NOTES
TO FINANCIAL STATEMENTS
March
31, 2017
NOTE
1 – ORGANIZATION AND BUSINESS DESCRIPTION
Alliance
Bioenergy Plus, Inc (the “Company”) is a technology company focused on emerging technologies in the renewable energy,
biofuels and new technologies sectors. From inception through December 5, 2014, the Company was known as Alliance Media Group
Holdings, Inc. At inception (March 28, 2012), the Company was organized as a vehicle to engage in the commercial production, distribution
and exploitation of Motion Pictures and other Entertainment products. However, in December 2013, a wholly owned subsidiary of
the Company, AMG Renewables, LLC (“AMG Renewables”), acquired the controlling interest (51%) in AMG Energy Group,
LLC (“AMG Energy”), which owns a fifty percent (50%) interest of Carbolosic, LLC (“Carbolosic”), which
holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428)
known as “CTS™”. The CTS technology is a mechanical/chemical, dry process for converting cellulose material
into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal in acquiring
the interest in AMG Energy was to develop the CTS technology to a commercial scale and then seek to license the technology to
prospective licensees. In September 2014, the Company determined to focus all of the Company’s resources and personnel on
the Company’s renewable energy holdings and future energy technologies and to divest the Company of its entertainment-related
assets and subsidiaries. The Company therefore determined at that time to divest and sell off, close down or discontinue the operations
of its entertainment-related subsidiaries. Effective December 5, 2014, amended the Company’s Articles of Incorporation to
change the name of the Company to Alliance Bioenergy Plus, Inc., which is more appropriately descriptive of the new business direction
of the Company.
Commencing
in March 2016, the Company commenced action to restructure its energy-related holdings through the following transactions;
1)
In March 2016, AMG Renewables, a wholly-owned subsidiary of the Company, sold its interest in Carbolosic Plant 1 to Carbolosic
Energy 1, LLLP, an unrelated third party, in exchange for satisfaction of the outstanding $1,250,000 loan and $36,488 interest
between Carbolosic Plant 1 and Carbolosic Energy 1, LLLP. In connection with the transaction, an amount which the Company had
prepaid to Carbolosic Energy 1, LLLP ($122,879) for future marketing and interest was eliminated in the sale.
2)
In July 2016, the Company determined to restructure its energy holdings under a single wholly-owned subsidiary (AMG Energy) such
that AMG Energy would own (i) the Company’s fifty percent (50%) interest of Carbolosic (which includes certain licensing
rights in North America and Africa) and (ii) the Company’s 100% interest in EK Laboratories, Inc. At the same time, the
Company’s interest in Carbolosic Plant 1 was divested. This restructuring was completed on September 19, 2016 when AMG Renewables
merged into AMG Energy. Previously, the Company had completed transactions with certain related parties to acquire the remaining
49% of AMG Energy which was not owned by the Company in exchange for an aggregate of 10,240,094 shares of Company common stock
and a restructuring of the balance due under a cash payable to the minority AMG Energy Shareholders.
Plan
of Operation
The
Company is now focused on the development and commercialization of the licensed technology it controls through its affiliate Carbolosic,
LLC. Through its wholly-owned subsidiary, AMG Energy, the Company owns Ek Laboratories, Inc. and a 50% interest in Carbolosic
(which includes certain licensing rights in North America and Africa). The Company has a strategy that includes mergers and acquisitions
of existing businesses in the renewable energy and sustainable products industries as well as sub-licensing its patented technologies
that it controls through a master license with the University of Central Florida under affiliate Carbolosic and start-up activities
which are focused on development of an increasing revenue stream, secure market share and enhancement of shareholder value.
NOTE
2 – GOING CONCERN
The accompanying consolidated financial statements
have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company
as a going concern, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business.
The Company has not generated any revenue, has incurred losses since inception, has a working capital deficiency of $3,153,199
and may be unable to raise further equity. At March 31, 2017 the Company had incurred accumulated losses of $26,334,039,
of which approximately $18,178,308 is non-cash, since its inception. The Company expects to incur significant additional liabilities
in connection with its start-up activities. The Company’s ability to continue as a going concern is dependent upon its ability
to obtain the necessary financing to meet its obligations and repay its liabilities when they become due and to generate sufficient
revenues from its operations to pay its operating expenses. These financial statements do not include any adjustments related
to the recoverability and classifications of recorded asset amounts, or amounts and classifications of liabilities that might
result from this uncertainty. There are no assurances that the Company will continue as a going concern.
