Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
As of April 14, 2016, there were 84,093,431 shares of the registrant's
common stock issued and outstanding.
The market value of the voting stock held by non-affiliates of the
registrant as of April 14, 2016 was 30,380,000 shares with a last trade of $0.24 totaling $7,291,200.
This Annual Report on Form 10-K contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Forward-looking statements
can be identified by words such as “anticipate,” “expect,” “intend,” “plan,” “believe,”
“seek,” “estimate,” “project,” “goal,” “strategy,” “future,”
“likely,” “may,” “should,” “will” and variations of these words and similar references
to future periods, although not all forward-looking statements contain these identifying words. Forward-looking statements are
neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and
assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the
economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks,
uncertainties, and changes in circumstances, including those discussed in “Item 1A. Risk Factors” of this Annual Report
on Form 10-K. As a result, our actual results may differ materially from those expressed or forecasted in the forward-looking statements,
and you should not rely on such forward-looking statements. Please refer to “Item 1A. Risk Factors” of this Annual
Report on Form 10-K for a discussion of risks and factors that could cause our actual results and financial condition to differ
materially from those expressed or forecasted in this Annual Report on Form 10-K.
Any forward-looking statement made by us in this Annual Report on
Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake
no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or
otherwise. However, you should carefully review the risk factors set forth in other reports or documents we file from time to time
with the U.S. Securities and Exchange Commission (“SEC”).
By their nature, forward-looking statements speak only as of the
date they are made, are neither statements of historical fact nor guarantees of future performance and are subject to risks, uncertainties,
assumptions and changes in circumstances that are difficult to predict or quantify. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, including the risks identified in the section entitled “Risk Factors”
in Item IA of this Registration Statement. If such risks or uncertainties materialize or such assumptions prove incorrect, our
results could differ materially from those expressed or implied by such forward-looking statements and assumptions. Risks that
could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks
related to: our need to raise additional capital and our ability to obtain financing; general economic and business conditions;
our ability to continue as a going concern; our limited operating history; our operations in developing companies; our ability
to recruit and retain qualified personnel; our ability to manage future growth; and our ability to develop our planned products.
You should not place undue reliance on forward-looking statements.
Unless required to do so by law, we do not intend to update or revise any forward-looking statement, because of new information
or future developments or otherwise.
Except as otherwise noted, all share and per share amounts set forth
in this Annual have been adjusted to reflect the 1-for-25 reverse stock split of our common stock that was effected on July 24,
2014.
As used in this Form 10-K and unless otherwise indicated, the terms
the “Earth Gen,” “Company,” “we,” “us” and “our” refer to Earth Gen-Biofuel
Inc. and its subsidiary Earth Gen-Biofuel Lao Sole Co Ltd.
PART 1
|
|
ITEM 1.
|
DESCRIPTION OF THE BUSINESS
|
Overview
The primary business of Earth Gen-Biofuel Inc. (“Earth Gen”)
is the cultivation of non-food agricultural products for use in manufacturing processes, renewable energy and transportation fuel.
Earth Gen’s current focus is the cultivation of castor beans with the goal to become a major producer of castor beans with
operations in Southeast Asia, South America, the United States and other growing areas that are well suited for castor bean cultivation.
Management believes that castor beans are an agricultural crop already
in short supply and in high demand for processing manufactured products in many countries. Moreover, castor bean cultivation has
attracted attention as a “renewable energy crop” with high value due to its high oil content in comparison to other
oil seed crops. Earth Gen’s business model is to meet this growing demand without competing against potentially more valuable
crops by cultivating land for growing castor beans in areas of poor soil conditions where such cultivation does not replace the
production of food crops.
Earth Gen plans to expand its business by building additional farm
operations for growing castor beans to satisfy current demands for chemical processes that use castor oil required by chemical
conversion facilities in China and by other major importers of castor beans such as Japan, Taiwan, Europe and the United States.
As the world supply of castor beans grows along with Earth Gen’s production, the Company will benefit from a “tipping
point” created when there is enough surplus castor bean supply to allow for its use as biodiesel. Based on current commercial
demand for castor bean oil and the long term demand for clean fuel, management believes that, subject to obtaining the necessary
capital, Earth Gen is positioned for rapid near term and long term growth due to the favorable industry conditions that persist
in China, the United States and Europe.
DESCRIPTION OF BUSINESS
Earth Gen presently has approximately 700 acres under cultivation
in Northern Laos. Earth Gen’s operations began in 2010 when Earth Gen’s present management started establishing relationships
with farmers, government officials and related agencies in Laos to obtain the necessary local knowledge and expertise with the
goal of starting large-scale castor bean cultivation in Southeast Asia.
As a result of approximately two years of these exploratory activities,
Earth Gen was incorporated in the state of Nevada on August 28, 2012. Operations began by organizing farmers in Laos and Vietnam
to allocate land for growing castor beans. The farmers, under the supervision of Earth Gen’s management team and local experts,
planted their first test crop of castor beans with seeds provided by Earth Gen. Earth Gen supervised the planting of these test
sites with the goal of evaluating planting methods, local farming culture and farming conditions.
