accounted for the conversion feature as a derivative valued at $36,411, of which $32,500 was recorded as a debt discount to be
amortized over the life of the note. The remaining $3,911 was expensed immediately to interest expense. As of September 30, 2015,
the note and accrued interest was fully repaid.
On
August 20, 2014, the Company issued an 8% convertible promissory note in the aggregate principal amount of $20,500 to an accredited
investor. The note has a maturity date of May 15, 2015. The note is convertible into shares of our common stock at a conversion
price of 59% of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding
a conversion date. During the nine months ended September 30, 2015, the Company recorded an interest expense of $606. The Company
accounted for the conversion feature as a derivative valued at $31,689, of which $20,500 was recorded as a debt discount to be
amortized over the life of the note. The remaining $11,189 was expensed immediately to interest expense. As of December 31, 2015,
the note and accrued interest was fully repaid.
NOTE
10
|
COMMITMENTS
AND CONTINGENCIES
|
FACILITIES
Our
agriculture group headquarters are located in Alpharetta, Georgia. The Alpharetta lease had a one year term that terminated on
January 2016, at which time the lease was extended by another year. The monthly lease payment is $1,664. For the agriculture group,
the total rent for the years ended December 31, 2015 and 2014 was $21,257 and $22,500, respectively. Our apparel operations are
based in Chatsworth, California. The Chatsworth lease has a three year term that terminates in January 2019. The monthly lease
payment is $4,300. For the apparel group, the total rent for the years ended December 31, 2015 and 2014 was $38,674 and $44,021,
respectively.
INFRINGEMENT
On
October 13, 2009, the U.S. Patent and Trademark Office (“PTO”) issued U.S. Patent No. 7,601,858, titled “Method
of Processing Ethanol Byproducts and Related Subsystems” (the ‘858 Patent) to GS CleanTech Corporation, a wholly-owned
subsidiary of GreenShift Corporation. On October 27, 2009, the PTO issued U.S. Patent No. 7,608,729, titled “Method of Freeing
the Bound Oil Present in Whole Stillage and Thin Stillage” (the ‘729 Patent) to GS CleanTech. Both the ‘858
Patent and the ‘729 Patent relate to GreenShift’s corn oil extraction technologies. GS CleanTech Corporation, our
wholly-owned subsidiary, subsequently filed legal actions in multiple jurisdictions alleging infringement by various persons and
entities. Multiple additional related suits and countersuits were filed. On May 6, 2010, we submitted a “Motion to Transfer
Pursuant to 28 U.S.C. § 1407 for Consolidated Pretrial Proceedings” to the United States Judicial Panel on Multidistrict
Litigation (the “Panel”) located in Washington, D.C. In this motion, we moved the Panel to transfer and consolidate
all pending suits involving infringement of our patents to one federal court for orderly and efficient review of all pre-trial
matters. On August 6, 2010, the Panel ordered the consolidation and transfer of all pending suits in the U.S. District Court,
Southern District of Indiana for pretrial proceedings (the “MDL Case”). In October 2014, the District Court in Indiana
ruled in favor of the defendants in our pending patent infringement matter on their motions for summary judgment alleging that
our corn oil extraction patents were invalid, including US Pat. Nos. 7,601,858 and 8,168,037. The summary judgment ruling was
not final and there are additional issues in the MDL Case that can be expected to be resolved this year. We disagree with the
court’s ruling and intend to mount a vigorous appeal at the appropriate time.
OTHER
MATTERS
GreenShift
is party to an action entitled Max v. GS AgriFuels Corp., et al. in the Supreme Court, New York County, in which the plaintiffs
are asserting claims to money damages against GreenShift and other defendants, arising from a series of Share Purchase Agreements
dated March 6, 2007, under which the individual plaintiffs sold their shares in Sustainable Systems, Inc., to GS AgriFuels Corporation,
a former subsidiary of GreenShift. In their Amended Complaint, plaintiffs asserted claims for breach of contract, fraud and negligent
misrepresentation, and sought money damages in the amount of $6 million. On March 19, 2013, the Court granted in part the defendants’
motion to dismiss the Amended Complaint, and dismissed all but the breach of contract claims asserted against GreenShift and certain
other corporate defendants. On April 1, 2015, GreenShift entered into a settlement agreement pursuant to which the plaintiff s
are to receive $25,000 in cash and a convertible debenture in the amount of $300,000. In the event that the plaintiffs have not
converted the debenture in full at the expiration of three years, the plaintiffs may request the remaining amount be paid in full
at that time. While the settlement agreement has not yet been implemented by the payment of the specified cash and the issuance
of the specified debenture, the action has been marked “disposed” by the court.
On
September 10, 2012, Long Side Ventures commenced an action entitled Long Side Ventures and Sunny Isles Ventures, LLC, LLC v. GreenShift
et. al., in the United States District Court for the Southern District of New York, alleging breach of contract and other causes
of action for which the plaintiff seeks damages of about $250,000 plus costs. On February 24, 2015, GreenShift entered into a
settlement agreement pursuant to which the plaintiff is to receive $150,000 in cash and securities in the amount of $250,000.
GreenShift accrued the entire $400,000 judgment on its books as of the year ended December 31, 2014. During the six months ended
June 30, 2014, GreenShift issued a debenture to Long Side Ventures in the amount of $250,000 (see Note 9,
Debt Obligations
,
above). GreenShift has already paid the $150,000 due in cash under the settlement agreement. Nevertheless, there is a current
dispute with the plaintiffs as to whether GreenShift and the other defendants have performed their obligations under the settlement
agreement, and whether the plaintiffs have the right to declare a default under the settlement agreement. GreenShift has taken
the position that it has fully performed and intends to vigorously contest any alleged default. Upon the performance of the terms
of the Settlement Agreement, the Action will be dismissed against GreenShift and the other defendants.