Management
believes that the Company’s future success is dependent upon its ability to achieve profitable operations, generate cash
from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient
cash from operations, sell additional shares of stock or borrow additional funds. The Company’s inability to obtain additional
cash could have a material adverse effect on its financial position, results of operations, and its ability to continue in existence.
These financial statements do not include any adjustments that might result from the outcome of this uncertainty
The
Company intends to raise additional capital, sell licenses to its CTS technology and continue constructing its full scale demonstration
facility which, once operational, is expected to generate cash flow in amounts sufficient to cover the Company’s operating
expenses and debt service.
Through
its private offerings, the Company raised $6,809,394 from inception through December 31, 2016 and an additional $102,500 in the
three months ended March 31, 2017.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles
in the U.S. (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the Company’s majority-owned
subsidiaries over which the Company exercises control. Intercompany transactions and balances were eliminated in consolidation.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of
intercompany accounts and transactions. Investments in business entities in which the Company lacks control but has the ability
to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company’s
proportionate share of net income or loss of the entity is recorded in the Consolidated Statements of Operations.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the dates presented and reported amounts of revenues and expenses during the reporting periods presented.
Significant estimates inherent in the preparation of the accompanying Consolidated Financial Statements include estimates of impairment
assessment of identifiable intangible assets and valuation allowance for deferred tax assets. Estimates are based on past experience
and other considerations reasonable under the circumstances. Actual results may differ from these estimates.
Cash
and Cash Equivalents
All
highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.
Stock
Compensation
The
Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments
include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant
the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist
only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the
provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments
to consultants, service providers and other non-employees are accounted for in accordance with ASC Topic 718, ASC Topic 505, “Equity
Payments to Non-Employees” or other applicable authoritative guidance.
Stock-based
Compensation Valuation Methodology
Stock-based
compensation resulting from the issuance of common stock is calculated by reference to the valuation of the stock on the date
of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee
options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the
stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense
is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the
option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes
option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique
characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock
is determined by the then-prevailing closing market price. Expected volatility was based on the historical volatility of the Company’s
closing day market price per share. The expected term of options and warrants was based upon the life of the option, and the risk-free
rate used was based on the U.S. Treasury Daily Yield Curve Rate.
The
stock compensation issued for services during the three months ended March 31, 2017, was valued on the date of issuance. The following
assumptions were used in calculations of the Black-Scholes option pricing models for warrant-based stock compensation issued in
the three months ended March 31, 2017:
|
|
01/01/17
|
|
|
02/18/17
|
|
|
03/31/17
|
|
Risk-free
interest rate
|
|
|
1.93
|
%
|
|
|
1.92
|
%
|
|
|
1.93
|
%
|
Expected
life
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
140.36
|
%
|
|
|
138.54
|
%
|
|
|
137.11
|
%
|
ALLM
common stock fair value
|
|
$
|
0.20
|
|
|
$
|
0.16
|
|
|
$
|
0.11
|
|
Accounting
and Reporting of Discontinued Operations
As
required by the FASB ASC Subtopic 205.20, per ASU 2014-08, Discontinued Operations, a component of an entity or a group of components
of an entity, or a business or nonprofit activity can be classified as discontinued operations if the disposal represents a strategic
shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs:
(i) the criteria in paragraph 205.20.45.1E to be classified as held for sale is met (ii) the component is disposed of by sale,
or (iii) the component is disposed of other than by sale in accordance with paragraph 360.10.45.15 (for example, by abandonment
or in a distribution to owners in a spinoff). Certain components to be disposed of other than by sale shall continue to be classified
as “held and used” until it is disposed of, per the requirements of ASC Subtopic 360.10. Depreciation on these assets
ceases upon their classification as “held and used.” The Company adopted ASU No. 2014-08 effective September 1, 2014.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the
useful lives of the assets, generally 5 to 7 years. Expenditures for additions and improvements are capitalized; repairs and maintenance
are expensed as incurred.
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives
and Hedging Activities”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under
these arrangements are amortized over the term of the related debt to their stated date of redemption.