In May 2013, Earth Gen started testing its planting programs in
Laos and Vietnam. The purpose of these tests was to evaluate various growing methods and hybrid castor bean types to refine our
planting protocol. In the fall of 2013, we were able to evaluate the results of the test-planting project and decided on which
seeds to use and where the farming operations would be best located.
Earth Gen formed Earth Gen-Biofuel Lao Sole Co Ltd. in March of
2014 under the laws of Laos to meet Laos’ regulatory and legal requirements to do business in Laos. This company is 100%
controlled by Earth Gen. Earth Gen-Biofuel Laos has its own in country bank accounts and pays all local operating expenses of the
business activities of Earth Gen in Laos.
In March 2014, Earth Gen started its first large-scale castor bean
cultivation operation near the city of Xieng Khouang in the northeastern part of Laos. Between April and July 2014, the Company
has prepared and planted approximately 700 acres. This first planting was designed to develop operating methods and evaluate cultivation
protocols. This completion of this process yielded a small test harvest that was collected and moved to Earth Gen’s Lao storage
facility for evaluation. Early results are showing an estimated one-ton per hectare yield for the areas already harvested, which
is less than our long term yield expectation. We believe the initial harvest had reduced production because the planting took place
just prior to monsoon season which reduced the growing season for the initial planting but provides cloud cover and constant rain
allowing the young plants to mature and produce higher production levels during subsequent harvests. Additionally, a combination
of improved soil conditions with second rounds of fertilization and soil along with more mature plants and better weather are expected
to increase harvest yields. A more accurate crop yield result will be determined by additional harvest cycles in 2016.
Shortly after incorporating, Earth Gen began the process of obtaining
capital to support its operations. Funding was used to create the infrastructure in Laos and Vietnam and to provide supervision
by hiring subcontractors and consultants with an understanding of local culture. Funds were raised for seeds, fertilizer, labor,
transportation and economic assistance to the farmers who were part of the test-planting program.
Based on these start-up operations, Earth Gen formulated its short-term
and long term operating plan and identified the need for additional capital. The Board of Directors of Earth Gen decided to identify
a public company merger candidate that would facilitate Earth Gen’s ability to attract additional capital. Earth Gen identified
a public company, EarthBlock Technologies Inc., that had been operating in the international market for low cost housing in several
developing nations as well as in the U.S. It appeared to Earth Gen’s management that EarthBlock would be a suitable merger
partner because of EarthBlock’s knowledge of operations in developing nations. At the time of the agreement to complete the
merger, EarthBlock was quoted on the “OTC Link” market operated by the OTC Markets Group Inc. and its Common Stock
was registered with the SEC under Section 12(g) of the Exchange Act. While EarthBlock was then delinquent in its required filings
with the SEC, Earth Gen’s management’s plan was to immediately take all steps to bring EarthBlock’s filings current.
Reverse Merger
On September 25, 2012, EarthBlock and the shareholders of Earth
Gen entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which EarthBlock agreed to issue to the
shareholders of Earth Gen a total of 63,666,400 shares of common stock of EarthBlock in exchange for all of Earth Gen’s outstanding
capital stock (the “Exchange”). EarthBlock shares were exchanged on the basis of four shares of EarthBlock common stock
for each one share of Earth Gen common stock. The Exchange was completed on October 22, 2012 with EarthBlock becoming the owner
of 100% of the then issued and outstanding common shares of Earth Gen. At the completion of the Exchange, Earth Gen retained its
separate corporate status and operated as a wholly owned subsidiary of EarthBlock.
Rescission of Reverse Merger
At the time of the Exchange, Earth Gen’s management became
the officers and directors of EarthBlock on November 19, 2012. On November 19, 2012, EarthBlock filed a current report on Form
8-K pertaining to the Exchange. On November 27, 2012, EarthBlock filed a Form 8-K with respect to the dismissal of Pollard-Kelley
Auditing Services, Inc. as EarthBlock independent registered public accounting firm and the retention of Sam Kan & Company,
LLP CPA as its independent auditing firm. On November 29 and November 30, 2012, Schedule 13Ds were filed. These filings were made
as the first step of bringing current all of EarthBlock’s filings.
On November 14, 2012, the SEC sent a notice to the prior management
of EarthBlock notifying them that a hearing was scheduled to revoke EarthBlock’s status as a registered company and to suspend
trading in EarthBlock’s stock because of EarthBlock’s failure to file periodic reports. EarthBlock’s new management
did not receive this notice until November 26, 2012 and asked for a change in the scheduled hearing so as to request an extension
of time to bring all of EarthBlock’s filings current. However, it became apparent to new management that, given the state
of EarthBlock’s records, it was unlikely that EarthBlock would be in a position to comply with any extension. Accordingly,
EarthBlock consented to a deregistration order, the registration of its common stock was revoked and trading in EarthBlock’s
common stock was halted.
Additionally, the management and shareholders of Earth Gen had not
been made aware of the full extent of a material liability of EarthBlock that resulted from the operations of EarthBlock’s
subsidiary, EarthBlock Texas Homes, Inc. Accordingly, EarthBlock’s previously disclosed consolidated financial condition
was inaccurate and not in conformity with generally accepted accounting principles.
Due to these issues and after discussions and consultation with
the advisors for both Earth Gen and EarthBlock, on September 25, 2013, the Board of Directors of EarthBlock and of Earth Gen voted
to rescind the acquisition of Earth Gen by EarthBlock and authorized the officers of the Corporation to take the steps required
to complete the rescission of the Exchange.
