Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Operations and Basis of Presentation
Business Description
Green Endeavors, Inc., (“Green”) owns and operates two hair salons carrying the Aveda™ product line through its wholly-owned subsidiaries Landis Salons, Inc. (“Landis”) and Landis Salons II, Inc. (“Landis II”) in Salt Lake City, Utah. Green also owns and operates Landis Experience Center LLC (“LEC”), an Aveda™ retail store in Salt Lake City, Utah.
Organization
Green Endeavors, Inc. was incorporated under the laws of the State of Delaware on April 25, 2002 as Jasper Holdings.com, Inc. During the year ended December 2004, Green changed its name to Net2Auction, Inc. In July of 2007, Green changed its name to Green Endeavors, Ltd. On August 23, 2010, Green changed its name to Green Endeavors, Inc. and moved the corporate domicile from Delaware to Utah. Green has four classes of stock as follows: common with 2,000,000,000 shares authorized; preferred with 3,000,000 shares authorized; convertible preferred with 2,000,000 shares authorized; and, convertible super voting preferred with 10,000,000 shares authorized. Green is quoted on the “OTC Pink” marketplace segment under the symbol GRNE.
Green is a more than 50% controlled subsidiary of Sack Lunch Productions, Inc. (“SAKL”). Sack Lunch Productions, Inc. is listed at OTC Markets trading under the symbol SAKL and is not currently a reporting company. Previous to April 15, 2015, SAKL was known as Nexia Holdings, Inc. and was trading under its symbol NXHD.
Landis Salons, Inc., a Utah corporation, was organized on May 4, 2005 for the purpose of operating an Aveda™ Lifestyle Salon. Landis Salons, Inc. is a wholly-owned subsidiary of Green.
Landis Salons II, Inc., a Utah corporation was organized on March 17, 2010 as a wholly-owned subsidiary of Green for the purpose of opening a second Aveda™ Lifestyle Salon.
Landis Experience Center, LLC (“LEC”), a Utah limited liability company, was organized on January 23, 2012 as a wholly-owned subsidiary of Green for the purpose of operating an Aveda™ retail store in the City Creek Mall in Salt Lake City, Utah.
Basis of Presentation
The consolidated financial statements include the accounts of Green and its subsidiaries after elimination of intercompany accounts and transactions. All consolidated subsidiaries are wholly-owned by Green.
These statements should be read in conjunction with the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In particular, the Company’s significant accounting policies were presented as Note 2 to the consolidated financial statements in that Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed consolidated financial statements for the three months ended March 31, 2017, are not necessarily indicative of the results that may be expected for the 12 months ending December 31, 2017.
Use of Estimates in the Preparation of the Financial Statements
The consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
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Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 – Summary of Significant Accounting Policies
Cash and Cash Equivalents
Investments with original maturities of three months or less at the time of purchase are considered cash equivalents. As of March 31, 2017 and December 31, 2016, Green had no cash equivalents.
Inventory
Inventory consists of items held for resale and is carried at the lower of cost or market. Cost is determined using the first in, first out (“FIFO”) method. Management has determined that no reserve is required at March 31, 2017.
Property, Plant, and Equipment
Property, plant, and equipment are stated at historical cost. Depreciation is generally provided over the estimated useful lives, using the straight-line method, as follows:
Leasehold improvements
|
Shorter of the lease term or the estimated useful life
|
Computer equipment and related software
|
3years
|
Furniture and fixtures
|
3-10years
|
Equipment
|
3-10years
|
Vehicle
|
7years
|
Signage
|
10years
|
Long-Lived Assets
We periodically review the carrying amount of our long-lived assets for impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. There were no impairments of long-lived assets as of March 31, 2017 and December 31, 2016.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Revenue Recognition
There are two primary types of revenue for the Company: 1) providing hair salon services, and 2) selling hair salon products. Revenue is recognized at the time the service is performed or the product is delivered. All revenue sources are domestic. In some cases, such as the sale of gift cards, revenue is deferred until the gift card is redeemed.
Deferred Revenue
Deferred revenue arises when customers pay for products and/or services in advance of receiving the product or service. Green’s deferred revenue consists solely of unearned revenue associated with the purchase of gift certificates for which revenue is recognized
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Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
only when the service is performed or the product is delivered. As of March 31, 2017 and December 31, 2016, deferred revenue was $75,464 and $86,223, respectively.
Advertising
The Company expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. For the three month period ended March 31, 2017 and 2016, advertising costs amounted to $27,668 and $23,415, respectively.
Stock-Based Compensation
Green recognizes the cost of employee services received in exchange for awards of equity instruments as stock-based compensation expense. Stock-based compensation expense is measured at the grant date based on the fair value of the restricted stock award, option, or purchase right and is recognized as expense, less expected forfeitures, over the requisite service period, which typically equals the vesting period. Because the employee is expected to and has historically received shares of common stock on or about the date of the employee stock option grant date as part of the exercise process, the fair value of each stock issuance is determined using the fair value of Green’s common stock on the grant date.