Accounting
for Derivative Instruments
The
Company issues debentures where the number of shares into which a debenture can be converted is not fixed. For example, when a
debenture converts at a discount to market based on the stock price on the date of conversion. In such instances, the embedded
conversion option of the convertible debentures is bifurcated from the host contract and recorded at their fair value. In accounting
for derivatives, the Company records a liability representing the estimated present value of the conversion feature considering
the historic volatility of the Company’s stock, and a discount representing the imputed interest associated with the beneficial
conversion feature. The discount is then amortized over the life of the debenture and the derivative liability is adjusted periodically
according to stock price fluctuations. At the time of conversion, any remaining derivative liability is charged to additional
paid-in capital. For purposes of determining derivative liability, the Company uses Black-Scholes modeling for computing historic
volatility.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company classifies as equity any contracts that require physical settlement or net-share settlement or provide it with a choice
of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided
that such contracts are indexed to its own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”).
The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the Company’s control) or give the counterparty
a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses the
classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether
a change in classification between assets and liabilities is required.
Non-controlling
interest in consolidated subsidiaries
The
accompanying consolidated financial statements include the accounts of Alliance BioEnergy Plus, Inc. and those subsidiaries that
the Company has the ability to control either through voting rights or means other than voting rights. For these subsidiaries,
the Company records 100% of the revenues, expenses, cash flows, assets and liabilities in its consolidated financial statements.
For subsidiaries that the Company controls but hold less than 100% ownership, a non-controlling interest is recorded in the consolidated
income statement to reflect the non-controlling interest’s share of the net income (loss), and a non-controlling interest
is recorded in the consolidated balance sheet to reflect the non-controlling interest’s share of the net assets of the subsidiary.
Investments
in non-consolidated affiliates
Investments
in non-consolidated affiliates are accounted for using the equity method or cost basis depending upon the level of ownership and/or
the Company’s ability to exercise significant influence over the operating and financial policies of the investee. When
the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company’s
proportionate share of the investees’ net income or losses after the date of investment. When net losses from an investment
are accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional
losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently
reports net income and the Company’s share of that net income exceeds the share of net losses not recognized during the
period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value
that is other than temporary has occurred.
The
Company’s investment in Carbolosic, LLC is accounted for using the equity method of accounting. The Company monitors its
investment for impairment at least annually and make appropriate reductions in the carrying value if it determines that an impairment
charge is required based on qualitative and quantitative information.
Impairment
of Long Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group
may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable,
the Company compares the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected
to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the
carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds
the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less
costs to sell.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions
for any of the reporting periods presented.
Profit
(Loss) per Common Share:
Basic
profit (loss) per share amounts have been calculated using the weighted-average number of common shares outstanding during each
reporting period. Diluted loss per share has been calculated using the weighted-average number of common shares plus the potentially
dilutive effect of securities such as outstanding options and warrants. The computation of potential common shares has been performed
using the treasury stock method. The warrants and options are antidilutive for all periods presented. When net loss is reported,
diluted and basic net loss per share amounts are the same as the impact of potential common shares is antidilutive.
Fair
Value Measurements
The
Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value
as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair
value measurements.
The
estimated fair value of certain financial instruments, payables to related parties, and accounts payable and accrued expenses
are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The
Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using
a Black-Scholes option-pricing model with the following assumption inputs:
|
|
December
31, 2016
|
|
|
March
31, 2017
|
|
Annual
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected
life (years)
|
|
|
4.30
|
|
|
|
4.10
|
|
Risk-free
interest rate
|
|
|
1.93
|
%
|
|
|
1.93
|
%
|
Expected
volatility
|
|
|
24%
- 163%
|
|
|
|
23%
- 159
|
%
|
|
|
Fair
Value Measurements at
|
|
|
|
December
31, 2016
|
|
|
|
|
Using
Fair Value Hierarchy
|
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivative liabilities – (Warrant)
|
|
|
|
|
|
|
|
|
|
|
794,000
|
|
Embedded
derivative liabilities – (Debenture)
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
914,000
|
|
|
|
Fair
Value Measurements at
|
|
|
|
March
31, 2017
|
|
|
|
|
Using
Fair Value Hierarchy
|
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivative liabilities – (Warrant)
|
|
|
|
|
|
|
|
|
|
|
347,000
|
|
Embedded
derivative liabilities – (Debenture)
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
437,000
|
|
For
the three months ended March 31, 2017, the Company recognized a gain of $477,000 on the change in fair value of its derivative
liabilities. At March 31, 2017, the Company did not identify any other assets or liabilities that are required to be presented
on the balance sheet at fair value in accordance with ASC 825-10.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies
that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting
pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on
its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash
flows when implemented.