On August 30, 2013, Earth Gen amended its Articles of incorporation
to increase its authorized shares from 400,000,000 shares of which 390,000,000 shares were common stock and 10,000,000 shares were
preferred stock. The authorized number of shares of stock was increased to 3,000,000,000 shares of which 2,990,000,000 shares are
common stock and 10,000,000 shares are preferred stock. The Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions by resolution and fix the number of shares constituting any series.
There were two distinctive groups of shareholders affected by the
rescission of the Exchange: (i) the pre-Exchange shareholders whose original Earth Gen common stock shares were exchanged for EarthBlock
common stock shares constituting a total of 63,666,400 post-split shares of common stock of EarthBlock (the “Exchange Shares”);
and (ii) the post-Exchange shareholders who invested directly in Earth Gen after the closing of the Exchange for a total of 7,030,400
post stock split Earth Gen common stock shares (the “Additional Shares”).
A rescission agreement dated October 28, 2013 (the “Rescission
Agreement”) was entered into among EarthBlock, Earth Gen and the holders of the Exchange Shares and the Additional Shares
all of whom received a disclosure document as to the reasons for the rescission and who had represented that they were accredited
investors. The Rescission Agreement set forth the terms and provisions pursuant to which the parties agreed to take all steps necessary
to unwind the Exchange including the surrender of the Exchange Shares for cancellation and Earth Gen to issue to each Exchange
Shareholder their respective original equity interests in Earth Gen, except that the Additional Shares will remain outstanding
and ratably dilute the Exchange Shareholders’ original equity ownership in Earth Gen.
The Rescission Agreement offer terminated on October 10, 2014. Pursuant
to the terms of the Rescission Agreement, Earth Gen issued a total of 50,645,600 Earth Gen common stock shares to participating
holders of Exchange Shares commensurate with the holders’ respective original equity interests in Earth Gen. Earth Gen also
issued a total of 7,030,400 Additional Shares to post-Exchange shareholders who invested directly in Earth Gen after the closing
of the Exchange. One Shareholder owning 7,560,000 Exchange Shares did not become a party to the Rescission Agreement and will retain
his EarthBlock common stock shares with no equity interest in Earth Gen. Additionally, 5,458,800 Exchange Shares could not participate
in the Rescission offer because the shares were canceled, sold or exchanged in lieu of the rescission. No additional Earth Gen
common stock shares will be issued as a result of the rescission of the Exchange.
Recapitalization of Common Stock by a Reverse Split and Reduction
of Authorized Shares of Stock
A stock dividend of three shares of common stock for each one share
owned by shareholders of record on October 14, 2013 was declared and approved by the Board of Directors on October 15, 2013. The
Company’s shareholders approved a recapitalization of the capital stock in the form of reverse stock split of its issued
and outstanding shares of common stock in a ratio of 1-for-25 on March 25, 2014. The Shareholders also approved an amendment to
the Articles of Incorporation on March 25, 2014 and filed the Amended Articles on May 16, 2014 with the Nevada Secretary of State
to reduce the number of authorized shares of stock to 700,000,000 from 3,000,000,000. Of the 700,000,000 authorized shares, there
are 10,000,000 shares of Preferred Stock and 690,000,000 shares of Common Stock. The reverse split and decrease in authorized shares,
were effective on May 16, 2014. All references to share amounts referred to herein are based on post reverse split shares and giving
effect to the stock dividend.
THE SEED OIL INDUSTRY
Worldwide cultivation of castor beans for the production of castor
oil is still a relatively small industry in comparison to other agricultural segments for the production of seed oil. According
to figures included in a United Nations Food and Agricultural report published in February 2012, the annual worldwide harvest of
castor bean seeds is estimated to be valued at $2.2 Billion. However, Earth Gen believes there is room for substantial growth to
meet current and future demand from the expanding biodiesel industry. Moreover, Earth Gen believes that if the availability of
castor oil increases, then the utilization of castor bean oil in manufacturing processes and clean transportation fuels would also
increase driven by its use to blend clean transportation fuels.
The U.S. is presently using food quality oil from soybean and canola
to produce vegetable oil for use in biodiesel manufacturing. Reports from the American Soybean Association indicate that biodiesel
blenders are presently using approximately $1.9 billion worth of food seed oil to blend biodiesel. The resulting biodiesel, as
reported by the U.N. Food and Agricultural Agency, is only about 1.8% of the diesel fuel utilized in the U.S. The seed oil used
in making this small amount of U.S. biodiesel is almost as much as the total production of castor beans worldwide. Currently the
use of biodiesel is still very limited but management believes that it is a market segment that has significant growth potential.
The driving forces for the growth of biodiesel is the rising cost of fuel, environmental concerns causing the use of cleaner fuels
and the fact that newly manufactured trucks and farm equipment in the U.S. do not require modification of their engines in order
to utilize Clean Fuel B20 (20% vegetable oil and 80% petroleum diesel) and are able to use 100% vegetable oil.
