See the accompanying notes to unaudited condensed
consolidated financial statements.
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
June 30, 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
to provide funding for commercializing the proprietary process held by its 100% owned subsidiary, Greenway Innovative Energy, Inc.
(“GIE”).
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 revenue 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. The Company believes that this investment
could be very lucrative if sufficient resources are committed to its development. However, at this time, the Company has made the
decision to commit is resources to commercialization of the Gas-To-Liquids (“GTL”) technology owned by GIE.
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), and then to liquid fuels, also known as gas-to-liquids or “GTL” processing.
In addition to its usefulness in the GTL process, 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 reforming process is called Fractional
Thermal Oxidation™ (FTO). The Company believes it will be able to offer a new economical, relatively small scale (125 to
2,475 barrels/day) method of converting natural gas into liquid fuels that can be located in field locations where applicable to
smaller scale GTL processing requirements. Commercialization of its proprietary reforming and GTL processes are the primary focus
of the Company.
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 $803,000 for the three-month period ended June 30, 2018 and has a working capital deficiency of approximately
$3.0 million and an accumulated deficit of approximately $25 million at June 30, 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.
With the successful test of the Company’s G-Reformer®
unit and FTO process during the first quarter 2018, the Company has started discussions with a number of oil and gas companies,
smaller oil and gas operators and investors regarding potential joint venture funding for a commercial scale gas-to-liquids (GTL)
plant using the Company’s unique GTL system. A commercial GTL plant will include the Company’s 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 reached, a joint venture relationship would be anticipated to provide
funding for a plant, as well as sufficient additional operating capital for the Company to complete the commercialization process.
While there are no assurances that financing for an 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 are 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 June 30,
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 or beneficial conversion features (11,356,238) 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 June 30, 2018 and December 31, 2017:
Description
|
|
Level 1
|
|
|
Level 2
|
|
Level 3
|
|
June 30, 2018 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
68,056
|
|
December 31, 2017
Derivative 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 June 30, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Change in
|
|
New
|
|
|
|
Fair
Value
|
|
|
|
January 1, 2018
|
|
|
|
Fair
Value
|
|
|
|
Convertible
Notes
|
|
|
|
Conversions
|
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
106,643
|
|
|
$
|
37,587
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
(68,056
|
)
|
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 June 30, 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 $232,068 and $177,658 during the three-months ended June 30, 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
|
|
June 30, 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
June 30, 2018 and 2017, respectively.
NOTE 5 – TERM NOTES PAYABLE
Term notes payable consisted of the following at June 30, 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 June 30, 2018, the remaining discount was $20,313 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 June
30, 2018, the remaining discount was $40,711 and $7,019 of the discount was amortized. The derivative liability for this note
at June 30, 2018 was $68,056.
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 June 30, 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
|
|
There was a controversy with the lender
regarding the number of shares that would be issued with wa
A controversy and litigation between the lender and the
Company emerged regarding the number of warrants attached to the loan agreement. The parties reached a settlement whereby the
Company issued 1,600,000 shares of freely-tradable stock to the lender. As a result of the settlement, all of the remaining balance
sheet amounts relating to the promissory note were eliminated in the quarter ended June 30, 2018. The Company recorded Settlement
Expense in the amount of $208,000 and Gain on Exchange in Fair Value of Derivative in the amount of $58,316.
NOTE 8 – ACCRUED EXPENSES
Accrued expenses consisted of the following at June 30, 2018
and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accrued consulting fees
|
|
$
|
447,280
|
|
|
$
|
249,500
|
|
Accrued expense related to shareholder dispute
|
|
|
0
|
|
|
|
330,000
|
|
Accrued expense related to warrant exercise
|
|
|
0
|
|
|
|
180,000
|
|
Other accrued expenses
|
|
|
243,334
|
|
|
|
12,000
|
|
Accrued interest expense
|
|
|
20,185
|
|
|
|
7,260
|
|
Total accrued expenses
|
|
$
|
710,799
|
|
|
$
|
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 Class A common stock share has one voting right and the right to dividends, if and when declared
by the Board of Directors. Class B common stock does not vote.
Class A Common Stock
At June 30, 2018, there were 286,050,581
shares of class A common stock issued and outstanding.
During the three-months ended June 30,
2018, the Company: issued 650,000 shares of restricted class A common stock to 2 individuals through private placements for cash
of $76,000 at average of $0.12 per share.
-
Issued 1,600,000 of unrestricted common stock to the holder of a convertible
promissory note payable. The note had warrants attached to the note The Company negotiated a settlement with the lender to issue
the 1,600,000 shares to the lender at an price of $0.13 per share.
-
Issued 250,000 shares of stock to each the President and Chief Financial
Officer as required under Employment Agreements. The shares were issued at $.06 per share
-
Canceled 100,000 shares returned to the Company by shareholders
at a value of $10 added to paid-in-capital.
Class B Stock
At June 30, 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 June 30, 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 June 30, 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 to a director, which were provided in lieu of 3,000,000 shares that the director returned to the Company
and were subsequently cancelled, at $0.10 per share which expire in three years.
NOTE 10 - RELATED PARTY TRANSACTIONS
Shareholders made loans and advances to the Company in the amounts
of $27,491 (Kevin Jones $26,391 and Pat Six $1,100) during the three-months ended June 30, 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 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 June 30, 2018 and December 31, 2017,
the Company had approximately $17.3 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 June 30, 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 June 30, 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 June 30, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
16,524,544
|
|
|
$
|
16,403,873
|
|
Deferred compensation
|
|
|
790,360
|
|
|
|
821,572
|
|
Stock based compensation
|
|
|
2,900,734
|
|
|
|
2,900,734
|
|
Other
|
|
|
581,639
|
|
|
|
581,639
|
|
Total
|
|
|
20,797,277
|
|
|
|
20,707,818
|
|
Less valuation allowance
|
|
|
(20,797,277
|
)
|
|
|
(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
$45,912 and $12,784,855 for the three-months ended June 30, 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 $20,797,277 and $20,707,818 at June 30,
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 June 30, 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. Under their employment agreements, Mr. Olynick and Mr. Jones
were each issued 250,000 shares of Common Stock, par value $.0001 during the three months ended June 30, 2018.On the date of issuance,
the stock was valued at $.06 per share and the Company recorded an expense of $30,000. 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 the Company’s restricted common stock. Additional payments upon the Company’s
common stock reaching certain price points are 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
Due to a breach under the Agreement, the Board of Directors of the
Company on June 22, 2018, voted to terminate the Agreement. Based on the termination, all warrants to purchase the Company’s
common stock were cancelled.
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 June 30, 2018 and 2017, the Company expensed $14,510 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 the Company sold its 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, the parties
executed a Settlement and Mutual Release Agreement (Agreement). However, the Defendants defaulted in their payment obligations
under Agreement. Curtis Borman and Lee Jennison were co-guarantors of the obligations of Mamaki and HBI. To secure their guaranties,
each of Curtis Borman and Lee Jennsion posted 1,241,500 and 1,000,000 shares, respectively, of the Company. Under the Agreement,
the shares were valued at $.20. Due to the default under the Agreement, these shares were returned to the Company’s treasury
shares. Because of bankruptcy proceedings involving Curtis Borman, all action in this matter has been stayed.
See Subsequent Events Note 13.
NOTE 13-SUBSEQUENT EVENTS
There are no subsequent events to report.