Income Taxes
Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Also, Green's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Green is 100% consolidated into its parent company, SAKL, and therefore does not file an income tax return. Its financial amounts are consolidated into the SAKL income tax returns. As of March 31, 2017 and December 31, 2016, a 100% valuation allowance has been placed against the deferred tax asset and therefore is not reflected on the balance sheets.
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the three months ended March 31, 2017, there were 1,024,361,144 potential common shares not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share.
Recent Accounting Pronouncements
Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on Green’s consolidated financial position, results of operations or cash flows upon adoption.
Note 3 – Inventory
Green’s inventory consists of items held for resale and product that is used in services by the Landis and Landis II salons, and all are considered finished goods. Inventory is carried at the lower of cost or market. As of March 31, 2017 and December 31, 2016, inventory amounted to $143,179 and $152,790, respectively.
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Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 – Property, Plant, and Equipment
The following is a summary of Green’s property, plant, and equipment by major category as of March 31, 2017:
|
Cost
|
Accumulated Depreciation
|
Net
|
Computer equipment and related software
|
$ 46,547
|
$ 38,244
|
$ 8,302
|
Leasehold improvements
|
732,690
|
545,127
|
187,563
|
Furniture and fixtures
|
27,201
|
25,897
|
1,303
|
Equipment
|
362,126
|
324,980
|
37,146
|
Vehicle
|
48,193
|
48,193
|
-
|
Signage
|
25,154
|
16,815
|
8,339
|
|
$ 1,241,911
|
$ 999,257
|
$ 242,654
|
The following is a summary of Green’s property, plant, and equipment by major category as of December 31, 2016:
|
Cost
|
Accumulated Depreciation
|
Net
|
Computer equipment and related software
|
$ 44,401
|
$ 36,333
|
$ 8,068
|
Leasehold improvements
|
732,690
|
530,039
|
202,651
|
Furniture and fixtures
|
27,201
|
25,650
|
1,551
|
Equipment
|
362,126
|
315,227
|
46,899
|
Vehicle
|
48,193
|
46,472
|
1,721
|
Signage
|
25,154
|
16,213
|
8,941
|
|
$ 1,239,765
|
$ 969,934
|
$ 269,831
|
As of March 31, 2017 and 2016, Green recorded depreciation expense of $29,323 and $27,035, respectively.
Note 5 – Fair Value Measurements
Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of March 31, 2017 and December 31, 2016, consisted of the following:
|
|
|
|
Total fair
|
Quoted prices
|
Significant other
|
Significant
|
|
|
|
|
value at
|
in active
|
observable
|
unobservable
|
|
|
|
|
March 31,
|
markets
|
inputs
|
inputs
|
Description
|
|
|
2017
|
(Level)
|
(Level 2)
|
(Level)
|
Derivative liability (1)
|
|
$78,132
|
$ -
|
$78,132
|
$ -
|
|
|
|
|
Total fair
|
Quoted prices
|
Significant other
|
Significant
|
|
|
|
|
value at
|
in active
|
observable
|
unobservable
|
|
|
|
|
December 31,
|
markets
|
inputs
|
inputs
|
Description
|
|
|
2016
|
(Level)
|
(Level 2)
|
(Level)
|
Derivative liability (1)
|
|
$108,297
|
$ -
|
$108,297
|
$ -
|
(1)
Derivative liability amounts are due to the embedded derivatives of certain convertible notes payable issued by the Company and are calculated using
a multinomial lattice model
(see Note 6 - Derivative liability)
Note 6 – Derivative Liability
As of March 31, 2017, the Company had a $78,132 derivative liability balance on the balance sheet, and for the three months ended March 31, 2017, the Company recorded a $30,165 net gain from derivative liability activity. The derivative liability activity comes from convertible notes payable as follows:
9
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Eastshore Enterprises, Inc.
The Company has a convertible note that could be considered a derivative or contain embedded features subject to derivative accounting.
The Note converts into shares of the Company's common stock (the "Common Stock") using a calculation of lowest prices over a period of time and some at a discount of 54% of the lowest of the daily price of the Company's common stock during the ten days immediately prior to the conversion date. The note also contains a ratchet provision. Because the terms do not dictate a maximum numbers of convertible shares, 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 Under ASC 815-40. The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.
Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debenture using a multinomial lattice model as of March 31, 2017. As of March 31, 2017, the fair market value of the derivatives aggregated $78,132, and recorded a gain on market to market of $30,165, using the following assumptions: estimated 0.50 -year term, estimated volatility of 368.81%, and a discount rate of 0.91%. The note matured on August 17, 2014.
Note 7 – Related Party Transactions
As of March 31, 2017 and December 31, 2016, amounts due from related parties were $229,229 and $248,778, respectively. The balances represent notes and interest receivable from SAKL, the parent, and Color Me Rad Productions, Inc., an SAKL subsidiary.