In addition to the potential biodiesel uses, castor beans are already
in high demand for producing products that are important to many manufacturing processes and commercial products. The demand for
castor beans is derived from castor bean seeds having a high level of vegetable oil content (44% to 60%) and the low cost of processing
the castor beans. Processed castor seed oil is a key ingredient in the manufacture of over 700 commercial products including nylon,
fiber optics, plastics, paints, tires, cosmetics, and pharmaceuticals, and it is used as an additive in approximately 3,000 commercial
manufacturing processes. At this time, almost all castor seed oil derived from current bean production is being used in processing
commercial products.
Management believes that Castor bean (Ricinus communis L.) is considered
to be one of the most promising non-edible oil crops due to its high potential for annual seed production and its tolerance to
diverse environmental conditions. In addition, castor beans can be grown on marginal lands, which are usually unsuitable for food
crops. The establishment of bioenergy crops in marginal or degraded lands may offer additional environmental benefits, such as
protection from soil erosion and nutrient leaching, and improvement of soil properties.
Findings in a study published by the periodical “Water”
found that the use of bioenergy crops is very useful as a vegetative filter to purify wastewater effluents applied to the soil.
This practice is also known as land treatment systems (LTS) or slow rate systems (SRS) and meets both environmental and renewable
bioenergy goals. Effluents can supply bioenergy crops with considerable amounts of water and nutrients, which stimulate plant growth
and yield. In addition, effluent application can reduce the competition between bioenergy crops and traditional crops with respect
to the use of fresh water, and it can also decrease production cost due to substitution of water for fertilizers.
The Comprehensive Castor Oil Report
on castor oil and castor
oil derivatives, updated in November 2010 by Castoroil India, a division of Energy Alternatives, a comprehensive resource for castor
industry information and castor products, reported that based on seed oil yield comparisons, castor bean production is an attractive
crop for producing seed oil. It has been estimated that farmers will be able to harvest approximately 1,600 pounds of canola seeds
per acre; this translates into approximately 111 plus gallons of vegetable oil per acre. Castor beans have an oil yield of approximately
50% and a relatively high crop yield of 1,695 pounds per acre; this means that castor beans can supply up to 141 gallons of castor
oil per acre for each harvest cycle. This allows for a potentially positive comparison to the 111 gallons per acre for canola oil
and an even better comparison when compared to soybean oil, which yields 50 gallons to 60 gallons per acre.
The most recent available statistics indicate that in 2012, global
castor seed production was approximately two million metric tons per year. Leading areas of production are India (with over half
of the global yield), China and Brazil, and is widely grown as a crop in Ethiopia. According to the United Nations report published
in 2012, China is the second largest grower of castor beans and is also the largest importer.
|
2012 Castor Bean Production*
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Rank
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Country
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Tons
|
|
1
|
|
India
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|
1,150,000
|
|
2
|
|
China
|
|
180,000
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|
3
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|
Brazil
|
|
93,025
|
|
4
|
|
Mozambique
|
|
38,600
|
|
5
|
|
Paraguay
|
|
13,000
|
|
6
|
|
Thailand
|
|
12,197
|
|
7
|
|
Ethiopia
|
|
8,400
|
|
8
|
|
Angola
|
|
7,500
|
|
9
|
|
Viet Nam
|
|
6,000
|
|
10
|
|
South Africa
|
|
5,500
|
|
11
|
|
Kenya
|
|
3,000
|
|
12
|
|
United Republic of Tanzania
|
|
2,900
|
|
13
|
|
Madagascar
|
|
2,600
|
|
14
|
|
Ecuador
|
|
2,200
|
|
15
|
|
Indonesia
|
|
1,900
|
|
16
|
|
Cambodia
|
|
1,600
|
|
17
|
|
Syrian Arab Republic
|
|
1,500
|
|
18
|
|
Haiti
|
|
1,200
|
|
19
|
|
Uganda
|
|
1,000
|
|
20
|
|
Sudan
|
|
1,000
|
|
21
|
|
Pakistan
|
|
720
|
|
22
|
|
Benin
|
|
600
|
|
23
|
|
Russian Federation
|
|
290
|
|
24
|
|
Bangladesh
|
|
230
|
|
25
|
|
Mexico
|
|
150
|
|
26
|
|
Morocco
|
|
140
|
|
27
|
|
Philippines
|
|
77
|
*The castor bean production numbers listed are based on estimates
and reported figures as provided by the Food and Agricultural Organization of the United Nations Statistic Division.
Castor oil has a wide range of applications, with uses such as cosmetics
to the areas of national security involving engineering plastics, jet engine lubricants and polymers. The chemical structure of
castor oil affords a wide range of reactions to the oleochemical industry and the unique chemicals that can be derived from it.
Some of these derivatives are on par with petrochemical products for use in several industrial applications. In fact, they may
be considered superior since they are from renewable sources, biodegradable and eco-friendly.
Castor oil and its derivatives are also used in soaps (bind ingredients
in cosmetic and soap formulas, humectant for soap products), lubricants (jet engine lubricants), grease, hydraulic brake fluids,
paints (varnishes), polymers (basic ingredient in the production of nylon 11, nylon 6-10, polyurethanes), perfumery products, surfactants,
surface coatings and inks, telecom & engineering plastics (polyamide 11), pharmaceuticals, rubber chemicals, polishes, flypapers,
in addition to other chemical derivatives and medicinal, pharmaceutical and cosmetic derivatives.
