See the accompanying notes to unaudited
condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018
(Unaudited)
NOTE 1 – ORGANIZATION
Nature of Operations
Greenway Technologies, Inc. (“Greenway Technologies,”
“GTI,” or the “Company”) was organized on March 13, 2002, under the laws of the State of Texas as Dynalyst
Manufacturing Corporation. On August 18, 2009, in connection with a merger with Universal Media Corporation, a privately
held Nevada company, the Company changed its name to Universal Media Corporation (“Universal Media”). The
Company changed its name to UMED Holdings, Inc. on March 23, 2011, and to Greenway Technologies, Inc. on June 23, 2017.
The Company’s mission is to operate as a holding
company through the acquisition of businesses as wholly-owned subsidiaries that meet some key requirements: (1) solid management
(2) the ability to grow with steady growth to follow and (3) an emphasis on emerging core industry markets, such as energy and metals.
In September 2010, the Company acquired 1,440 acres
of placer mining claims on Bureau of Land Management land in Mohave County, Arizona. See discussion in Note 3. Due to the
Company not producing any revenues from its BLM mining leases since its acquisition of the leases, nor achieving cash flow levels
to independently fund the development of its BLM mining leases in December 2010 and not having current resources for an appraisal
or assay, the Company recognized an impairment charge of $100,000 during the year ended December 31, 2014.
In August 2012, the Company acquired 100% of Greenway
Innovative Energy, Inc. (“GIE”) which owns patents and trade secrets for a proprietary process and related technology
to convert natural gas into synthesis gas (syngas), also known as Gas-to-liquids or “GTL” processing. Syngas is an
important intermediate gas used by industry in the production of ammonia, methane, liquid fuels, and other downstream products.
The Company’s unique process is called Fractional Thermal Oxidation™ (FTO). When combined with Greenway Technologies’
Fischer-Tropsch (FT) system, the Company believes it will be able to offer a new economical, relatively small scale (125 to 2,475
bbls/day) method of converting gas-to-liquids that can be located in field locations where applicable to smaller scale GTL processing
requirements.
NOTE 2 - BASIS OF
PRESENTATION AND GOING CONCERN UNCERTAINTIES
Principles of Consolidation
The accompanying condensed consolidated financial
statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant inter-company accounts
and transactions are eliminated in consolidation.
Basis of Presentation
The accompanying unaudited interim condensed consolidated
financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulations S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the periods presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2017.
The accompanying condensed
consolidated financial statements include the accounts of the following entities.
Name
of Entity
|
%
|
|
Entity
|
Incorporation
|
Relationship
|
Greenway
Technologies, Inc.
|
|
|
Corporation
|
Texas
|
Parent
|
Universal
Media Corporation
|
100
|
%
|
Corporation
|
Wyoming
|
Subsidiary
|
Greenway
Innovative Energy, Inc.
|
100
|
%
|
Corporation
|
Nevada
|
Subsidiary
|
Logistix
Technology Systems, Inc.
|
100
|
%
|
Corporation
|
Texas
|
Subsidiary
|
Going Concern Uncertainties
The accompanying condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying condensed consolidated financial statements, the Company sustained
a loss of approximately $575,000 for the three-month period ended March 31, 2018 and has a working capital deficiency of approximately
$2.5 million and an accumulated deficit of approximately $24.2 million at March 31, 2018. The ability of the Company to continue
as a going concern is in doubt and dependent upon achieving a profitable level of operations or on the ability of the Company
to obtain necessary financing to fund ongoing operations. Management believes that its current and future plans enable it to continue
as a going concern for the next twelve months.
The Company is in discussions with a number of oil
and gas companies, smaller oil and gas operators, and investors regarding joint venture funding for a commercial scale gas-to-liquids
(GTL) plant using the Company’s unique GTL system which includes its proprietary G-Reformer®, a Fischer-Tropsch unit,
and all necessary components to develop a fully functional GTL plant with a minimum output of ~125 barrels/day of high-cetane
blendstock (diesel fuel). Should an agreement be made, the joint venture relationship is expected to provide funding for a plant
as well as operating capital for the Company. While there are no assurances that financing for the initial plant will be obtained
on acceptable terms and in a timely manner, the failure to obtain the necessary working capital may cause the Company to move
in one or more alternate directions to transition this revolutionary GTL system into production.
