The accompanying notes are an integral part
of these unaudited consolidated financial statements.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 Basis of Presentation and Accounting Policies
The
unaudited interim consolidated financial statements include our wholly owned subsidiary, GETH CFP, Inc. (“CFP”).
CFP is a Delaware Corporation formed on February 9, 2017 for the purpose of handling and upgrading both third party carbon black
and the carbon black produced by our GEN 1 End of Life Tire Processing Plants. We acquired a Carbon Black Finishing System 2016
for installation in our Centralized Carbon Black Finishing Plant located in Ohio. The equipment is currently being refurbished
and when completed will be relocated and installed with the assistance of GETH’s strategic partners, under a master services
agreement that covers all of the GETH plants. The Ohio site is being provided by the Lawrence County Economic Development Corporation
as part of its mission to bring jobs back to that part of Ohio. All significant inter-company balances and transactions have been
eliminated in the consolidation as of and for the three months ended March 31, 2018.
The
unaudited interim consolidated financial statements presented herein have been prepared by us in accordance with the accounting
policies described in our December 31, 2017 and 2016 audited financial statements included in our Form 10-K and should
be read in conjunction with the notes to the financial statements which appear in that report.
The
preparation of these unaudited interim consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
related intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources.
Actual results may differ from these estimates under different assumptions or conditions.
In
the opinion of management, the information furnished in these unaudited interim consolidated financial statements reflect all
adjustments necessary for a fair statement of the financial position and results of operations and cash flows as of and for the
three months ended March 31, 2018 and 2017. All such adjustments are of a normal recurring nature. The results of operations for
the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim
consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements
for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Reclassifications
Certain
prior year amounts have been reclassified to conform with the current year presentation.
Recently
Issued Accounting Standards
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”. The ASU was issued to address the complexity
associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics
of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when
analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument
(or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence
of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied
retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the
implementation date and the impact of this amendment on its consolidated financial statements.
In April 2016, the FASB issued
ASU 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments
in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the
following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining
the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer
goods and services in exchange for consideration and (b) determining whether an entity's promise to grant a license provides a
customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access
the entity's intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed
implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company
adopted these standards at the beginning of the first quarter of fiscal 2018 using the modified retrospective method. The adoption
of these standards did not have an impact on the Company's consolidated statements of operations for any periods presented.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 Going Concern
These
unaudited interim consolidated financial statements have been prepared on a going concern basis which assumes we will be able
to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. For the three
months ended March 31, 2018, we had a net loss. We also have a working capital deficit and an accumulated deficit since
inception. These factors raise substantial doubt about our ability to continue as a going concern.
These
unaudited interim consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of liabilities that might result from a future uncertainty. The Company
plans to continue funding itself through the generation of revenues and raising capital through loans and new equity.
Note
3 Loan Payable – Related Party and Convertible
On
March 3, 2017, we approved a new working capital line of credit loan with our CEO, Chris Bowers in the amount up to $150,000 with
interest at 8% which matured on December 31, 2017. In January 2018, the maturity date was extended to December 31, 2018.
The note has conversion rights into our common shares at $0.10 per share. As of March 31, 2018, this note had a balance
of $136,100 and accrued interest in the amount of $8,631. This balance was $90,000 at December 31, 2017 with accrued interest
in the amount of $6,420. In the three months ended March 31, 2018, the Company borrowed $75,100 on the LOC and repaid $29,000.
There was no BCF on the additions during the three months ended March 31, 2018. The Company evaluated this convertible LOC for
Beneficial Conversion Features (BCF) and concluded that the LOC incurred a Beneficial Conversion Features (BCF) when it was issued.
The BCF resulted in a debt discount in the amount of $35,300 of which the full amount was amortized in 2017.