NOTE
4 – INVESTMENT IN UNCONSOLIDATED AFFILIATES
On
December 26, 2013, AMG Renewables, LLC, a Florida limited liability company (“AMG Renewables”), a wholly-owned subsidiary
of the Company, acquired the controlling interest (51%) in AMG Energy Group, LLC a Florida limited liability company (“AMG
Energy”) from certain related parties and subsequently acquired the remaining 49% in 2016. AMG Energy owns a fifty percent
(50%) interest of Carbolosic, LLC, a Delaware limited liability company (“Carbolosic”), which holds an exclusive worldwide
license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™”.
The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels
industry as well as other fine chemical manufacturing. The results of AMG Renewables and AMG Energy are consolidated in the Company’s
financial statements. AMG Energy’s investment in Carbolosic is accounted for using the equity method of accounting.
The
following is a condensed balance sheet of the unconsolidated affiliates as of March 31, 2017 and December 31, 2016 and a comparative
statement of operations for the three months ending March 31, 2017 and 2016.
Condensed
Balance Sheet of Non-Consolidated Affiliates
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
110
|
|
|
$
|
199
|
|
Total
Current Assets
|
|
|
110
|
|
|
|
199
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Prepaid
Expenses
|
|
|
35,000
|
|
|
|
-
|
|
Total
Other Assets
|
|
|
35,000
|
|
|
|
-
|
|
TOTAL
ASSETS
|
|
$
|
35,110
|
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
444,168
|
|
|
$
|
406,474
|
|
Interest
payable
|
|
|
37,015
|
|
|
|
31,309
|
|
Current
notes payable
|
|
|
747,298
|
|
|
|
657,585
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
1,228,481
|
|
|
|
1,095,369
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(1,193,371
|
)
|
|
|
(1,095,170
|
)
|
TOTAL
EQUITY
|
|
|
(1,193,371
|
)
|
|
|
(1,095,170
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
35,110
|
|
|
$
|
199
|
|
Condensed
Statement of Operations of Non-Consolidated Affiliates
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
17,500
|
|
|
|
17,500
|
|
General
and administrative
|
|
|
74,996
|
|
|
|
58,709
|
|
Total
operating expenses
|
|
|
(92,496
|
)
|
|
|
(76,209
|
)
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
5,705
|
|
|
|
3,963
|
|
Total
other expenses
|
|
|
(5,705
|
)
|
|
|
(3,963
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(98,201
|
)
|
|
$
|
(80,172
|
)
|
NOTE
5 – DEBT
Short
Term Notes Payable - Related Parties
Throughout
2013, the Company issued unsecured short-term notes payable to various related parties, including officers and directors of the
Company, with a term of one year, which have since been extended. As of March 31, 2017 there was one consolidated note outstanding
to Palm Beach Energy Solutions, LLC. The note has an outstanding principal balance of $71,000 and bears interest at a rate of
5% per annum. As of March 31, 2017 and December 31, 2016, the total interest accrued on the note was $13,471 and $12,596 respectively.
In
July 2016, the Company issued 6 short-term notes payable to related parties in conjunction with the Company’s acquisition
of the remaining 49% of AMG Energy Group. These notes have an aggregate value of $2,002,126 and accrue interest at a rate of six
percent (6%) per annum. As of March 31, 2017 and December 31, 2016 the total interest accrued on the notes was $85,953 and $56,333
respectively. All of the notes are coming due on August 4, 2017.
In
January 2017, the Company secured a $20,000 short-term bridge loan from a shareholder of the Company. This note did not bear interest
and was repaid in February 2017.
Short
Term Notes Payable – Other
In
July 2016, the Company issued a short-term note payable to a third party in conjunction with the Company’s acquisition of
the remaining 49% of AMG Energy Group. The note has a principal balance of $96,570 and accrues interest at a rate of six percent
(6%) per annum. As of March 31, 2017 and December 31, 2016 the total interest accrued on the note was $4,223 and $2,794 respectively.
The note is coming due on August 4, 2017.