On
October 10, 2013, Golden Technology Management, LLC, and other plaintiffs commenced an action entitled Golden Technology Management,
LLC, et al. v. NextGen Acquisition, Inc. et al. in the Supreme Court of the State of New York, County of New York, alleging breach
of contract and other causes of action against GreenShift in connection with the acquisition of NextGen Fuel, Inc. by a former
subsidiary. Plaintiffs seek damages in excess of $5,200,000 plus prejudgment interest and costs. On December 22, 2014, the court
granted summary judgment as to the former subsidiary’s liability for payment of the sum of $3.2 million, plus prejudgment
interest and costs. The plaintiffs’ have asserted a claim for alter ego liability for that amount against GreenShift and
the other defendants. The litigation is proceeding and GreenShift intends to vigorously defend this action. At this stage of the
proceedings, we cannot evaluate the likelihood of an unfavorable outcome in excess of the amounts previously accrued.
GreenShift
is also involved in various collection matters for which vendors are seeking payment for services rendered and goods provided.
GreenShift and its subsidiaries are party to numerous matters pertaining to outstanding amounts alleged to be due. Management
is unable to characterize or evaluate the probability of any outcome at this time.
Under
GreenShift’s insurance programs, coverage is obtained for catastrophic exposures, as well as those risks required to be
insured by law or contract. There is a $2,500 deductible per occurrence for environmental impairments. Environmental liability
insurance is carried with policy limits of $1,000,000 per occurrence and $2,000,000 aggregate.
GreenShift
is party to an employment agreement with Kevin Kreisler, GreenShift’s Chairman and Chief Executive Officer, which agreement
includes terms for reimbursement of expenses, periodic bonuses, four weeks’ vacation and participation in any employee benefits
provided to all employees of GreenShift Corporation.
GreenShift’s
Articles of Incorporation provide that GreenShift shall indemnify its officers, directors, employees and agents to the full extent
permitted by Delaware law. GreenShift’s Bylaws include provisions to indemnify its officers and directors and other persons
against expenses (including attorney’s fees, judgments, fines and amounts paid for settlement) incurred in connection with
actions or proceedings brought against them by reason of their serving or having served as officers, directors or in other capacities.
GreenShift does not, however, indemnify them in actions in which it is determined that they have not acted in good faith or have
acted unlawfully. GreenShift is further subject to various indemnification agreements with various parties pursuant to which GreenShift
has agreed to indemnify and hold such parties harmless from and against expenses and costs incurred (including attorney’s
fees, judgments, fines and amounts paid for settlement) in connection with the provision by such parties of certain financial
accommodations to GreenShift. Such parties indemnified by GreenShift include FLUX Carbon Corporation, EXO Opportunity Fund LLC,
Minority Interest Fund (II) LLC, Acutus Capital LLC, and various family members of GreenShift’s chairman that have provided
GreenShift with cash investments.
Prior
to December 31, 2015, Viridis was subject to guaranty and pledge agreements in favor of YA Global, pursuant to which Viridis pledged
its equity in GreenShift and other assets to secure GreenShift ‘s payment obligations under its prior agreements with YA
Global. To cure various defaults of GreenShift’s debt to YA Global in 2007, 2009 and 2010, YA Global liquidated about $1.8
million of stock owned by Viridis, the proceeds of which were applied by YA Global to the reduction of amounts due from GreenShift.
In addition, as a further requirement of YA Global to cure debt defaults in 2007 and 2008, an affiliate of Viridis agreed to eliminate
about $2.2 million in debt and exchange another $800,000 in debt for restricted common shares; which shares were subject to restrictions
on transfer required by YA Global. Each of the foregoing transactions triggered tax consequences and GreenShift’s associated
agreements to indemnify. During the year ended December 31, 2015, GreenShift incurred a total of about $1 million in other expenses
related to indemnification expenses in satisfaction of its obligations under relevant agreements, which is disclosed in Other
Expenses within the accompanying Statement of Operations.
NOTE
11
|
GUARANTY
AGREEMENT
|
On
December 31, 2015, Bitzio entered into a $2.9 million loan transaction with TCA Global Credit Master Fund, LP (“TCA”),
pursuant to which Bitzio drew $2.5 million for use in its acquisition of 100,000 shares of GreenShift’s Series G Preferred
Stock (see Note 5,
Shareholders’ Equity
, above). The TCA loan was made pursuant to a Senior Secured Revolving Credit
Facility Agreement (the “Credit Agreement”), under which TCA may lend to Bitzio up to $5.0 million. GreenShift and
each of its subsidiaries, as well as each of the other subsidiaries of Bitzio, has executed a Guaranty Agreement in favor of TCA
on December 31, 2015. FCC, GreenShift, and each of its subsidiaries, as well as each of the other subsidiaries of Bitzio, has
executed a Guaranty Agreement dated December 31, 2015, in favor of TCA, pursuant to which GreenShift and its subsidiaries guaranteed
payment of all amounts due to TCA under the Credit Agreement. By separate agreements, GreenShift and each subsidiary pledged all
of its assets to secure the guaranty to TCA.
NOTE
12
|
SEGMENT
INFORMATION
|
We
determined our reporting units in accordance with ASC 280, “
Segment Reporting
” (“ASC 280”). We
evaluate a reporting unit by first identifying its operating segments under ASC 280. We then evaluate each operating segment to
determine if it includes one or more components that constitute a business. If there are components within an operating segment
that meet the definition of a business, we evaluate those components to determine if they must be aggregated into one or more
reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, we determine
if the segments are economically similar and, if so, the operating segments are aggregated.