WORLD CASTOR BEAN PRODUCTION
The business of growing castor beans follows operational models
similar to most other agricultural crops. However, castor beans are not a food crop and are cultivated in soils not usually suitable
to growing most food crops. The two largest growers, India and China, utilize land that presents challenges to cultivating castor
beans, such as areas with cold weather and poor soil conditions These countries have little flexibility as to locations because
of the need to grow food for domestic consumption.
Most of the castor beans currently imported by China are being processed
by large chemical conversion facilities with the castor oil being used for production of some of the approximately 3,000 commercial
products using refined and processed castor oil. Management believes that China based processors are expected to prefer to import
from Earth Gen in Laos and Vietnam to take advantage of the trade agreements that include China, Vietnam and Laos as part of the
ASEAN +1 trade zone. China and the ASEAN trade group countries have maintained a long-term relationship and history of cooperation.
The relationship between ASEAN and China was further elevated with the signing of the Joint Declaration of the Heads of State/Government
on Strategic Partnership for Peace and Prosperity in October 2003 and with the adoption of the ASEAN-China Plan Of Action (2005-2010).
The execution of Framework Agreement on Comprehensive Economic Cooperation in November 2002 to establish the ASEAN-China Free Trade
Agreement (ACFTA) eliminated certain tariffs and improved of transportation and regulation on imports and export. Such actions
have allowed trade and economic ties between ASEAN and China to grow rapidly over the past several years. China has been ASEAN’s
largest trading partner since 2009, while ASEAN continues to be China’s third largest trading partner since 2010. Under the
aforementioned plans and agreements, China has reduced import tariffs on ASEAN country agriculture imports, and such tariffs are
expected to be reduced or totally eliminated in the coming years. As a result of the elimination of the ASEAN tariffs in the case
of castor bean exports to China from Laos, Vietnam and other ASEAN countries, there will be a 10 to 15% reduction in the cost of
castor beans purchased from ASEAN countries as compared to castor bean purchases from India.
India, the world’s largest castor bean producer, is not an
ASEAN member and does not participate in the benefits of ASEAN trade agreements. Moreover, shipping costs are generally less from
Laos and Vietnam than India due to shorter distances to Chinese ports. This gives castor beans from Vietnam and Laos purchased
by China a price advantage based on waiver of import tariffs and lower transportation costs making castor beans imported from Vietnam
and Laos competitive in the China market. Our ability to sell to China or other ASEAN countries would be negatively impacted if
Laos or Vietnam were no longer parties to the ASEAN and China free trade agreement.
Although Earth Gen operations receive economic advantages from the
ASEAN agreements and our management believes that working in developing countries offers opportunities for future growth, our operating
costs in Vietnam and Laos will be subject to increases as the local economies mature and available land becomes more limited. Earth
Gen may also be subject to upward pressure on wages and goods due to inflation. The local governments may begin to regulate the
use of farm land for production of non-food crops which may result in increased land use costs they may also establish import duties
on farm equipment or other equipment needed for processing our crops. In addition, the cost of general crop maintenance may vary
as the availability of and the cost of fertilizer, pesticides and soil amendment may have an adverse effect on costs.
BUSINESS OPERATIONS
Earth Gen’s business plan is to cultivate and sell castor
beans as a feedstock for chemical processors in China and other countries with the long-term goal of increasing castor bean production
to a level where manufacturing demand for castor bean oil and its derivatives will be satisfied and castor bean oil will be available
to be used as a biofuel feedstock. Since the Company’s incorporation in August 2012, Earth Gen started developing agricultural
projects in Vietnam and Laos to work with farmers to grow castor beans. At this time the company has focused its resources on operations
in Northern Laos. Commencing in October 2012, Earth Gen entered into a series of castor bean farm agreements with smaller local
farmers who are organized and managed by Earth Gen supervisors and subcontractors. In addition, in February 2014, Earth Gen started
leasing land from landowners for the purpose of growing castor beans. Earth Gen also plans to negotiate with larger farmers for
farming agreements to grow castor beans exclusively for Earth Gen and also to encourage neighboring farms to join the Earth Gen
farming group. Parties to the farming agreements will share resources and be supervised by Earth Gen staff and subcontractors engaged
by Earth Gen to support the farming and harvesting process. Currently, we have entered into three lease agreements in XingKhuang
Province Laos with local landowners for an aggregate of 273 hectare of farming land. Details of the agreements are set forth below
under the heading “Earth Gen-Biofuel’s Southeast Asia Operations.”
Castor beans are not a crop that is familiar to farmers in Southeast
Asian or Latin American countries where Earth Gen is targeting farm locations. Therefore, our operating plan starts from the ground
up. Our first step is evaluate the potential farm location by using a detailed check list to study all aspects of the property
and the variables that might impact farm operations and coordinating the farmers and the unique nature of the each farm site.
When working with small farmers Earth Gen follows a development
and training protocol. Once a site is selected, Earth Gen staff will organize training classes to teach local farmers the process
of preparing the land for planting, the planting process and the maintenance required during the 4-month growing cycle. During
the planting and growing cycle, Earth Gen staff will visit the farms on a regular basis to be sure the cultivation process is being
applied according to Earth Gen’s operational methods and to provide additional education and supervision as required.