On
August 15, 2016, we accepted a Line of Credit (LOC) in the amount of $500,000 from our CEO Chris Bowers. On November 14, 2016,
we accepted a second Line of Credit (LOC) in the amount of $500,000 from our CEO. As of March 31, 2018, these two LOCs had an
outstanding balance in the amount of $1,000,000 with no accrued interest. These LOCs accrue interest at the rate of 1% per month
based upon $1,000,000 total balance. We have been paying $10,000 per month in interest on the two LOCs for a total of $30,000
for the three months ended March 31, 2018. The due date of the two loans were extended to December 31, 2018. The funds were used
for working capital in the Company. The first LOC has two Addendums attached to it. Addendum A clarifies debt conversion rights
attached to the LOC at $0.20 per share of common stock. Addendum B clarifies other rights attached to the LOC. There was no BCF
on the balance of the LOC2. These other rights, referred to above, are numbered below. (The second LOC has the same rights as
that of the first LOC). These certain other rights in Addendum B provide for the following:
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
LOC
has Repayment rights: The LOC has priority principal and interest repayment rights from other sources of capital received
by the Company.
|
|
|
2.
|
LOC
has Warrant rights: Bowers has the right to receive 500,000 (five hundred thousand) $0.10 warrants for providing the LOC and
250,000 (two hundred fifty thousand) $0.10 warrants per $100,000 drawn against the $500,000 LOC. This would be a total of
1,750,000 $0.10 warrants to be issued to Bowers and/or Assigns for providing the funding and the Company using all $500,000
LOC. These warrants will be accounted for once the term of the warrants is known.
|
|
|
3.
|
LOC
has Additional Stock Conversion rights: At any time while the LOC is outstanding, Bowers has the right to convert per $100,000
of the LOC for 500,000 shares of duly paid and non-assessable common stock of the Company at a conversion price of $0.20 per
share (subject to adjustment in the event of stock splits or stock dividends) by providing a notice of conversion in a form
reasonably acceptable to the Company. The full conversion of the LOC would be 2,500,000 shares of the Company common
stock.
|
The
Company evaluated these convertible LOCs for Beneficial Conversion Features (BCF) and concluded that the second LOC incurred a
Beneficial Conversion Features (BCF) when it was issued on November 14, 2016. The BCF resulted in a debt discount in the amount
of $105,600 of which $8,800 was amortized for the year ended December 31, 2016 and the balance was amortized during the year ended
December 31, 2017.
The
Company also has an outstanding note payable
to our CEO Chris
Bowers for $134,000. The note is subject to annual interest of eight percent (8%), convertible at $0.50 per share
and matured on December 31, 2017. In January 2018, the maturity date was extended to December 31, 2018. As of March 31,
2018, the accrued interest on this note was $17,967.
We
have an unsecured line of credit with H. E. Capital, S. A., a related party. The line of credit accrues interest at the rate of
8% per annum. The due date of the line of credit was December 31, 2017 but in January 2018, the maturity date was extended
to December 31, 2018. This line of credit has a $0.10 per common share conversion rate. Balance of the line of credit at March
31, 2018 was $286,537 with accrued interest in the amount of $65,474. There was no activity in this note other than the accrual
of interest for the three months ended March 31, 2018.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
4 Secured Debentures
On
January 24, 2011, we entered into a series of securities purchase agreements with accredited investors pursuant to which we sold
an aggregate of $380,000 in 12% secured debentures. The Debentures are secured by the assets of the Company pursuant to security
agreements entered into between us and the investors. As of March 31, 2018, these secured debentures have an outstanding balance
of $305,000 and accrued interest in the amount of $283,478. These debentures are in default.
Note
5 Loan Payable – Other and Convertible
On
May 16, 2016, we approved H.E. Capital S.A.’s (HEC) request to assign to a private company $200,000 of its Line of Credit
Note. We approved the request and reduced HEC’s Line of Credit Note for that amount and record a new note. On July 19, 2016,
the private company converted $100,000 of its note into 1,000,000 common shares of the Company’s stock. In January 2018,
the maturity date of the Line of Credit was extended from December 31, 2017 to December 31, 2018. As of March 31, 2018, the
note balance is $100,000 with accrued interest in the amount of $16,395.