The
Company’s operations during the fiscal year ended December 31, 2015 are classified into two reportable business segments:
Lifestyle and Agriculture. Each of these segments is organized based upon the nature of products and services offered. The Company’s
operations during the fiscal year ended December 31, 2014 are comprised solely of Lifestyle. Summarized financial information
about each segment is provided below:
|
|
Corporate
|
|
|
Lifestyle
|
|
|
Agriculture
|
|
|
Total
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,025,157
|
|
|
$
|
210,841
|
|
|
$
|
5,635,372
|
|
|
$
|
10,871,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
402,818
|
|
|
$
|
9,466,988
|
|
|
$
|
9,869,806
|
|
Costs of sales
|
|
|
—
|
|
|
|
325,191
|
|
|
|
3,177,314
|
|
|
|
3,502,505
|
|
Depreciation/amortization expense
|
|
|
386,823
|
|
|
|
—
|
|
|
|
3,202
|
|
|
|
390,025
|
|
Operating expenses - other
|
|
|
2,488,255
|
|
|
|
310,458
|
|
|
|
4,860,574
|
|
|
|
7,659,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
13,309,542
|
|
|
|
—
|
|
|
|
8,505,635
|
|
|
|
21,815,177
|
|
Interest expense
|
|
|
(5,831,899
|
)
|
|
|
(10,158
|
)
|
|
|
—
|
|
|
|
(5,842,057
|
)
|
Change in fair value of derivatives
|
|
|
3,916,310
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,916,310
|
|
Equity loss from investee
|
|
|
—
|
|
|
|
—
|
|
|
|
(643,320
|
)
|
|
|
(643,320
|
)
|
Other expense
|
|
|
(1,031,095
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,031,095
|
)
|
Income (loss) before taxes
|
|
|
7,487,780
|
|
|
|
(242,989
|
)
|
|
|
9,288,213
|
|
|
|
16,533,004
|
|
Taxes
|
|
|
(146,477
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(146,477
|
)
|
Net income (loss)
|
|
$
|
7,341,303
|
|
|
$
|
(242,989
|
)
|
|
$
|
9,288,213
|
|
|
$
|
16,386,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(244,504
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(244,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
660,681
|
|
|
$
|
238,448
|
|
|
$
|
—
|
|
|
$
|
899,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
79,754
|
|
|
$
|
314,757
|
|
|
$
|
—
|
|
|
$
|
394,511
|
|
Costs of sales
|
|
|
31,375
|
|
|
|
177,954
|
|
|
|
—
|
|
|
|
209,329
|
|
Depreciation/amortization expense
|
|
|
209,085
|
|
|
|
—
|
|
|
|
—
|
|
|
|
209,085
|
|
Operating expenses - other
|
|
|
980,420
|
|
|
|
183,037
|
|
|
|
—
|
|
|
|
1,163,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
(2,044,298
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,044,298
|
)
|
Interest expense
|
|
|
(791,681
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(791,681
|
)
|
Gain (loss) on extinguishment of debt
|
|
|
(42,778
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,778
|
)
|
Other income (expense)
|
|
|
24,476
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,476
|
|
Income (loss) before taxes
|
|
|
(3,995,407
|
)
|
|
|
(46,234
|
)
|
|
|
—
|
|
|
|
(4,041,641
|
)
|
Taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(3,995,407
|
)
|
|
$
|
(46,234
|
)
|
|
$
|
—
|
|
|
$
|
(4,041,641
|
)
|
During
the year ended December 31, 2015, for our agriculture segment, one customer provided 56% of total revenue in the aggregate, totaling
$5,528,739; during the year ended December 31, 2014, two customers each provided over 10% of our revenue and 30% of total revenue
in the aggregate.
NOTE
13
|
MINORITY
SHAREHOLDER OBLIGATION
|
Under
our agriculture segment, GreenShift accrued $158,284 as of December 31, 2015, in connection with amounts incurred prior to 2005
by an inactive subsidiary.
NOTE
14
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
The
following is a summary of supplemental disclosures of cash flow information:
|
|
2015
|
|
|
2014
|
|
Cash paid during the year for the following:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Debentures converted into common stock
|
|
|
986,601
|
|
|
|
1,870,279
|
|
Debt discounts on convertible notes payable
|
|
|
4,620,000
|
|
|
|
463,000
|
|
Reduction in value of conversion features of convertible debt from conversions
|
|
|
30,963
|
|
|
|
—
|
|
Investment in joint venture via contribution of intellectual property
|
|
|
4,000,000
|
|
|
|
—
|
|
Forgiveness of affiliate receivable charged against paid-in capital
|
|
|
480,625
|
|
|
|
—
|
|
Acquisition of subsidiaries
|
|
|
—
|
|
|
|
1,761,345
|
|
Note payable paid by a third party
|
|
|
—
|
|
|
|
94,500
|
|
Other issue discount
|
|
|
—
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Lexi Luu:
|
|
|
|
|
|
|
|
|
Cash acquired
|
|
|
—
|
|
|
|
170
|
|
Other assets acquired
|
|
|
—
|
|
|
|
778,533
|
|
Liabilities assumed
|
|
|
—
|
|
|
|
(358,703
|
)
|
Earn-out contingent liability
|
|
|
—
|
|
|
|
(120,000
|
)
|
3,000,000 common shares issued
|
|
|
—
|
|
|
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
Acquisition of E-motion Apparel
|
|
|
|
|
|
|
|
|
Cash acquired
|
|
|
—
|
|
|
|
(497
|
)
|
Other assets acquired
|
|
|
—
|
|
|
|
245,092
|
|
Liabilities assumed
|
|
|
—
|
|
|
|
(196,595
|
)
|
Earn-out contingent liability
|
|
|
—
|
|
|
|
(48,000
|
)
|
|
|
|
—