Earth Gen staff will work with farmers and local village chiefs
and mayors, to be sure that enough labor is available for planting and harvesting operations. Within 11 to 15 weeks the castor
beans plants grow to between five to six feet tall and are ready for harvest, most of the large leaves die off and the plant retains
long stalks with the capsules containing the castor seeds. These stalks are harvested and the castor plant is then trimmed back
to about two feet tall. The trimming process starts the growing cycle over as the castor bean plant grows again to provide a new
harvest in 11 to 15 weeks. The ability of the castor bean plant to regenerate 2 to 3 times a year for a period of 5 to 7 years
is one of the keys to the economic success that can be achieved cultivating castor beans in tropical growing areas.
Once the harvest occurs, the stalks will be moved to a central storage
facility. The pods are dried to facilitate the process of removing the castor bean seeds from the capsules. The bean pods are mechanically
processed and the stalks and pods are separated from the castor seeds. The stalks and capsule shells are ground up to make a soil
amendment for the castor bean fields. The castor seeds will then be stored in 75 to 100 pound poly-lined bags for shipment to the
end users.
Earth Gen will buy the castor bean crop in two ways. When Earth
Gen accepts delivery of the capsules they are weighed. Earth Gen then discounts the weight by 25% to account for the weight of
the capsule and the extra moisture associated with the product prior to the drying process. The farmer has a choice to wait and
be paid based on the weight of the dried and processed capsules, which means Earth Gen is paying for clean and dried castor bean
seeds ready for bagging and shipment. Earth Gen leaves it up to the farmer to make a choice.
Harvested castor seeds will then be prepared for export to the end
user. The castor beans will be transported to the closest port for shipment or to end users in Southeast Asia. All sales will be
made in US dollars and the terms are FOB port or if delivered to a regional buyer COD. The end users will then process the castor
beans to extract the oil and then further refine the castor bean oil as required for the various manufacturing process and various
derivative products.
Earth Gen’s preliminary operations began in Laos and Vietnam.
To focus the company’s resources and management, at this time all operations are now in Northern Laos. However, Earth Gen
has also been developing relationships in other Southeast Asia countries such as Thailand, Malaysia and Cambodia as possible areas
of expansion in the region when and if additional working capital and management capabilities are available. Early in 2013, Earth
Gen management also started to investigate opportunities to develop land for expansion into Latin America. Based on obtaining sufficient
working capital to expand operations to Latin America, Earth Gen is planning to develop farming opportunities in Peru. . The start
of operations in Latin America will depend on completing the first phase of planting in Southeast Asia and monitoring the ability
of the company to allocate capital and management ability to meet the first goal of having 3,000 to 5,000 hectares under cultivation
in Southeast Asia. The achievement of Earth Gen’s planting goals will be dependent on having the working capital to sustain
operations at the proper level, along with the ability to make agreements with enough farmers willing to convert their farmland
to grow castor beans or obtain land that is not currently under cultivation on a basis that meets the Company’s operating
goals.
EARTH GEN-BIOFUEL’s SOUTHEAST ASIA OPERATIONS
Earth Gen provides certain start-up costs and training for farmers
who have agreed to work with Earth Gen based on their specific type of agreement. In addition to management oversight and product
sales, Earth Gen may provide basic startup assistance such as seeds for planting, agricultural expertise, small planting tools
and small harvesting equipment. Earth Gen may also provide start up assistance in the form of access to tractors and land preparation
equipment, seedpod processing equipment and transportation. Farmers needing this startup assistance will agree to repay any advances
made by Earth Gen from the proceeds of selling their harvest to Earth Gen. Earth Gen has retained certain subcontractors to provide
assistance to some of these farmer operations. Additionally, to meet our projected operating requirements in Laos, the number of
Earth Gen U.S. staff supervisors on-site has been increased to four people. In addition we have full-time employees in Laos to
oversee operations.
Earth Gen has three basic operating relationships with castor bean
farmers:
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The first type of arrangement is with a smaller farmer who typically supply land, equipment, maintenance and labor. Under the terms of this type of arrangement, Earth Gen will provide the seeds, technical know-how, operational monitoring and personnel from Earth Gen and its subcontractors to monitor and evaluate the growing process. These small farms are typically 5 to 10 hectares in size. Earth Gen will be willing to advance costs of $500 to $750 per hectare. Earth Gen has exclusive rights to all crops grown under each agreement, and advances are recouped on a mutually agreeable rate with the farmers dependent on the harvest amount. Earth Gen is obligated to purchase all harvests of castor beans for at least 12 years at a price fixed in advance of each 12 month growing cycle. Earth Gen does not require farmers to have crop insurance and the farmer bears normal farming risks of having no or a reduced harvest. We do not intend to purchase or require crop insurance in the future. The castor plants do re-grow once planted and have the ability to produce a harvest 2 or more times each year for five to seven years. No replanting is required while plants are producing. If initial harvests are poor or if there is no harvest, then start-up capital expended by Earth Gen as an advance will not be repaid until there is a good harvest, if ever. Upon a successful harvest, Earth Gen is obligated to pay $300 per ton of dried castor seeds delivered at the farm site by the farmers who are operating under this type of agreement for a period of one year. The price paid is adjusted on a bi-annual basis based on variations in the world price for castor beans. The price is set one year in advance for a one-year period and will not go down year to year by more than ten percent and never lower than $300 per metric ton. Farmers have no obligation as to the amount of castor beans they must produce; they are only obligated to deliver their entire harvest. Accordingly, it is possible that, due to poor castor bean farming methods, bad weather, or other events, a farmer may not be successful at growing castor beans in respect of one or more harvests. The results may be that a farmer will have no castor beans to deliver to Earth Gen for particular harvests, or, because of a very low yield, it proves uneconomical for the farmer to continue farming castor beans. Consequently, it may take a long time, if ever, as to a particular farmer or group of farmers for Earth Gen to recoup the expenses incurred for advancing seeds, technical know-how, operational monitoring and personnel.