In parallel, Company is also seeking agreements and/or
partnerships with other GTL system providers to use the Company’s proprietary synthesis gas production unit, the G-Reformer®,
as part of existing, planned, or new GTL systems in partnership with the Company. While there are no assurances that such agreements
and partnerships will be obtained on acceptable terms and in a timely manner, the failure to obtain the necessary working capital
may cause the Company to move in one or more alternate directions to commercialize its proprietary G-Reformer® technology.
Several alternate paths are under consideration.
The accompanying condensed consolidated financial
statements do not include any adjustment to the recorded assets or liabilities that might be necessary should the Company have
to curtail operations or be unable to continue in existence.
NOTE 3 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied
in the presentation of the condensed consolidated financial statements are as follows.
Property and Equipment
Property and equipment is recorded at cost. Major
additions and improvements are capitalized. The cost and related accumulated depreciation of equipment retired or sold, are removed
from the accounts and any differences between the undepreciated amount and the proceeds from the sale or salvage value are recorded
as a gain or loss on sale of equipment. Depreciation is computed using the straight-line method over the useful life of the assets.
The Company continues to use its fully depreciated property and equipment/
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with
Accounting Standards Codification, ASC Topic 360,
Property, Plant and Equipment
. An asset or asset group is
considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected
to generate. If an asset or asset group is considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds its fair value. If estimated fair value is less than the
book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
Revenue Recognition
The Company has not, to date, generated
any revenues.
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 at the date of the financial
statements and the reported amount of revenue and expenses during the reported period. Actual results could differ
materially from the estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with an original maturity of three-months or less to be cash equivalents. There were no cash equivalents
at March 31, 2018, or December 31, 2017.
Income Taxes
The Company accounts for income taxes in accordance
with FASB ASC 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based
on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted
tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the
change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not
that some or all deferred tax assets will not be realized.
The Company has adopted the provisions of FASB ASC
740-10-05
Accounting for Uncertainty in Income Taxes
. The ASC clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements. The ASC 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. The
ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. Open tax years, subject to IRS examination include 2013 – 2016.
Net Loss Per Share, basic and diluted
Basic loss per share has been computed by dividing
net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Shares issuable
upon the exercise of warrants and beneficial conversion features (16,600,000) have been excluded as a common stock equivalent
in the diluted loss per share because their effect would be anti-dilutive.
Derivative Instruments
The Company accounts for derivative instruments in
accordance with Accounting Standards Codification 815,
Derivatives and Hedging (“ASC 815”),
which establishes
accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in
the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged
risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the period of change.
See Notes 6 and 7 below for disclosures associated
with the Company’s convertible notes payable and warrants.
Fair Value of Financial Instruments
Effective January 1, 2008, fair value measurements
are determined by the Company’s adoption of authoritative guidance issued by the FASB, with the exception of the application
of the statement to non-recurring, non-financial assets and liabilities, as permitted. Fair value is defined in the authoritative
guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value
hierarchy was established, which prioritizes the inputs used in measuring fair value into three levels as follows:
Level 1 – Valuation based on unadjusted quoted market
prices in active markets for identical assets or liabilities.
Level 2 – Valuation based
on, observable inputs (other than level one prices), quoted market prices for similar assets such as at the measurement date;
quoted prices in the market that are not active; or other inputs that are observable, either directly or indirectly.
Level 3 – Valuation based on unobservable inputs
that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants
would use as fair value.
Original Issue Discount
For certain convertible debt issued, the Company provides
the debt holder with an original issue discount (“OID”). An OID is the difference between the original
cash proceeds and the amount of the note upon maturity. The Note is originally recorded for the total amount payable. The OID
is amortized into interest expense pro-rata over the term of the Note.
In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement
in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment and considers factors specific to the asset or liability. The valuation of the Company’s notes
recorded at fair value is determined using Level 3 inputs, which consider (i) time value, (ii) current market and (iii) contractual
prices.
The carrying amounts of financial assets and liabilities,
such as cash and cash equivalents, receivables, accounts payable, notes payable and other payables, approximate their fair values
because of the short maturity of these instruments.