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Acquisition of GreenShift and its subsidiaries:
|
|
|
|
|
|
|
|
|
Cash acquired
|
|
|
587,021
|
|
|
|
—
|
|
Other assets acquired
|
|
|
1,494,740
|
|
|
|
—
|
|
Liabilities assumed
|
|
|
(41,797,563
|
)
|
|
|
—
|
|
Excess of carrying value of consideration given, recorded against non-controlling
interest, additional paid in capital and accumulated deficit
|
|
|
42,216,802
|
|
|
|
—
|
|
Total non-cash consideration (below)
|
|
|
(2,501,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable issued
|
|
|
2,500,000
|
|
|
|
|
|
Issuance of Series E Preferred Stock
|
|
|
200
|
|
|
|
—
|
|
Issuance of Series F Preferred Stock
|
|
|
800
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Punkz Gear:
|
|
|
|
|
|
|
|
|
Cash acquired
|
|
|
16,526
|
|
|
|
—
|
|
Other assets acquired
|
|
|
8,276
|
|
|
|
—
|
|
Liabilities assumed
|
|
|
(740
|
)
|
|
|
—
|
|
Excess of carrying value of note payable issued over net assets received
and recorded as additional paid in capital
|
|
|
(175,938
|
)
|
|
|
—
|
|
Note payable issued
|
|
|
(200,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Skipjack:
|
|
|
|
|
|
|
|
|
Cash acquired
|
|
|
1,502
|
|
|
|
—
|
|
Other assets acquired
|
|
|
35,494
|
|
|
|
—
|
|
Liabilities assumed
|
|
|
(21,747
|
)
|
|
|
—
|
|
Excess of carrying value of note payable issued over net assets received
and recorded as additional paid in capital
|
|
|
(84,751
|
)
|
|
|
—
|
|
Note payable issued
|
|
|
(100,000
|
)
|
|
|
—
|
|
NOTE
15
|
RELATED
PARTY TRANSACTIONS
|
On
February 26, 2015, the Company entered into and closed under a securities purchase agreement to acquire 100% of the outstanding
shares of Skipjack Dive and Dancewear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount
of $100,000 owed to the individual who was the Company’s chief executive officer at that time. The note has a maturity date
of December 31, 2015, and is convertible at the rate of $0.10 per share into 1,000,000 shares of common stock of the Company.
As of December 31, 2015, the Company had principal outstanding in the note of $100,000. On March 3, 2015, the Company entered
into and closed under a securities purchase agreement to acquire 100% of the outstanding shares of Punkz Gear, Inc., in exchange
for a 2% subordinate secured term note in the aggregate principal amount of $200,000 owed to the individual who was the Company’s
chief executive officer at that time. The note has a maturity date of December 31, 2015, and is convertible at the rate of $0.10
per share into 2,000,000 shares of common stock of the Company. As of December 31, 2015, the Company had principal outstanding
in the note of $200,000.
Minority
Interest Fund (II), LLC (“MIF”) is party to certain convertible debentures issued by GreenShift (see Note 9,
Debt
Obligations
, above). The managing member of MIF is a relative of GreenShift’s chairman. On December 31, 2015, MIF and
Acutus Capital LLC (“AC”) assigned their respective beneficial ownership interests in the Series D Shares to EXO Opportunity
Fund LLC (“EXO”) (see Note 5,
Shareholders’ Equity
, above). EXO, in turn, assigned the corresponding
beneficial interests to Bitzio in exchange for 200,000 shares of Bitzio Series E Preferred Stock. On the same date, FLUX Carbon
Corporation (“FCC”), an entity owned by Kevin Kreisler, GreenShift’s chairman, transferred its ownership interest
in Viridis Capital LLC (“Viridis”) to Bitzio. As a result of the foregoing transactions, on December 31, 2015, Bitzio
was the beneficial owner of 862,500 Series D Shares, as well as AC’s 2011 contractual right to receive an additional 124,875
Series D Shares, all of which was exchanged for 700,000 shares of GreenShift’s Series G Preferred Stock. GreenShift filed
a Certificate of Elimination for its Series D Preferred Stock after completing that transfer. On December 31, 2015, Bitzio entered
into a $2.9 million loan transaction with TCA Global Credit Master Fund, LP (“TCA”), pursuant to which Bitzio drew
$2.5 million for use in its acquisition of 100,000 shares of GreenShift’s Series G Preferred Stock (see Note 5,
Shareholders’
Equity
, above). FCC, GreenShift, and each of its subsidiaries, as well as each of the other subsidiaries of Bitzio, executed
a Guaranty Agreement in favor of TCA on December 31, 2015, pursuant to which GreenShift and its subsidiaries guaranteed payment
of all amounts due to TCA under the Credit Agreement (see Note 11,
Guaranty Agreement
, above). As a result of all of the
foregoing transactions, as of December 31, 2015, FCC was the beneficial owner of 80% of Bitzio’s equity, and Bitzio was
the beneficial owner of 80% of GreenShift’s equity. Bitzio develops and commercializes clean technologies that facilitate
the more efficient use of natural resources, and is focused on doing so primarily in three sectors: agriculture, energy and lifestyle.
Kevin Kreisler, GreenShift’s chairman and chief executive officer, was appointed to the posts of chairman and chief executive
officer upon completion of the foregoing transactions.