On
July 1, 2016, we issued a note to a private individual in the amount of $49,295. This new note has $0.50 conversion rights attached
to it and accrues interest at 8%. In January 2018, the maturity date was extended from December 31, 2017 to June
30, 2018. As of March 31, 2018, this note had accrued interest in the amount of $6,904.
On July 20, 2017, we entered into
an equity purchase agreement for up to $5,000,000 of our common stock with Peak One Opportunity Fund, LP (Peak One). In connection
with that same agreement, we also entered into a related registration rights agreement. We issued a non-interest bearing convertible
debenture on July 20, 2017 in the amount of $75,000 to Peak One. This debenture matures on July 20, 2020 and was issued as a commitment
fee in connection with the agreement, as well as agreed to issue 300,000 shares of our common stock as commitment shares. On July
25, 2017, we issued these shares valued at $27,000. Both the commitment debenture and commitment shares were charged to other
current assets until such time the registration statement is filed after which the amount will be amortized over the life of the
offering. Conversion price is 90% of the lowest closing bid price of the last 20 days prior to the conversion date. The note has
a derivative discount in the amount of $75,000 at issue and at March 31, 2018 has a remaining balance to amortize in the amount
of $67,891. Amortization of debt discount for the quarter ended March 31, 2018 amounted to $670.
On
July 27, 2017, we received the first of three installments in connection with Peak One Opportunity LP (Peak One) purchase agreement
for certain Company Convertible Debentures totaling $425,000. We issued to Peak One a three year $75,000 non-interest
bearing debenture maturing on July 26, 2020. We received the 2
nd
installment on November 28, 2017 and issued a non-interest
bearing debenture for $50,000 which will mature on November 28, 2020. The debentures had an OID (original issue discount) and
derivative discounts totaling $61,200 which are amortized over the term of the debentures. The debentures are convertible
into common shares of the Company with certain terms and conditions as set forth in the agreement. The Holder is entitled to,
at any time or from time to time, to convert the Conversion Amount into Conversion Shares, at a conversion price for each share
of Common Stock equal to the lesser of (a) $0.15 or (b) Sixty Five percent (65%) of the lowest closing bid price (as reported
by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion
of the Debentures subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations
or similar events. During the quarter ended March 31, 2018, Peak One exercised its right to convert a total of $45,000 of its
$75,000 debenture into 1,826,646 shares of the Company’s common stock. As of March 31, 2018, the notes have an outstanding
balance of $80,000. Amortization of debt discounts amounted to $20,537 for the quarter ended March 31, 2018. Unamortized debt
discount as of March 31, 2018 amounted to $37,057.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
6 Loan Payable – Other and Non-Convertible
On
November 16, 2012, we issued a note to a private individual in the amount of $170,000 with interest accruing at 8% per annum.
This note has been extended to June 30, 2018. As of March 31, 2018, the accrued interest was $23,884.
On March 29, 2017, we entered into
a lease and working capital credit facility with Caliber Capital & Leasing LLC and its assignee, Real Estate Acquisition Development
Sales, LLC (“READS”). Under the agreements, READS is providing an initial commitment of up to $2.5 million for the
construction of our first processing line in our centralized Carbon Finishing Plant in Ohio. We received our first advance on
the commitment on October 6, 2017. As of March 31, 2018, we have an outstanding balance in the amount of $493,000 with accrued
interest in the amount of $19,753. The interest accrues at 9.5% and is allocated to construction in progress. This is a revolving
working capital line which is due in one year and has the option for two one year extensions. The remaining draw
is in doubt and GETH is in final negotiations with other funding institutions to fill the gap in funding.
Note
7 Commitments and Contingencies
On
March 29, 2017, we entered into a lease and working capital credit facility with Caliber Capital & Leasing LLC and its assignee,
Real Estate Acquisition Development Sales, LLC (“READS”). Under the agreements, READS is providing an initial commitment
of up to $2.5 million for the construction of our first processing line in our centralized Carbon Finishing Plant in Ohio. The
loan is dated for April 4, 2017 and to date we have drawn $493,000 from READS which has been used in part to refurbish used equipment.