The following table
represents the Company’s assets and liabilities by level measured at fair value on a recurring basis at March 31, 2018 and
December 31, 2017:
Description
|
|
Level
1
|
|
|
Level
2
|
|
Level
3
|
|
March
31, 2018 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
86,255
|
|
December
31, 2017Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
105,643
|
|
The following assets and liabilities
are measured on the balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions
in their valuation. The following tables provide a reconciliation of the beginning and ending balances of the liabilities:
The change in the notes payable at fair value for
the nine-month period ended March 31, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Change
in
|
|
New
|
|
|
|
Fair
Value
|
|
|
January
1,
2018
|
|
Fair
Value
|
|
Convertible
Notes
|
|
Conversions
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
(105,643)
|
|
|
$
|
19,388
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
(86,255)
|
|
All gains and losses on assets and liabilities measured at
fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other interest income and
expense in the accompanying condensed consolidated financial statements.
Stock Based Compensation
The Company follows Accounting Standards Codification
subtopic 718-10,
Compensation
(“ASC 718-10”) which requires that all share-based payments to both employees
and non-employees be recognized in the income statement based on their fair values.
At March 31, 2018, the Company did not have any outstanding
stock options.
Concentration and Credit Risk
Financial instruments
and related items, which potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company
places its cash with high credit quality institutions. At times, such deposits may be in excess of the FDIC insurance
limit.
Research and Development
The Company accounts for research and development
costs in accordance with Accounting Standards Codification subtopic 730-10,
Research and Development
(“ASC 730-10”).
Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and
development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has
been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research
and development costs related to both present and future products are expensed in the period incurred. The Company incurred research
and development expenses of $309,215 and $177,658 during the three-months ended March 31, 2018 and 2017, respectively.
Issuance of Common Stock
The issuance of common stock for other than cash is
recorded by the Company at market values.
Impact of New Accounting Standards
Management does not believe that any other recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed
consolidated financial statements.
NOTE 4 – PROPERTY,
PLANT, AND EQUIPMENT
|
|
Range
of Lives
in
Years
|
|
March
31, 2018
|
|
December
31, 2017
|
Equipment
|
|
|
5
|
|
|
$
|
2,032
|
|
|
$
|
2,032
|
|
Furniture
and fixtures
|
|
|
5
|
|
|
|
1,983
|
|
|
|
1,983
|
|
|
|
|
|
|
|
|
4,015
|
|
|
|
4,015
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
(4,015
|
)
|
|
|
(4,015
|
)
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Depreciation expense
was $0 and $99 for the three-months ended March 31, 2018 and 2017, respectively.
NOTE 5 – TERM
NOTES PAYABLE
Term notes payable consisted
of the following at March 31, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Unsecured
note payable dated March 8, 2016 to an individual at 5% interest, payable upon
the Company’s
availability of cash
|
|
$
|
0
|
|
|
$
|
13,500
|
|
Unsecured note
payable dated November 13, 2017 to a corporation at $10,000 lump
sum interest
at maturity on February 28, 2018. The terms are being re-negotiated with
the noteholder.
|
|
|
100,000
|
|
|
|
100,000
|
|
Unsecured
note payable dated December 28, 2017 to a corporation, due January 3, 2018
|
|
|
|
|
|
|
53,842
|
|
Total
term notes
|
|
$
|
100,000
|
|
|
$
|
153,842
|
|
NOTE 6 – 2017
CONVERTIBLE PROMISSORY NOTES
The
Company issued a $166,667 convertible promissory note bearing interest at 4.50% per annum to an accredited investor, payable in
equal installments of $6,000 commencing February 1, 2018 plus interest at rate of 4% per annum on December 20, 2018 and $80,000
plus
accrued
interest on December 20, 2019. The holder has the right to convert the note into common stock of the Company
at a conversion price of $0.08 per share for each one dollar of cash payment which may be due, (which would be 1,083,333 shares
for the $86,667 payment and 1,000,000 shares for the $80,000 payment.
The Company evaluated the terms
of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible
Note did not result in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial
conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of
the common stock. As of December 31, 2017, the discount related to the beneficial conversion feature on the note was valued at
$27,083 based on the $0.013 difference between the market price of $0.093 and the conversion price of $0.08 times the 2,083,325
conversion shares. As of and during the three-months ended March 31, 2018, the remaining discount was $23,697 and $3,386 of the
discount was amortized.