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The second type of arrangement is with a farm or group of farms where a village or individual farmer controls the land. Under the terms of this type of agreement, Earth Gen agrees to provide the seeds, technical know-how, operational monitoring and personnel to monitor and evaluate the growing process. Earth Gen will also advance start-up capital for farm property evaluation such as soil tests, fertilizer, pesticides and equipment. Each arrangement is generally 20 to 50 hectares in size. Earth Gen will be willing to advance costs of $500 to $750 per hectare. These advances are to be paid back over a period of time from the proceeds from selling the harvest. Earth Gen is obligated to purchase all harvests of castor beans for at least 12 years at a price fixed in advance of each 12 month growing cycle. Earth Gen does not require farmers to have crop insurance and the farmer bears normal farming risks of having no or a reduced harvest. We do not intend to purchase or require farmers have crop insurance in the future. If initial harvests are poor or if there is no harvest, then start-up capital expended by Earth Gen as an advance will not be repaid until there is sufficiently large harvest, if ever. Upon a successful harvest, Earth Gen is obligated to pay $300 per ton of dried castor seeds delivered at the farm site by the farmers who are operating under this type of agreement for a period of one year. The price paid is adjusted on a bi-annual basis based on variations in the world price for castor beans. The price is set one year in advance for a one year period and will not go down year to year by more than ten percent and never lower than $300 per metric ton.
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The third type of arrangement is designed to work with larger landowners who are not actively farming. Earth Gen will agree to provide all required items to farm the land on a revenue sharing basis. Earth Gen will provide all evaluation costs, preparation costs, planting, maintenance, harvest and labor costs. If initial harvests are poor or if there is no harvest, then start-up capital expended by Earth Gen as an advance will not be repaid until there is a sufficiently large harvest, if ever.
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All active operations are currently limited to the third type of
agreement referenced above where Earth Gen is providing all required items to farm the land on a revenue sharing basis. Earth Gen
is providing all evaluation costs, preparation costs, planting, maintenance, harvest and labor costs. Earth Gen has agreed to purchase
all harvest of castor beans at prices ranging from $25.00 to $50.00 per metric ton of dried castor seeds. Based on this third type
of arrangement with larger landowners who are not actively farming, costs to fully develop a farm site including land preparation,
planting and maintenance through harvest is estimated to be $1500 to $2000 per hectare. Once the plants are producing and the first
harvest occurs, the expenses are mostly maintenance, which includes fertilizing during the growing season, application of pesticides,
weed control and pruning of plants. These costs are estimated to be $400 to $500 per hectare per growing cycle, which could be
two to three times per year. The working capital for planting is anticipated to be provided by Earth Gen through additional investment
in the form of debt and equity. Funds will also be provided from the sale of crops harvested from Earth Gen’s farms already
in operation. It is estimated that once a farm is in full operation that one-hectare of castor beans will produce between two to
four tons of dried castor seed per hectare with a gross crop value of $500 to $800 per ton or an estimated revenue of $1000 to
$4000 per hectare per harvest. It is possible that the yield for each growing season could vary widely. However the castor plants
are expected to produce harvest 2 to 3 times a year for 5 to 7 years. Therefore, one bad growing season may be followed by a good
season as the plants remain productive through good and bad seasons. There can be no assurance that the estimated revenue from
farm operations will be the actual revenue, which will vary from harvest to harvest based on unpredictable farming conditions and
could be subject to a wide range of results.
We have entered into three lease agreements in XingKhuang Province
Laos with local landowners for an aggregate of 273 hectares of farming land. We currently do not have any lease agreements in Vietnam.
The individual Laotian lease agreement terms are as follows:
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Leasee
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Region
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Leased
Area Size
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Initial Lease
Term*
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Expiration
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Bounthong Dalavong
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Phonengan Neua Village
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30 hectare
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12 years
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March 18, 2026
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Chong Cher Vang
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Phonemixay Village
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60 hectare
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12 years
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March 18, 2026
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Nongpa Chang
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Ban Nyuan Village
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183 hectare
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12 years
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February 14, 2026
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At this time, all of Earth Gen’s farms are operations where
the landowner only provides the land and Earth Gen provides all other operating requirements and capital. Earth Gen plans to concentrate
on working with landowners who own land but are not currently farming or who are farming crops with very low profit and are willing
to turn their land over to Earth Gen to grow castor beans to produce a higher return.