During
the year ended December 31, 2015, GreenShift issued a $400,000 convertible debt to Cantrell Winsness Technologies, LLC (“CWT”
and the “CWT Debenture”) in exchange for all amounts accrued under the TAA and CWT’s interest in the Series
F Preferred Stock. CWT shall have the right, but not the obligation, to convert any portion of the convertible debenture into
GreenShift’s common stock at $0.001 per share. The CWT Debenture matures December 31, 2018. CWT delivered a release in favor
of GreenShift in respect of any and all amounts that may have been due under GreenShift’s Amended and Restated Technology
Acquisition Agreement with CWT. The balance of the CWT Debenture was $400,000 at December 31, 2015.
During
the year ended December 31, 2015, and further to GreenShift’s stated diversification plans, GreenShift invested in the development
of technologies and businesses that are strategically-relevant to GreenShift’s existing operations. GreenShift’s wholly-owned
subsidiary, GS CleanTech Corporation, is the owner of 100% of the issued and outstanding membership units of Genarex LLC (“GX”),
an entity that in turn holds 36.75% of the issued and outstanding membership units of Genarex FD LLC (“LLC”). LLC
was formed in 2015 for the purpose of continuing the development and commercialization of an intellectual property portfolio involving
production of carbon-neutral alternatives for fossil fuel derived products (“Bioproducts Portfolio”), which had previously
been developed by GX in concert with various third parties. Under the associated agreements, an unaffiliated member of LLC has
agreed to provide LLC up to $3 million to fund the continuing development of the Bioproducts Portfolio. As of December 31, 2015,
GreenShift extended and had about $72,000 in receivables due from GFD, which amount has since been paid.
During
2015, GreenShift loaned about $30,000 to Plaid Canary Corporation (“PCC”), for use in the development of agricultural
technology; about $90,000 to FLUX Carbon Mitigation Fund LLC (“FCMF”), for use in the development of energy technology
and businesses; and about $92,000 to Bitzio, Inc. (“Bitzio”), for use in the development of lifestyle technology and
businesses. GreenShift additionally incurred about $684,000 in research and development costs involving its efforts with PCC and
agricultural technology. FLUX Carbon Corporation (“FCC”) is the beneficial owner of an 80% equity interest in Bitzio,
and of the majority of the stock of the companies which own PCC and FCMF. FCC is owned by Kevin Kreisler, our chairman and chief
executive officer.
At
December 31, 2014, $10,665 was due and payable to our then current Chief Financial Officer as a result of a short-term demand
loan he made to the Company. As well, a total of $123,000 was due to our former Chief Executive Officer related to earned fees
during his tenure. During 2013, the Company borrowed $150,000 from related party through a convertible promissory note bearing
interest at 10% with a maturity date of January 1, 2014. The note contains a conversion feature wherein the note may be converted
to shares of the Company’s common stock at the lower of $0.05 per common share of December 31, 2014, the Company had principal
outstanding in the note of $150,000, and accrued interest of $15,001.
Under
the lifestyle segment, the Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the
use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based
on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these
differences are expected to reverse. The Company’s predecessor operated as entity exempt from Federal and State income taxes.
ASC
740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be realized.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $51.5
million for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating
loss carry forwards may be limited as to use in future years. Due to net operating loss carryforwards, income tax returns remain
subject to examination by federal and most state tax authorities.
The
tax loss carry-forwards are available to offset future taxable income with the federal and state carry-forwards beginning to expire
in 2023. The Company has evaluated its tax positions for years which remain subject to examination by major tax jurisdictions,
in accordance with the requirements of ASC 740 and as a result concluded no adjustment was necessary. The Company files income
tax returns in the U.S. federal jurisdiction, and various state jurisdictions. For 2015, the Company’s subsidiary, GreenShift
does not plan on making the election to be included in Bitzio’s consolidated tax returns, thus it is presented below as
a separate taxpaying component. The Company’s evaluation of uncertain tax positions was performed for the tax years ended
December 31, 2011 and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31,
2015. There were no unrecognized tax benefits. Interest and penalties related to uncertain tax positions will be recognized in
income tax expense. As of December 31, 2015, no interest related to uncertain tax positions had been accrued.
The
provision for income taxes for the years ended December 31, 2015 and December 31, 2014 consisted of the following:
|
|
2015
|
|
|
2014
|
|
Current provision:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
143,957
|
|
|
$
|
—
|
|
State
|
|
|
2,520
|
|
|
|
—
|
|
Total current provision
|
|
|
146,477
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit) for tax:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total deferred provision (benefit) for tax
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total provision for tax
|
|
$
|
146,477
|
|
|
$
|
—
|
|
The
Company has more than one taxpaying component which is composed of GreenShift and all the other consolidated entities (“Bitzio”)
that reflect the tax provision on a separate return basis. The provision for income taxes differs from the amounts which would
be provided by applying the statutory federal income tax rate of 34% to the net loss before provision for income taxes for the
following reasons:
|
|
Bitzio
12/31/15
|
|
|
GreenShift
12/31/15
|
|
|
Total
12/31/15
|
|
|
|
|
|
|
|
|
|
|
|
Book income (loss) before income taxes
|
|
$
|
206,636
|
|
|
$
|
5,424,623
|
|
|
$
|
5,631,259
|
|
Stock options issued for services
|
|
|
113,560
|
|
|
|
—
|
|
|
|
113,560
|
|
Interest expense on convertible notes
|
|
|
205,090
|
|
|
|
345,545
|
|
|
|
550,635
|
|
Interest related to conversion features
|
|
|
—
|
|
|
|
1,435,664
|
|
|
|
1,435,664
|
|
Amortization of Goodwill
|
|
|
(125,274
|
)
|
|
|
—
|
|
|
|
(125,274
|
)
|
Change in derivative liability
|
|
|
(977,784
|
)
|
|
|
(353,762
|
)
|
|
|
(1,331,546
|
)
|
Investee loss
|
|
|
—
|
|
|
|
218,729
|
|
|
|
218,729
|
|
Utilization of net operating loss carryforwards
|
|
|
—
|
|
|
|
(2,626,962
|
)
|
|
|
(2,626,962
|
)
|
Gain on extinguishment of debt
|
|
|
—
|
|
|
|
(4,146,945
|
)
|
|
|
(4,146,945
|
)
|
Other
|
|
|
—
|
|
|
|
(150,415
|
)
|
|
|
(150,415
|
)
|
Change in valuation allowance
|
|
|
577,772
|
|
|
|
—
|
|
|
|
577,772
|
|
Income tax expense
|
|
|
—
|
|
|
|
146,477
|
|
|
|
146,477
|
|
|
|
Bitzio
12/31/14
|
|
Book income (loss) from operations
|
|
|
(1,373,641
|
)
|
Interest expense on convertible notes
|
|
|
184,198
|
|
Amortization of Goodwill
|
|
|
(125,274
|
)
|
Change in derivative liability
|
|
|
695,061
|
|
Change in valuation allowance
|
|
|
619,656
|
|
Income tax expense
|
|
|
—
|
|
In
assessing whether the deferred tax assets are realizable, Management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which
the deferred tax assets are deductible. Management believes it is more likely than not that the Company will not realize the benefits
of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carry forward period are reduced.