The Company issued a $150,000 convertible
promissory note bearing interest at 4.50% per annum to an accredited investor, payable in equal installments of $6,000 plus accrued
interest until the principal and accrued interest are paid in full. The holder has the right to convert the note
into common stock of the Company at a conversion price of equal to 70% of the prior twenty (20) days average closing market price
of the Company’s common stock.
The Company evaluated the terms
of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible
Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial
conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of
the common stock. The discount related to the beneficial conversion feature on the note was valued at $58,494 based on the difference
between the fair value of the 1,578,947 convertible shares at the valuation date and the $150,000 note value. The discount related
to the beneficial conversion feature is being amortized over the term of the debt. The discount related to the beneficial conversion
feature on the note was valued at $150,000 based on the
Black-Scholes Model
. As of and during the three-months ended March
31, 2018, the remaining discount was $47,731 and $7,019 of the discount was amortized. The derivative liability for this note
at March 31, 2018 was $27,938.
NOTE 7 – CONVERTIBLE
PROMISSORY NOTE
May 2016 Convertible
Note
On May 4, 2016, the Company issued
a $224,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable beginning November
10, 2016, in monthly installments of $44,800 plus accrued interest and a cash premium equal to 10.0% of the installment amount. The
convertible promissory note was paid in full on March 4, 2017. The holder had the right under certain circumstances to convert
the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average
trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.
The Company evaluated the terms
of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible
Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial
conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of
the common stock. The discount related to the beneficial conversion feature on the note was valued at $224,000 based on the
Black-Scholes
Model
. The discount related to the beneficial conversion feature ($51,829) was amortized over the term of the debt (10 months). For
the year ended December 31, 2017, the Company recognized interest expense of $9,327 related to the amortization of the discount.
In
connection with the issuance of the $224,000 note, the Company recorded debt issue cost and discount as follows:
|
|
$20,000
original issue discount and $4,000 debt issue cost, which was amortized over 10 months, with amortization of $4,000 for twelve-months
ended December 31, 2017.
|
|
|
The
convertible promissory note was paid in full on March 10, 2017, reducing the embedded derivative for the 2016 beneficial conversion
right to zero at December 31, 2017.
|
September 2014 Convertible
Note
In connection with the
issuance of a $158,000 convertible promissory note in 2014 (repaid in July 2015), the Company issued warrants to purchase shares
of common stock.
|
|
-
Warrants
– recorded at fair value ($79,537) upon issuance, and marked -to-market on the
balance sheet at
$58,317
as of March 31, 2018 and $47,149 as of December 31, 2017, which was computed as follows:
|
|
|
Commitment Date
|
|
Expected
dividends
|
|
|
0%
|
|
Expected
volatility
|
|
|
175.59%
|
|
Expected
term: conversion feature
|
|
2 years
|
|
Risk
free interest rate
|
|
|
2.27%
|
|
NOTE 8 – ACCRUED EXPENSES
Accrued expenses consisted of
the following at March 31, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accrued
consulting fees
|
|
$
|
249,500
|
|
|
$
|
249,500
|
|
Accrued
expense related to shareholder dispute
|
|
|
0
|
|
|
|
330,000
|
|
Accrued
expense related to warrant exercise
|
|
|
180,000
|
|
|
|
180,000
|
|
Other
accrued expenses
|
|
|
0
|
|
|
|
12,000
|
|
Accrued
interest expense
|
|
|
12,409
|
|
|
|
7,260
|
|
Total
accrued expenses
|
|
$
|
441,909
|
|
|
$
|
778,760
|
|
NOTE 9– CAPITAL
STRUCTURE
The Company is authorized to issue 300,000,000
shares of class A common stock with a par value of $.0001 per share and 20,000,000 shares of class B stock with a par value of
$.0001 per share. Each common stock share has one voting right and the right to dividends, if and when declared by
the Board of Directors.
Class
A Common Stock
At March
31, 2018, there were 283,828,915 shares of class A common stock issued and outstanding.
During the
three-months ended March 31, 2018, the Company: issued 4,780,254 shares of restricted class A common stock to 20 individuals through
private placements for cash of $536,500 at average of $0.1122 per share.