Convertible
Debt
On
April 25, 2016, the Company entered into a 12 month convertible debenture with JMJ Financial with a principal balance of $555,556.
The note carries a 10% one-time interest charge, a 10% original issue discount and a 75% warrant coverage of the amount funded,
totaling an aggregate value of $416,666 [$555,556 x 75% = $416,666]. The note may only be paid up to 98% of the balance due within
the first 180 days at a 30% premium. After 180 days, the note cannot be repaid without the holders consent. The note is convertible
after 180 days at a 25% discount to the lowest trade price in the preceding 10 trading days. Per the warrant coverage feature,
the Company issued the investor 1,388,886 warrants with a 5 year term and a cashless exercise price equal to the lesser of $0.30
per share or the lowest trade price in the 10 preceding trading days. The warrant agreement also contains a down-round ratchet
provision allowing the holder to increase its warrant count. The number of warrants to issue is calculated by dividing the aggregate
value by the lower of $0.30 or the lowest trade price in the 10 preceding trading days. As of March 31, 2017, JMJ Financial has
converted $393,892 at $0.135825 per share into 2,900,000 shares of common stock. In addition, JMJ Financial has exercised its
warrant agreement ratchet rights, resulting in 3,067,668 [$416,666 / $0.135825 = 3,067,668] warrants outstanding. As of March
31, 2017, the holder had exercised warrants to purchase 11,043 of Company common stock. As of March 31, 2017 and December 31,
2016, using a Black-Scholes Floating Strike Lookback Call Option model, these warrants were valued at $260,000 and $580,000 along
with a derivative liability of $177,000 and $214,000 respectively.
In
January 2017, the Company entered into a convertible debenture with Power Up Lending Group, Ltd. with a principal balance of $153,500
due and payable on or before October 29, 2017. The note carries an original issue discount of $3,500 and accrues interest at a
rate of twelve percent (12%) per annum and is convertible into the Company’s common stock at a 39% discount on the average
of the lowest three trading prices during the ten trading days prior to conversion, after 180 days, in whole or in part at the
option of the holder. The note also carries a prepayment penalty, adjusting every 30 days to a maximum of one hundred thirty percent
(130%) of the then outstanding principal and interest balance due, if the note is paid back within the first one hundred eighty
(180) days.
In February 2017, the Company entered into
a convertible debenture with Lucas Hoppel, with a principal balance of $165,000 due and payable on October 2, 2017. The note carries
an 8% one-time interest charge, a $15,000 original issue discount and a 35% conversion discount to the lowest trade price in the
prior twenty-five trading days, after 180 days, in whole or in part at the option of the holder. In addition, the Company
provided 150,000 inducement shares to secure the note, and may have to provide additional shares on the note’s 6 month anniversary
if the Company’s share price declines. These inducement shares were valued at $27,000. The note can be repaid, without prepayment
penalties, within the first 90 days. Thereafter, the note will incur a one hundred twenty percent (120%) prepayment penalty of
the then outstanding principal and interest due.
In
February 2017, the Company entered into a convertible debenture with Labry’s Fund LLP, with a principal balance of $140,000
due and payable on August 18, 2017. The note carries an original issue discount of $23,000 and accrues interest at a rate of twelve
percent (12%) per annum and is convertible into the Company’s common stock at a 50% discount to the lowest trade price during
the previous thirty trading days prior to the date of the note or prior to date of conversion, after 180 days, in whole or in
part at the option of the holder. The note can be repaid, without prepayment penalties, within the first 180 days. In addition,
the Company provided a warrant agreement to purchase up to 250,000 shares of common stock, with a term of 5 years and an exercise
price of $0.35 per share of common stock. Using a Black-Scholes option pricing model, this agreement was valued at $33,265 and
is being amortized over the life of the agreement.
Derivative
Liabilities
The
embedded conversion features of the above convertible notes payable and warrants contain discounted conversion prices and should
be recognized as derivative instruments. Such embedded conversion features should be bifurcated and accounted for at fair value.
As of the three months ended March 31, 2017 and the year ended December 31, 2016, the Company had a derivative liability balance
of $437,000 and $914,000, respectively. The Company uses the Black-Scholes option pricing model to calculate derivate liability.