The remaining draw is in doubt and GETH is in final negotiations with other funding institutions to fill the gap in funding.
On
March 29, 2017, we also signed the Master Equipment and Building Related Lease Agreement for $100 Million. The lease covers land,
buildings and equipment. The equipment will have an initial term of seven years; after which we will have the option to purchase
the facility from READS or renew the lease under the same terms. The commencement date was scheduled for April 4, 2017 and never
happened. The remaining draw is in doubt and GETH is in final negotiations with other funding institutions to fill the gap in
funding.
On April 11, 2017, our wholly owned
subsidiary GETH CFP, Inc. signed a 10-year lease with the Lawrence Economic Development Corporation of Lawrence County, Ohio for
the lease of 11,200 sq. ft. of manufacturing space for our carbon finishing plant in Ohio. The lease had a start date of June
1, 2017, which has been extended to the opening of the Carbon Plant and runs to June 1, 2027. The lease has three, five year extensions.
The lease is $4.00 per sq. ft. with initial payments in the amount of $3,733 per month. The first extension is at $4.50 per sq.
ft. with payments in the amount of $4,200 per month. The Company is currently in negotiations to sign a new lease since the
property covered by the existing lease is no longer available.
On
July 20, 2017, we entered into an equity purchase agreement for up to $5,000,000 of our common stock with Peak One Opportunity
Fund, LP (Peak One). In connection with that same agreement, we also entered into a related registration rights agreement. We
issued a convertible debenture in the amount of $75,000 to Peak One as a commitment fee in connection with the agreement, as well
as agreed to issue 300,000 shares of our common stock as commitment shares. On July 25, 2017, we issued these shares valued at
$27,000. Both the commitment debenture and commitment shares were charged to other current assets until such time the registration
statement is filed.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
During
2013, the Company entered into an agreement with Black Lion Oil Limited (Black Lion) whose primary focus is on emerging energy
technology with broad applications. Under the agreement, the Company granted to Black Lion exclusive rights to the “waste
to oil” process in specific territories outside of the United States. In return Black Lion paid $100,000 in cash to the
Company as a fee. The original agreement provided for us to receive a 10% royalty which was later amended to receive 5% on gross
revenues with any plant associated with Black Lion. The Company used the fee for working capital. As of March 31, 2018, Black
Lion has not opened its first plant.
Note
8 – Fair value of Financial Instruments and Derivative Liabilities
The
carrying value of cash, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term
nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from
these financial instruments. The Carrying amount of the Company’s long-term debt approximates fair value based upon its
determined derivative discounts. These notes at March 31, 2018 totaled $155,000 with net discounts in the amount of $104,948.
Fair
value is defined 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. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use
of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable.
|
●
|
Level
1 -
|
Quoted
prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions
in active exchange markets involving identical assets.
|
|
●
|
Level
2 -
|
Quoted
prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities
that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable
in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.
|
|
●
|
Level
3 -
|
Unobservable
inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s
own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best
information available in the circumstances.
|
The following table presents the derivative financial instruments, the Company’s only financial 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 as of March 31, 2018:
|
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Embedded
conversion derivative liability
|
|
$
|
250,701
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,701
|
|
|
Warrant
derivative liabilities
|
|
$
|
25,751
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,751
|
|
|
Total
|
|
$
|
276,452
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
276,452
|
|
The
following table presents the derivative financial instruments, the Company’s only financial 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
as of December 31, 2017:
|
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Embedded
conversion derivative liability
|
|
$
|
378,221
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
378,221
|
|
|
Warrant
derivative liabilities
|
|
$
|
133,016
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
133,016
|
|
|
Total
|
|
$
|
511,237
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
511,237
|
|
The
embedded conversion feature in the convertible debt instruments that the Company issued (See Note 6), that became convertible
during the third quarter of 2017 as well as the mandatorily redeemable Series B convertible preferred stock issued during the
quarter ended March 31, 2018 (see Note 9)., qualified these as derivative instruments since the number of shares
issuable under the notes and preferred shares are indeterminate based on guidance in FASB ASC 815, Derivatives and Hedging. As
a result, all other equity linked instruments including outstanding warrants and fixed rate convertible debt were tainted
and also required derivative accounting treatment.