Net
deferred tax assets consist of the following components as of:
|
|
Bitzio
12/31/15
|
|
|
GreenShift
12/31/15
|
|
|
Total
12/31/15
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards (expire through 2035)
|
|
$
|
6,413,913
|
|
|
$
|
11,088,465
|
|
|
$
|
17,502,378
|
|
Stock/options issued for services
|
|
|
534,877
|
|
|
|
—
|
|
|
|
534,877
|
|
Allowance for doubtful accounts
|
|
|
—
|
|
|
|
41,000
|
|
|
|
(41,000
|
)
|
Total gross deferred tax asset/liabilities
|
|
|
6,948,790
|
|
|
|
11,047,465
|
|
|
|
17,996,255
|
|
Valuation allowance
|
|
|
(6,948,790
|
)
|
|
|
(11,047,465
|
)
|
|
|
(17,996,255
|
)
|
Net deferred taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Bitzio 12/31/14
|
|
Net operating loss carry forwards (expire through 2034)
|
|
|
5,836,142
|
|
Stock/options issued for services
|
|
|
421,317
|
|
Total gross deferred tax asset/liabilities
|
|
|
6,257,459
|
|
Valuation allowance
|
|
|
(6,257,459
|
)
|
Net deferred taxes
|
|
|
—
|
|
On
July 16, 2014, we entered into a sales purchase agreement to acquire 100% of the outstanding shares of Lexi Luu Designs, Inc.
(“LL”). Bitzio paid 500,000,000 restricted common shares for this acquisition. 300,000,000 shares valued $0.0014,
the market price of the Company’s stock on the day of acquisition, or $420,000, was the consideration given. The other 200,000,000
shares were recorded as compensation for the continuing employment for Mr. Blanchette and will be expensed over the service period
of 20 months. The value of the shares will be amortized over the service period of approximately 20 months. LL shareholders are
able to earn an additional $300,000 in restricted common shares over the course of three years in an earn-out upon hitting certain
revenue benchmarks. The Company recorded an earn-out contingent liability of $87,000 as part of the acquisition. We accounted
for the transaction as a business combination. Of the purchase price paid as of July 16, 2014 ($183,629) was allocated among the
assets and liabilities and the difference was assigned to intangible assets. As of December 31, 2015 and 2014, the revenue of
LL was below the earn-out revenue benchmark, we wrote off $27,000 and $28,000 in contingent liability, respectively. Per ASC 805-10-050-4,
if the acquirer is a public entity, if comparative financial statements are presented, the revenues and earnings of the combined
entity for the current reporting period as though the acquisition date as of the beginning the annual reporting period.
The
following table summarizes our consolidated results of operations for the year ended December 31, 2014, as well as unaudited pro
forma consolidated results of operations as though the Lexi Luu Designs and E-motion Apparel acquisitions had occurred on January
1, 2014:
|
|
As Reported 12/31/14
|
|
|
Pro Forma 12/31/14
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
394,511
|
|
|
$
|
767,310
|
|
Net income (loss)
|
|
|
(1,187,360
|
)
|
|
|
(1,174,919
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
The
unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered
indicative of actual results that would have been achieved if the Lexi Luu Designs and E-motion Apparel had occurred on January
1, 2014.
On
July 18, 2014, we entered into a sales purchase agreement to acquire 100% of the outstanding shares of E-motion Apparel, Inc.
(“EA”). Bitzio paid 350,000,000 restricted commons shares for this acquisition. All 350,000,000 shares were recorded
as compensation for the continuing employment for Ms. Brassington and Ms. Cunningham and will be expensed over the service period
of 20 months. E-motion Apparel shareholders are able to earn an additional $300,000 in restricted common shares over the course
of years in an earn-out upon hitting certain revenue benchmarks. The Company recorded an earn-out contingent liability of $48,000
as part of the acquisition. We accounted for the transaction as a business combination. Of the purchase price paid as of July
18, 2014 ($26,235) was allocated among the assets and liabilities and the difference was assigned to intangible assets. This License
Agreement between Bitzio and E-motion Apparel was cancelled on July 18, 2014 and was replaced with the sales purchase agreement.
As of December 31, 2015 and 2014, as the revenue of EA was below the earn-out revenue benchmark, we wrote off $33,000 and $6,000
in contingent liability, respectively.