As of March 31, 2017 and December 31, 2016, amounts due to related parties were $714,825 and $694,361, respectively. The balances, represent advances from SAKL and SAKL subsidiaries, and certain notes payable to SAKL, Richard Surber and a company affiliated with Richard Surber. These notes have maturity dates from April 2015 to November 2017.
Richard Surber, a related party, is providing his personal guaranty for several lines of credit and credit cards that are being utilized by the Company and its operating subsidiaries. In addition to the above, Mr. Surber is a personal guarantor to notes payable by the Company with remaining principal balances of approximately $6,000. Subsequent to March 31, 2017, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
Note 8 –Debt
During the three month period ending March 31, 2017, the Company has not entered into any new loan agreements.
Note 9 – Stockholders’ Deficit
Preferred Stock
Green is authorized to issue 15,000,000 shares of preferred stock (par value $.001 per share). Green’s preferred stock may be divided into such series as may be established by the Board of Directors. As of March 31, 2017, Green has designated 12,000,000 of the preferred stock into two series as follows: 2,000,000 shares of Convertible Series B Preferred and 10,000,000 shares of Convertible Super voting Preferred.
The Preferred Stock is classified as equity as long as there are sufficient shares available to effect the conversion. In some instances certain contracts may pass the option to receive cash or common stock to the shareholder. In this case, it is assumed that a cash settlement will occur and balance sheet classification of the affected Preferred Stock and related preferred paid-in capital as a liability.
Convertible Super voting Preferred Stock
Each share of the Convertible Super voting Preferred Stock is convertible into 100 shares of Green’s Common stock and has the voting rights equal to 100 shares of common stock.
10
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the three month period ended March 31, 2017, there were no issuances or conversions of Convertible Super voting Preferred shares.
As of both March 31, 2017 and December 31, 2016, Green had 10,000,000 shares of Convertible Super voting Preferred stock issued and outstanding.
Convertible Series B Preferred Stock
Each share of Green’s Convertible Series B Preferred Stock (Series B) has one vote per share and is convertible into $5.00 worth of common stock. The number of common shares received is based on the average closing bid market price of Green's common stock for the five days before conversion notice date by the shareholder. Series B shareholders, at the option of Green, can receive cash or common stock upon conversion.
As of March 31, 2017 and December 31, 2016, Green had 956,447 shares of Series B issued and outstanding.
Common Stock
Green is authorized to issue 2,000,000,000 shares of common stock (par value $0.0001 per share).
As of March 31, 2017 and December 31, 2016, Green had 5,127,408 shares of common stock issued and outstanding.
Note 10 – Stock-Based Compensation
No stock compensation was awarded during the three months ended March 31, 2017.
Note 11 – Litigation
Effective October 16, 2015, Sack Lunch Productions, Inc. (Green’s parent corporation “SAKL”) closed a Credit Agreement (the “Credit Agreement”) with SAKL, as borrower, and the Company’s subsidiaries as joint and several guarantors and TCA Global Credit Master Fund, LP, (“TCA”). Pursuant to the Credit Agreement, TCA loaned SAKL an initial amount of $1,800,000. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Convertible Promissory Note (the “Note”) and the repayment of the Note is secured by a first position security interest in substantially all of SAKL’s assets in favor of TCA, as evidenced by a Security Agreement by and between SAKL and TCA (the “Company Security Agreement”) and a first position security interest in substantially all of the Subsidiaries’ assets, including Green Endeavors, in favor of TCA. The Note is due and payable, along with interest thereon, fifteen months following the effective date of the Note, and bears interest at the rate of 12% per annum. On November 23, 2016 TCA gave SAKL a Notice of Default that SAKL is in default for 3 months payments that were due in accordance with the terms and provisions of the Senior Secured Credit Facility Agreement effective between the parties as of October 31, 2015. Failure to cure the default may lead to further collection efforts by TCA. Discussions to resolve the default are ongoing.
There are no material changes and no new matters of litigation during the three months ended March 31, 2017.
Note 12 – Concentration of Risk
Supplier Concentrations
The Company purchases most of its salon inventory that is used for service and product sales from Aveda™. Aveda™ product purchases for the three months ended March 31, 2017 and March 31, 2016 accounted for approximately 99% of salon products purchased.
Market or Geographic Area Concentrations
100% of the Company's sales are in the salon services and products market and are concentrated in the Salt Lake City, Utah geographic area.
Note 13 – Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of Green as a going concern. As of and for the three months ended March 31, 2017, Green had negative working capital of $1,027,677 and a net loss of $143,327, which raises substantial doubt about Green’s ability to continue as a going concern. Green’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to successfully fulfill its business plan.
11
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Management plans to attempt to raise additional funds to finance the operating and capital requirements of Green through a combination of equity and debt financings. While Green is making its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be sufficient for operations.
Note 14 – Subsequent Events
In accordance with ASC 855-10 Company management reviewed all material events through the date of this report. There were no material events subsequent to the quarter ended March 31, 2017.
12