Fair
Value of Embedded Derivative Liabilities:
|
|
|
|
|
December 31,
2015
|
|
$
|
-
|
|
Addition
|
|
|
1,275,547
|
|
Converted
|
|
|
(494,721
|
)
|
Change
in Fair Market Value
|
|
|
7,313
|
|
As of December
31, 2016
|
|
$
|
914,000
|
|
Addition
|
|
|
-
|
|
Converted
|
|
|
-
|
|
Changes
in fair value of derivative liabilities
|
|
|
(477,000
|
)
|
As of March
31, 2017
|
|
$
|
437,000
|
|
NOTE
6 – STOCKHOLDERS’ EQUITY
The
total number of shares of capital stock, which the Company has authority to issue, is five hundred ten million (510,000,000),
five hundred million (500,000,000) of which are designated as common stock at $0.001 par value (the “Common Stock”)
and ten million (10,000,000) of which are designated as preferred stock par value $0.001 (the “Preferred Stock”).
As of March 31, 2017, the Company had 72,087,564 shares of Common Stock issued and outstanding and no shares of Preferred
Stock were issued. Holders of shares of Common stock shall be entitled to cast one vote for each share held at all stockholders’
meetings for all purposes, including the election of directors. The Common Stock does not have cumulative voting rights. No holder
of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any
new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether
now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend. The Company has
yet to designate any rights, preferences and privileges for any of its authorized Preferred Stock.
In
April 2016, the Company entered into a 12 month convertible debenture with JMJ Financial. To obtain the note, the Company issued
the holder 1,388,886 warrants with a 5 year term and a cashless exercise price equal to the lesser of $0.30 per share or the lowest
trade price in the 10 preceding trading days. In the year ending December 31, 2016, JMJ Financial has exercised its warrant agreement
ratchet rights, thus rescinding 1,388,886 warrants and reissuing 3,067,668 warrants. SEE NOTE 5. There have been no ratchet right
adjustments during the three months ended March 31, 2017. As of March 31, 2017 and December 31, 2016, the holder had exercised
warrants to purchase 0 and 11,043 shares of Company common stock respectively.
In
October 2016, the Company commenced a new offering of units valued at $0.20 per share. Each unit consist of one (1) share of common
stock and one (1) five-year Series E warrant convertible to one (1) common share at an exercise price of $0.45. As of March 31,
2017 and December 31, 2016, the Company has sold 162,500 and 2,200,050 units for aggregate proceeds of $102,500 and $390,010 respectively.
The offering is ongoing.
In
the three months ended March 31, 2017, the Company issued an aggregate of 717,571 shares of its common stock for services valued
at $138,350.
In
the three months ended March 31, 2017, the Company issued an aggregate of 500,000 warrants for services. Using a Black-Scholes
asset pricing model, these warrants were valued at $68,371. These warrant agreements have terms of five years (5) with exercise
prices ranging from thirty-five cents ($0.35) to two dollars ($2.00) per share.
In
the three months ended March 31, 2017, the Company issued options to its independent directors to purchase an aggregate of 313,398
shares of common stock for a period of five (5) years at average exercise price of $0.13. Using a Black-Scholes asset pricing
model, these agreements were valued at $30,000. In addition, the Company rescinded 500,000 shares of common stock issued to a
former employee under the Employee, Director Plan.
NOTE
7 – SEGMENT INFORMATION
The
company operates in one segment and does not have any revenue to date.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
Lease
The
Company has leased office space pursuant to a lease for a period of thirty-six (36) months from August 5, 2015 through July 31,
2018. Annual rent commenced at approximately $48,925 per annum and increases on a year-to-year basis by three percent (3%) over
the Base Year. In addition, the Company is obligated to pay an amount equal to 3.76% of the operating expenses of the building
together with sales tax on all amounts.
EK
Laboratories leases office and warehouse space in Longwood, FL, which serves as the Company’s research and demonstration
facility. The lease period is for thirty-six (36) months from February 1, 2015 through January 31, 2018. Annual rent commences
at approximately $70,620 per annum and increases on a year-to-year basis by five percent (5%) over the prior year. The Company
also has the right to purchase the property during the lease term.
Rent
expense for the three months ended March 31, 2017 and March 31, 2015 was $32,071 and $31,496 respectively.
NOTE
9 – RELATED PARTY TRANSACTIONS
Related
Transactions
Aside
from the short-term notes payable issued to related parties that are described in NOTE 5, there have been no related party transaction
in the three months ended March 31, 2017.