-
issued
3,000,000 of restricted common stock to the estate of a former officer of Greenway Innovative Energy, Inc. to satisfy a $330,000
accrual established at December 31, 2017 at an average of $0.11 per share.
-
canceled
11,663,164 shares returned to the Company by shareholders at a value of $1,163 added to paid-in-capital.
Class
B Stock
At March 31, 2018 and 2017, there were
0 and 126,938 shares of class B stock issued and outstanding, respectively.
During the year ended December 31, 2017, the Company;
exchanged 630,000 shares of class A common stock for 62,986 class B shares with a shareholder who held class B shares from the
2009 merger agreement between the Company and Dynalyst Manufacturing Corporation which set a conversion rate of 15 to 1. The Company
negotiated the 630,000 shares when the class B shareholder elected to convert.
exchanged (on a one
for one basis) 63,932 shares of class A common stock for 63,932 class B shares with shareholders who acquired the class B shares
after the 2009 merger agreement between the Company and Dynalyst Manufacturing Corporation.
Stock options, warrants
and other rights
At March 31, 2018, the Company has not adopted any employee
stock option plans.
On February 3, 2017, the Company
issued 6,000,000 warrants (4,000,000 at $0.35 for two years and 2,000,000 at $0.45 for three years) as part of a separation agreement
with a co-founder and former president. The Company valued the warrants as of March 31, 2017, at $639,284 using the
Black-Scholes
Model
with expected dividend rate of 0%, expected volatility rate of 455%, expected conversion term of two and three years
and risk-free interest rate of 1.75%.
On November 30, 2017, the Company
issued 1,000,000 warrants at $0.30 for three years as part of a settlement of a shareholder dispute with MTG Holdings, Inc. The
Company valued the warrants as of December 31, 2017, at $95,846 using the
Black-Scholes Model
with expected dividend rate
of 0%, expected volatility rate of 116%, expected conversion term of three years and risk-free interest rate of 1.37%.
On January 8, 2018, the Company
issued 4,000,000 warrants, which were in lieu of 3,000,000 shares to a director, at $0.10 that expires in three years.
NOTE 10 - RELATED PARTY TRANSACTIONS
Shareholders made loans and advances
to the Company in the amounts of $3,000 during the three-months ended March 31, 2018 and $219,509 (Tunstall Canyon Group $166,667,
Kevin Jones $51,342 and Pat Six $1,500) during the year ended December 31, 2017, respectively. During the three-months ended
March 31, 2018 shareholders were repaid $3,500. During the year ended December 31, 2017, a shareholder Richard Halden purchased
2,250,000 shares of class A common stock for $225,000 ($0.10 per share) and Kevin Jones received repayment of a $59,690 loan.
NOTE 11 – INCOME TAXES
At March 31, 2018 and December 31, 2017,
the Company had approximately $16.5 million and $16.4 million, respectively, of net operating losses ("NOL") carry forwards
for federal and state income tax purposes. These losses are available for future years and expire through 2034. Utilization
of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue
Code Section 382.
The provision for income taxes for continuing operations consists
of the following components for the three-months ended March 31, 2018 and the year ended December 31, 2017:
|
2018
|
|
2017
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
tax provision for (benefit from) income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
A comparison of the provision
for income tax expense at the federal statutory rate of 21% for the three-months ended March 31, 2018 and the year ended December
31, 2017, the Company's effective rate is as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Federal
statutory rate
|
|
|
(21.0
|
)
%
|
|
|
(21.0
|
)
%
|
State
tax, net of federal benefit
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
Permanent
differences and other including surtax exemption
|
|
|
0.0
|
|
|
|
0.0
|
|
Temporary
difference
|
|
|
(15.9
|
)
|
|
|
(15.9
|
)
|
Valuation
allowance
|
|
|
36.9
|
|
|
|
36.9
|
|
Effective
tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The net deferred tax assets and
liabilities included in the financial statements consist of the following amounts at March 31, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
16,524,544
|
|
|
$
|
16,403,873
|
|
Deferred
compensation
|
|
|
836,272
|
|
|
|
821,572
|
|
Stock
based compensation
|
|
|
2,900,734
|
|
|
|
2,900,734
|
|
Other
|
|
|
581,639
|
|
|
|
581,639
|
|
Total
|
|
|
20,843,189
|
|
|
|
20,707,818
|
|
Less
valuation allowance
|
|
|
(20,843,189
|
)
|
|
|
(20,707,818
|
)
|
Deferred
tax asset
|
|
|
-
|
|
|
|
-
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
long-term deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The change in the valuation allowance
was $135,371 and $12,784,855 for the three-months ended March 31, 2018 and the year ended December 31, 2017, respectively.