The
total purchase price for the LL acquisition was allocated as follows:
Assets
|
|
|
|
|
Cash
|
|
$
|
170
|
|
Accounts receivable
|
|
|
794
|
|
Inventories
|
|
|
64,883
|
|
Property and equipment
|
|
|
2,724
|
|
Other assets
|
|
|
19,503
|
|
Intangible assets-Customer relationships
|
|
|
690,629
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(256,030
|
)
|
Due to shareholder
|
|
|
(15,673
|
)
|
Earn-out contingent liability
|
|
|
(87,000
|
)
|
Net assets acquired
|
|
$
|
420,000
|
|
The
total purchase price for the EA acquisition was allocated as follows:
Assets
|
|
|
|
|
Inventories
|
|
$
|
165,807
|
|
Other assets
|
|
|
5,050
|
|
Intangible assets-Customer relationships
|
|
|
74,235
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(197,092
|
)
|
Earn-out contingent liability
|
|
|
(48,000
|
)
|
Net assets acquired
|
|
$
|
-
|
|
The
customer relationships are being amortized over their estimated useful lives of 2 years.
The
Company has restated its results for the year ended December 31, 2014, and three months ended March 31, 2015, six months ended
June 30, 2015 and nine months ended September 30, 2015 to correct erroneously capitalized share-based payments to our former CFO
and CEO related to the business combination between Bitzio Inc., Lexi Luu Designs and E-motion Apparel (see Note 17,
Acquisitions
),
and combine common stock to be issued in the amount of $120,438 into additional paid in capital. The table below summarizes the
impact of the restatement described above on financial information previously reported on the Company’s Form 10-K for the
period ended December 31, 2014:
|
|
Original
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet for Year Ended 12/31/14:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
$
|
560,631
|
|
|
$
|
(528,224
|
)
|
|
$
|
32,407
|
|
Total current assets
|
|
|
808,414
|
|
|
|
(528,224
|
)
|
|
|
280,190
|
|
Total assets
|
|
|
1,427,353
|
|
|
|
(528,224
|
)
|
|
|
899,129
|
|
Additional paid in capital
|
|
|
19,199,481
|
|
|
|
(407,786
|
)
|
|
|
18,791,695
|
|
Stock to be issued
|
|
|
120,438
|
|
|
|
(120,438
|
)
|
|
|
—
|
|
Total stockholders’ deficit, Bitzio
|
|
|
(4,573,479
|
)
|
|
|
(528,224
|
)
|
|
|
(5,101,683
|
)
|
Total stockholders’ deficit
|
|
|
(4,574,978
|
)
|
|
|
(528,224
|
)
|
|
|
(5,103,202
|
)
|
Total liabilities and stockholders’ deficit
|
|
|
1,427,353
|
|
|
|
(528,224
|
)
|
|
|
899,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Stockholders’ Equity for Year Ended 12/31/14:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid in Capital
|
|
$
|
19,199,481
|
|
|
$
|
(407,786
|
)
|
|
$
|
18,791,695
|
|
Stock to be issued
|
|
|
120,438
|
|
|
|
(120,438
|
)
|
|
|
—
|
|
Total stockholders’ equity
|
|
|
(4,574,978
|
)
|
|
|
(528,224
|
)
|
|
|
(5,103,202
|
)
|
NOTE
19
|
INVESTMENT
IN JOINT VENTURE UNDER THE EQUITY METHOD
|
GreenShift’s
wholly-owned subsidiary, GS CleanTech Corporation, is the owner of 100% of the issued and outstanding membership units of Genarex
LLC (“GX”), an entity that in turn holds 36.75% of the issued and outstanding membership units of Genarex FD LLC (“LLC”).
LLC was formed in 2015 for the purpose of continuing the development and commercialization of an intellectual property portfolio
involving production of carbon-neutral alternatives for fossil fuel derived products (“Bioproducts Portfolio”), which
had previously been developed by GX in concert with various third parties. ASC 810 requires GreenShift to evaluate non-consolidated
entities periodically and as circumstances change to determine if an implied controlling interest exists. GreenShift has evaluated
this equity investment and concluded that LLC is a variable interest entity and GreenShift is not the primary beneficiary. LLC’s
fiscal year end is December 31. Under the associated agreements, an unaffiliated member of LLC has agreed to provide LLC up to
$3 million to fund the continuing development of the Bioproducts Portfolio. As of December 31, 2015, $1,247,536 of that amount
had been received. The members also assigned their respective interests in the Bioproducts Portfolio to LLC. GX’s contribution
was valued at $4 million, however, the relevant agreements provide for GX to receive a preferential distribution until it receives
approximately $3 million, at which point GX’s interest will decrease from 36.75% to 24.50%. GreenShift engaged two separate
third party valuation firms, the first to complete a fairness opinion in respect of the foregoing, and the second to perform a
valuation of GX’s interest in LLC using the fair value method as defined by FASB ASC 805-10-20. Under this method, fair
value is defined as “the price that would be received to sell an asset or transfer a liability in an orderly transaction
between market participants at the measurement date.” Using the income approach, the valuation company used the discounted
cash flow method to develop low, mid and high cash projections for LLC’s potential business model by estimating the expected
cash flows derived from production of LLC’s products on a commercial scale. As of December 31 2015, GreenShift had funded
$971,175 towards operations and research and development of LLC, of which $898,817 has been reimbursed under the relevant joint
venture agreements. The following presents unaudited summary financial information for LLC. Such summary financial information
has been provided herein based upon the individual significance of this unconsolidated equity investment to the consolidated financial
information of GreenShift. The investment balance carried on GreenShift’s balance sheet amounts to $3,360,355 as of December
31, 2015. GreenShift’s share of the net loss from LLC for the nine months ended December 31, 2015 was $643,320. The following
table contains summarized financial data for LLC (unaudited):
|
|
12/31/2015
|
|
Current assets
|
|
$
|
2,238
|
|
Intangible assets, net
|
|
|
3,619,048
|
|
Current liabilities
|
|
|
123,281
|
|
Members’ equity
|
|
|
3,009,900
|
|
|
|
Year ended 12/31/2015
|
|
Net sales
|
|