The
officers and directors for the Company are involved in other business activities and may, in the future, become involved in other
business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between
the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.
NOTE
10 – DISCONTINUED OPERATIONS
On
September 1, 2014, the Company determined the need to focus its resources and personnel on the Company’s renewable energy
holdings and future energy technologies and to divest the company of its entertainment-related assets and subsidiaries. The principal
reasons for such action is the expense, liability and losses that have been generated by the entertainment-related assets and
to provide a clear focus and direction to the Company moving forward. Specifically, the Board approved the divesting, selling
off, closing down or discontinuing of the operations of its entertainment-related subsidiaries, including but not limited to Prelude
Pictures Entertainment, LLC, AMG Live, LLC, AMG Restaurant Operations, LLC (including The New York Sandwich Co.), AMG Music, LLC,
AMG Releasing, LLC and AMG Television, LLC.
In
March 2016, AMG Renewables, a wholly-owned subsidiary of the Company, sold its interest in Carbolosic Plant 1 to Carbolosic Energy
1, LLLP, an unrelated third party, in exchange for satisfaction of the outstanding $1,250,000 loan and $36,488 interest between
Carbolosic Plant 1 and Carbolosic Energy 1, LLLP. In connection with the transaction, an amount which the Company had prepaid
to Carbolosic Energy 1, LLLP ($122,879) for future marketing and interest was eliminated in the sale.
Below
is a reconciliation of the total assets and liabilities of the discontinued operations, which are presented separately on the
balance sheet.
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Carrying amounts
of major classes of assets included as part of discontinued operations
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
-
|
|
|
|
-
|
|
Total
assets of the discontinued operation
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts
of major classes of liabilities included as part of discontinued operations
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
36,148
|
|
|
$
|
36,148
|
|
Total liabilities
of the discontinued operation
|
|
$
|
36,148
|
|
|
$
|
36,148
|
|
Below
is a reconciliation of the net loss of the discontinued operations, which are presented separately on the statement of operations.
|
|
Three
months ended
|
|
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
Major line items
constituting pretax profit (loss) of discontinued operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
-
|
|
|
|
-
|
|
Selling,
general and administrative
|
|
|
-
|
|
|
|
(3,198
|
)
|
Debt
forgiveness from legal settlement
|
|
|
-
|
|
|
|
1,163,609
|
|
Gain
(Loss) from discontinued operations
|
|
$
|
-
|
|
|
$
|
1,160,411
|
|
NOTE
11 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date the financial statements were available to be issued. Based on this evaluation,
the Company has identified the following subsequent events:
Since
April 1, 2017, the Company has sold 150,000 units for aggregate proceeds of $30,000.
Since
April 1, 2017, the Company has issued 131,175 shares of common stock for services valued at $17,995.
Since
April 1, 2017, the Company has awarded an aggregate of 1,500,000 options under its Employee, Director Plan. 500,000 options are
fully vested and the remaining 1,000,000 options vest over the next two years. These option agreements have a term of five years
(5) and an exercise price of thirteen cents ($0.13) per share. Using a Black-Scholes asset pricing model, these options were valued
at $47,862.
In
April 2017, the Company entered into a convertible debenture with Auctus Fund, LLC, with a principal balance of $117,750 due and
payable on December 22, 2017. The note carries an original issue discount of $17,750, accrues interest at a rate of twelve percent
(12%) per annum and is convertible into the Company’s common stock at a 50% discount to the lowest trade price during the
previous twenty-five trading days prior to the date of the note or prior to date of conversion, after 180 days, in whole or in
part at the option of the holder. The note carries a prepayment penalty, adjusting every ninety days to a maximum of one hundred
thirty-five percent (135%) of the then outstanding principal and interest balance due, if the note is paid back within the first
one hundred eighty (180) days.
In
April 2017, the Company entered into a convertible debenture with EMA Financial, LLC, with a principal balance of $150,000 due
and payable on March 15, 2018. The note carries an original issue discount of $24,000, accrues interest at a rate of 10% per annum
and is convertible into the Company’s common stock at a 35% discount to the lowest trade price during the previous fifteen
trading days prior to the date of conversion, after 180 days. The note carries a prepayment penalty, adjusting every ninety days
to a maximum of one hundred thirty percent (130%) of the then outstanding principal and interest due, if the note is paid back
within the first one hundred eighty (180) days.