The Company has recorded a 100% valuation allowance related to the deferred tax asset for the loss from operations, interest expense,
interest income and other income subsequent to the change in ownership, which amounted to $20,843,189 and $20,707,818 at March
31, 2018 and December 31, 2017, respectively.
Utilization of
the Company’s net operating losses may be subject to substantial annual limitation if the Company experiences a 50% change
in ownership, as provided by the Internal Revenue Code and similar state provisions. Such an ownership change would substantially
increase the possibility of net operating losses expiring before complete utilization.
The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities, historical taxable income including available
net operating loss carry forwards to offset taxable income, and projected future taxable income in making this assessment.
NOTE 12 – COMMITMENTS
Employment Agreements
In August 2012, the Company entered into employment agreements
with the president and chairman of the board of Greenway Innovative Energy, Inc. for a term of 5 years with compensation of $90,000
per year. In June of 2014, the president's employment agreement was amended to increase his annual pay to $180,000. The
employment agreement terminated August 12, 2017. During the three-months ended March 31, 2017, the Company paid and accrued a
total of $45,000 on the employment agreement.
In the August 2012 acquisition agreement with Greenway
Innovative Energy, Inc., the Company agreed to issue an additional 7,500,000 shares of restricted common stock when the first
GTL unit is built and becomes operational and is capable of producing 2,000 barrels of diesel or jet fuel per day and pay Greenway
Innovative Energy a 2% royalty on all gross production sales on each unit placed in production.
Effective May 10, 2018, the Company entered
into employment agreements with John Olynick, as President and Ransom Jones, as Chief Financial Officer, respectively. The terms
and conditions of their employment agreements are identical. John Olynick, as President earns a salary of $120,000 per year. Ransom
Jones, as Chief Financial Officer, earns a salary of $120,000 per year. Mr. Jones also serves as the Company’s Secretary
and Treasurer. During each year that their Agreements are in effect, they are each entitled to receive a bonus (“Bonus”)
equal to at least Thirty-Five Thousand Dollars ($35,000) per year. They are also entitled to certain additional stock grants based
on the performance of the Company during the term of their employment. They are each entitled to a grant of common stock (the
“Stock Grant”) on the Effective Date equal to 250,000 shares each of the Company’s Common Stock, par value $.0001
per share (the “Common Stock”), such shares vesting immediately. They are also entitled to participate in the Company’s
benefit plans.
The foregoing summary of the Employment
Agreements is qualified in its entirety by reference to the actual true and correct Employment Agreements, copies of which are
attached hereto as Exhibit 10.39 and 10.40.
See Subsequent Events Note 13.
Consulting Agreement
On November 28, 2017, the Company
entered into a three-year consulting agreement with Chisos Equity Consultants, LLC for public relations, consulting and corporate
communications services. The initial payment was 1,800,000 shares of our restricted common stock. Additional payments upon the
Company’s common stock reaching certain price points as follows;
-
500,000 shares at the time
our common stock reaches $0.25 per share during the first year
-
500,000 shares at the time
our common stock reaches $0.45 per share during the first year
-
1,000,000 shares at the time
our common stock reaches $0.90 per share during the first or second year
-
2,000,000 shares at the time
our common stock reaches $1.50 per share during the first or second year
-
3,000,000 shares at the time
our common stock reaches $2.00 per share during the term of the agreement
-
1,000,000 shares at the time
our common stock reaches $10.00 per share during the term of the agreement
Leases
In October 2015, the Company signed a
new two-year lease for new office space of approximately 1,800 square feet at the rate of $2,417 for the first twelve months and
$2,495 for the second twelve months. During the three months ended March 31, 2018 and 2017, the Company expensed $13,517
and $8,640, respectively, in rent expense.