The
valuation of the derivative liability of the warrants was determined through the use of a Multinomial Lattice model that values
the liability of the warrants based on a risk-neutral valuation where the price of the option is its discounted expected value.
The technique applied generates a large number of possible (but random) price paths for the underlying common stock via simulation,
and then calculates the associated exercise value (i.e. “payoff”) of the option for each path. These payoffs are then
averaged and discounted to a current valuation date resulting in the fair value of the option.
The
valuation of the derivative liability attached to the convertible debt and the preferred shares was arrived at through
the use of a Multinomial Lattice model that values the derivative liability within the notes. The technique applied generates
a large number of possible (but random) price paths for the underlying (or underlyings) via simulation, and then calculates the
associated payment value (cash, stock, or warrants) of the derivative features. The price of the underlying common stock is modeled
such that it follows a geometric Brownian motion with constant drift, and elastic volatility (increasing as stock price decreases).
The stock price is determined by a random sampling from a normal distribution. Since the underlying random process is the same,
for enough price paths, the value of the derivative is derived from path dependent scenarios and outcomes. The features in the
notes that were analyzed and incorporated into the model included the conversion features with the reset provisions, the call/redemption/prepayment
options, and the default provisions. Based on these features, there are six primary events that can occur; payments are made in
cash; payments are made with stock; the note holder converts upon receiving a redemption notice; the note holder converts the
note; the issuer redeems the note; or the Company defaults on the note. The model simulates the underlying economic factors that
influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at
the time (i.e. stock price, conversion price, etc.). Probabilities were assigned to each variable such as redemption likelihood,
default likelihood, and timing and pricing of reset events over the remaining term of the notes based on management projections.
This led to a cash flow simulation over the life of the note. A discounted cash flow for each simulation was completed, and it
was compared to the discounted cash flow of the note without the embedded features, thus determining a value for the derivative
liability.
The
following assumptions were used for the valuation of the derivative liability related to the Notes, Preferred Shares and
subset to the Warrants as of March 31, 2018:
|
|
●
|
The
stock price of $
0.0408
to
$0.053
in these periods (variable conversion price; reset provisions; and upon redemption
or default penalties) would fluctuate with the Company projected volatility;
|
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
●
|
An
event of default adjusting the interest rate would occur
0%
of the time for all notes except the Peak 1 Note which
increases
0.50%
per month to a maximum of
5%
with the corresponding penalty;
|
|
|
●
|
The
projected volatility curve from an annualized analysis for each valuation period was based on the historical volatility of
comparable companies and the term remaining for each note was from
245
% through
290
% at issuance, conversion,
and quarters ends;
|
|
|
●
|
The
company would redeem the notes (with the corresponding penalty) projected initially at
0%
of the time for all notes
except the EMA and Auctus Notes which increase monthly by
1.0%
to a maximum of
5.0%
(from alternative financing
being available for a redemption event to occur); and
|
|
|
●
|
For
the variable rate (some notes include conversion rate ceilings – the lessor of variable rates and a fixed rate) and
fixed rate Notes, the Holder would convert (after 0 days) at maturity based on ownership and trading volume limits; and
|
|
|
●
|
The
Holder would automatically convert the note or exercise early at a multiple of the conversion/exercise or the stock price
if the registration was effective (after 0 days) and the Company was not in default.
|
Using
the results from the model, the Company recorded additional paid in capital of $33,330 from the conversion of $45,000 of debt.
The derivative liability recorded for the convertible feature created a debt discount of $43,107 which is being amortized over
the remaining term of the instrument using the effective interest rate method, and is classified as convertible debt on the balance
sheet. The Company also issued 85,800 shares of our new Series B Convertible Preferred Stock on March 13, 2018 for $75,000. These
shares are shown in current liability section of the Consolidated Balance Sheet net of their discounted value of $34,689.