$
|
—
|
|
|
|
|
|
|
Operating expenses
|
|
|
1,369,580
|
|
Amortization expense
|
|
|
380,952
|
|
Net (loss)
|
|
|
(1,750,532
|
)
|
NOTE
20
|
DEBT
EXTINGUISHMENT
|
In
February 2015, Factor Fund’s holdings in the Company were split between its two members, FLUX Carbon Starter Fund LLC (“FCSF”)
and Five Nine Group LLC (“59G”). On February 26, 2015, Factor Fund assigned the balance due under the foregoing debenture
in two equal $325,000 portions to its members, Five Nine Group LLC (“Five Nine”) and FLUX Carbon Starter Fund LLC
(“FCSF”). On the same date, the Company additionally issued convertible debentures with a principal balance of $534,888
to Factor Fund in exchange for debentures issued to Factor Fund in prior periods. The issued amount was then assigned in two equal
portions to Factor Fund’s members, Five Nine and FCSF. A total of $592,444 was due as of February 26, 2015, to each Five
Nine and FCSF as a result of the foregoing transactions. Of the amount assigned to FCSF, $108,560 of principal plus $16,440 of
interest was transferred to Long Side Ventures LLC (“LSV”). The Company accounted for the foregoing transfers as an
extinguishment of debt and recorded a loss on extinguishment of $938,489. On December 31, 2015, 59G and FCSF entered into an agreement
with the Company pursuant to which the Company securities held by 59G and FCSF were to be exchanged for two debentures in the
amount of $250,000 and $255,000, respectively. Each debenture has a maturity date of December 31, 2018, and bears a 2% interest
rate. Per ASC 470-50-40-10 the exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor
in a non troubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if
the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present
value of the remaining cash flows under the terms of the original instrument. The company found that the present value of the
cash flows of the new debt instrument was at least 10% different from the present value of the remaining cash flows of the original
instrument. Therefore, debt extinguishment accounting rules apply. Accordingly, the reissued convertible notes payable were initially
recorded at fair value, with a gain on extinguishment of debt of $639,667 for the difference in the fair value of the new notes
compared to the carrying value of the old notes.
Effective
as of December 31, 2015, GreenShift entered into a series of agreements providing for contingent participation payments involving
use of the Company’s extraction technologies. Collectively, these agreements resulted in an aggregate of $26,720,059 in
debt extinguishment for amounts that had been due, payable and accrued as of December 31, 2015, as well as a reduction in the
Company’s continuing costs of sales, legal expenses and interest expense moving forward. First, GreenShift and YA Global
Investments, L.P. (“YA Global”) entered into an agreement pursuant to which GreenShift agreed to pay 15% of all payments
received by GreenShift from any new licensees issued in connection with its intellectual properties, including any amounts awarded
in the Company’s pending and future infringement matters, net of any legal fees and expenses incurred in obtaining the settlement
or award (see Note 9,
Debt Obligations
, above). Next, Cantor Colburn LLP (“Cantor”) and GreenShift entered
into an amended agreement pursuant to which Cantor agreed to accept 15% of any recoveries from GreenShift’s pending patent
litigation in excess of $3.6 million per year in exchange for all services rendered to date and moving forward. GreenShift recognized
an $8,433,388 gain on extinguishment of debt upon the write-off of all accrued legal fees. The terms of the original and amended
agreements include a beneficial conversion feature due to the variable nature of the number of shares that could be issued in
settlement of fees under the agreement. As a result, GreenShift recognized and expense of $1,737,909 and $1,035,780 for the intrinsic
value of the beneficial conversion feature for the years ended December 31, 2015 and 2014, respectively. Finally, CWT and GreenShift
entered into an amended agreement pursuant to which CWT agreed to accept 20% of GreenShift’s net cash receipts deriving
from use of the Company’s extraction technologies, after payment in full of all litigation costs and expenses (including
attorneys’ fees and expenses). Under the amended CWT agreement, no amount shall accrue or be due and payable to CWT until
the earlier to occur of the date on which all such litigation costs and expenses have been paid on a current basis, the date on
which GreenShift has successfully appealed the October 2014 summary judgment ruling in GreenShift’s pending infringement
litigation, and all applicable appeal periods in connection therewith have expired, or the date on which GreenShift has entered
into new license agreements corresponding to an additional $1,000,000 in annualized revenue.
We
accordingly consider these transactions to be an extinguishment of debt. The appropriate accounting treatment is therefore to
recognize the difference between the net carrying amount of the extinguished debt and the reacquisition price of the debt as income
in the current period.
In
2014, the Company advanced aggregate amount of $25,979 to two unrelated third parties, these notes are non-interest bearing and
due to demand. The Company determined that the amount was uncollectable as of December 31, 2015.
NOTE
22
|
SUBSEQUENT
EVENTS
|
Between
January
1, 2016 and the date of this filing, GreenShift paid a total of $379,574 to all but three of the YAGI Assignees (see Note 9,
Debt
Obligations
, above), in settlement of about $2,914,000 in debt elimination, and a gain on extinguishment of debt of $2,551,613.
On
April 23, 2016, the Company entered in to two release agreements pursuant to which the Company and the associated creditors agreed
to fully satisfy $413,252 in obligations plus related accrued interest in exchange for $15,000 in cash and 200,000,000 shares
of the Company’s common stock.