Greenway Innovative Energy, Inc. rents
approximately 600 square feet of office space at 1511 North Cooper St., Suite 207, Arlington, Texas 76011, at a rate of $1,369
per month.
The Company pays approximately $11,600
in annual maintenance fees on its Arizona BLM mining leases, in addition to 10% royalties based on production.
Legal
The Company has been named as a co-defendant
in an action brought against the Company and Mamaki Tea, Inc., alleging, among other things, that the Company was named as a co-guarantor
on an $850,000 foreclosed note. Management does not believe the ultimate resolution will have an adverse impact on the Company’s
financial condition or results of operations.
On April 22, 2016, Greenway Technologies filed suit under Cause
No. DC-16-004718, in the 193rd District Court, Dallas County, Texas against Mamaki of Hawaii, Inc. (“Mamaki”), Hawaiian
Beverages, Inc.(“HBI”), Curtis Borman and Lee Jenison for breach of a Stock Purchase Agreement dated October 29, 2015,
wherein we sold our shares in Mamaki to HBI for $700,000 (along with the assumption of certain debt). The Defendants failed to
make payments of $150,000 each on November 30, 2015, December 28, 2015 and January 27, 2016. On January 13, 2017, we executed
a Settlement and Mutual Release Agreement with the Defendants. However, the Defendants defaulted in their payment obligations
under Settlement and Mutual Release Agreement. Due to the bankruptcy proceedings involving Curtis Borman, all action in this matter
has been stayed.
See Subsequent Events Note 13.
NOTE
13-SUBSEQUENT EVENTS
During the period from April 1, 2018 through
May 15, 2018, the Company issued 50,000 shares of restricted class A common stock to one individual for $6,000 at average
price of $0.12 per share.
On April 9, 2108, the Company and Tonaquint, Inc. agreed to
settle on Tonaquint’s exercise of a warrant option with a one-time issuance from Greenway Technologies of 1,600,000 shares
of our common stock subject to a weekly leak out restriction equal to the greater of $10,000.00 and 8% of the weekly trading volume.
Further, the issuance of stock will be done in connection with a legal opinion pursuant to Rule 144.
On May 10, 2018, the Company announced changes to its management
team and Board of Directors, including the election of a new Chairman of the Board, current Director Raymond Wright; the appointment
of a new independent director, Peter Hauser; the resignation of Patrick Six as President and Chief Financial Officer; the appointment
of John Olynick as the new President, and the appointment of Ransom Jones as the Company’s Chief Financial Officer, Secretary
and Treasurer.
Effective May 10, 2018, the Company entered into employment
agreements with John Olynick, as President and Ransom Jones, as Chief Financial Officer, respectively. The terms and conditions
of their employment agreements are identical. John Olynick, as President earns a salary of $120,000 per year. Ransom Jones, as
Chief Financial Officer, earns a salary of $120,000 per year. Mr. Jones also serves as the Company’s Secretary and Treasurer.
During each year that their Agreements are in effect, they are each entitled to receive a bonus (“Bonus”) equal to
at least Thirty-Five Thousand Dollars ($35,000) per year. They are also entitled to certain additional stock grants based on the
performance of the Company during the term of their employment. The Bonus shall be payable, first in a cash lump sum payment of
Fifteen-Thousand Dollars ($15,000) at the conclusion of their first six (6) months of employment, and an additional Twenty-Thousand
Dollars ($20,000) no later than thirty (30) days after the end of their first twelve (12) months of employment by the Company,
such Bonus being subject to increases based upon the reasonable discretion of the majority of the board of directors of the Company
or the designated committee(s) thereof. They are each entitled to a grant of common stock (the “Stock Grant”) on the
Effective Date equal to 250,000 shares each of the Company’s Common Stock, par value $.0001 per share (the “Common
Stock”), such shares vesting immediately. They are also entitled to participate in the Company’s benefit plans. Their
employment agreements can be terminated, among the other things, by the Company with or without cause or by the employees at any
time during their term upon sixty (60) days’ notice. Their employment agreements also contain customary provisions of confidentiality
and non-competition and non-solicitation.
The foregoing summary of the Employment Agreements is qualified
in its entirety by reference to the actual true and correct Employment Agreements, copies of which are attached hereto as Exhibit
10.39 and 10.40.