These shares created a derivative discount and OID in the amount of $53,090. The Company recorded the change in the fair value
of the derivative liability as a gain of $244,562 to reflect the value of the derivative liability for warrants and convertible
instruments as $276,452 as of March 31, 2018. The Company also recorded a reclassification from derivative liability to equity
of $33,330 for the conversions of a portion of the Company’s convertible notes.
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial
instruments, measured at fair value on a recurring basis using significant unobservable inputs:
|
Balance
at December 31, 2017
|
|
$
|
511,237
|
|
|
Fair
value of derivative liability at issuance charged to debt discount
|
|
|
43,107
|
|
|
Settlement
of derivative liability due to conversion
|
|
|
(33,330
|
)
|
|
Unrealized
derivative gain included in other expense
|
|
|
(244,562
|
)
|
|
Balance
at March 31, 2018
|
|
$
|
276,452
|
|
Note
9 Mandatorily Redeemable Series B Preferred Stock
Preferred
Stock
On
March 8, 2018, we filed with the state of Delaware, Division of Corporations, a Certificate of Designations of Preferences, Rights
and Limitations for 300,000 shares of a Series B Convertible Preferred Stock. The Certificate of Designations was approved by
Division of Corporations. These Series B Convertible Preferred shares are senior to Common Shareholders in reference to liquidation
dividends and are junior to the Series A Convertible Preferred shares. The Series B Convertible Preferred Shares have an annual
12% dividend with a stated value of $1.00 and have no voting rights. The redemption options for these shares are 105% for the
first 30 days, 110% for the first 60 days, 115% for the first 90 days, 120% for the first 120 days, 125% for the first 150 days
and 130% for the first 180 days, then after no redemption rights. Twelve months from the issue date, the Company has a “mandatory
redemption date” to redeem the outstanding shares not converted. The shares have conversion rights to convert at 75% of
the average of the two lowest common stock prices ten days before the date of conversion.
The
Company issued 85,800 shares of our new Series B Convertible Preferred Stock on March 13, 2018 for $75,000. These shares are shown
in the Equity section of the Balance Sheet net of their discounted value of $34,698. The Company evaluated the classification
of the Series B Convertible Preferred Stock under ASC 480-10-25 and determined that due to their mandatory redemption features,
the preferred shares required to be classified as a liability. The embedded conversion option of the preferred shares were also
required to be bifurcated and accounted for as derivative liabilities (see Note 8). During the quarter ended March 31, 2018, the
Company recorded an OID and derivative discount of $53,090 and amortization expense of $1,979 which was charged to interest. Unamortized
discount as of March 31, 2018 amounted to $51,111.
Note
10 Equity
Common
Stock
On
March 20, 2018, we issued 250,000 shares of common stock to settle $5,000 of vendor debt.
During
the quarter ended March 31, 2018, Peak One exercised its right to convert a total of $45,000 of its $75,000 debenture into 1,826,646
shares of the Company’s common stock.
Additional Paid-In Capital
On March 27, 2018, certain officer
and directors of the Company forgave $1,684,711 of accrued salaries which were recorded as a capital contribution.
Warrants
As
of March 31, 2018, we had 24,358,342 common stock warrants outstanding which have a weighted average exercise price of $0.10 and
a weighted average remaining terms of 2.72 years.
Note
11 Related Party Transactions
We
owed our CEO $13,960 in accounts payable for the three months ended March 31, 2018. On December 31, 2017 we owed our CEO $25,720
in accounts payable and the Company repaid $11,760 during the three months ended March 31, 2018.
Note
12 Subsequent Events
On
April 9, 2018, we signed a Financing and Development agreement with National Standard Environmental LLC (NAT-Enviro), an affiliate
company of National Standard Finance. This agreement provides the foundation for financing and building processing plants in the
US and abroad. The GETH team and NAT-Enviro will work together over the next 90 days to confirm the financing structure for our
first three projects in the US.
On
May 1, 2018, we received a commitment of 53,000 from Geneva Roth Remark Holdings in return for 58,300 shares of our Series B Convertible
Preferred Stock.