Warehouse facilities that provide space for castor bean processing,
bagging and storage have been established on the property surrounding Earth Gen Laos’s office at Phonsavan Sai Street, Xieng
Khouang, Bpek District, Laos. This facility is able to hold 100 tons at a time. It is planned that harvests will come to the warehouse
in lots of 5 to 10 tons and thereafter the bean pods will be processed in batches and then bagged for shipping. Once 10 to 20 tons
are processed, they are moved out of the warehouse to the port for shipping or to a regional chemical processor. As the harvest
size increases and Earth Gen has the working capital, it will expand its warehousing and processing facilities.
Earth Gen plans to add additional local subcontractors and farming
agents to work with farmers and farm groups in Laos and possibly other Southeast Asia countries. In addition to farming supervisors,
Earth Gen has agreements with independent agents who are responsible for recruiting farmers and growers that have legal rights
to farm land and who will agree to grow castor beans as supervised by the staff of Earth Gen.
When Earth Gen started operations in Southeast Asia, the Company
focused on operations in Laos and Vietnam. As described, operations began with test sites. A number of test sites were located
in the Vietnam. Initially we entered into a joint venture to plant and grow castor beans in Vietnam under the direction and protocol
set up by Earth Gen, with labor and cultivation provided by our Vietnamese partners utilizing local farmers, supervisors and labor.
However, during the operations first cultivation cycle our Vietnamese partners failed to follow Earth Gen protocols and In November
2013, Earth Gen determined the quality and quantity of castor beans on these farms had minimal economic value. As a result, we
have suspended our farming operations in Vietnam and we are now seeking to develop other farming relationships at a later time
in Vietnam based on the Company’s operating model in Laos.
In March 2014, Earth Gen-Biofuel Lao Sole Co Ltd. (“Earth
Gen Laos”) was formed under the laws of Laos to meet Laos regulatory and legal requirements to do business in Laos. This
company is 100% controlled by Earth Gen. Earth Gen Laos has its own in country bank accounts and pays all local operating expenses
of the business activities of Earth Gen in Laos.
Earth Gen’s operations in Laos are managed by Earth Gen supervisors
along with local agricultural experts. The Company intends to follow a similar protocol in Vietnam when and if operations are reestablished.
In addition to using our U.S.-based agricultural specialists and our in-country staff and outside experts, Earth Gen plans to access
the services of top academic institutions specializing in the region’s agriculture with dedicated departments focused on
castor bean cultivation.
To supplement our in-house staff, we will be providing agricultural
engineers trained in castor bean cultivation to assist Earth Gen’s staff to train local people in the best planting and operating
method. The end result of this training will be to create a local well trained and experienced staff to oversee each growing area
and provide oversight for the continuing process of refining Earth Gen’s agricultural operations and planting and harvesting
protocols to achieve the highest possible yields.
In addition to the trained Earth Gen staff working directly on the
cultivation process, the Company’s staff is expected to handle logistics. These functions include overseeing the harvest
process and the separation of the castor seeds from the seedpod. This process employs light processing equipment. The castor beans
will then be bagged and stored in local warehouse facilities and aggregated from several farm sites and prepared for export. The
Company intends to employ light equipment operators, baggers, warehouse guards, loaders and truck drivers.
Availability of Castor Bean Seeds and Equipment
Zibo is our principal supplier of castor seeds. Zibo has a wide
variety of castor seeds each designed for different growing environments. Zibo seeds are being used in many countries around the
world. We have no formal agreement with Zibo for the purchase of seeds. We place orders with Zibo on an as needed basis and do
not have any obligation to purchase only Zibo seeds.
There are other suppliers of hybrid seeds; however these companies
are newer to the industry. Principal competitors of Zibo are: AGF Hybrid Castor Seed Company in India, SLC Agricola in Brazil and
Evogene Ltd. in Israel. In addition to purchasing seed stock from suppliers, service providers using certain growing techniques
can help Earth Gen produce its own hybrid seeds by cross pollinating its own castor bean fields.
All other equipment and products needed for the cultivation of castor
seeds are readily available from many suppliers in Southeast Asia.
Competition
Castor beans are presently being grown in many countries with the
biggest producers being India, China and Brazil. In addition there are 25 countries growing at least 77 or more metric tons of
castor beans per year. Laos and Vietnam were reported to have produced 6,000 metric tons in 2011. India produced over 1,000,000
metric tons and China produced 180,000 metric tons. Most other producing countries have been growing castor beans for many years
and have substantial infrastructure dedicated to the cultivation of castor beans. Earth Gen is a new enterprise and has only grown
castor beans for one season on a very limited basis in countries that are very small producers of castor bean and have not yet
developed the infrastructure to support the cultivation of the castor bean crop.
Our competitors range from small-scale operators to fully integrated
multinational enterprises with significant financial, technical, sales, marketing and other resources. In addition to castor oil
producers, our competitors also include producers of alternative vegetable oils such as soybean, rapeseed, cottonseed, peanut,
sunflower seed and corn oils.
Market fundamentals that affect supply and demand of our products
include land shortages, water constraints, climate change, global warming, low operating margin, inadequate quality control and
quality assurance mechanisms leading to adulteration, violation of food laws and poor implementation. Non-fundamental factors include
world economics, general commodities prices, politics, inflation, investor interest, government policies and liquidity.
Multinational corporations are able to take advantage of economies
of scale that allow them to command high quality with lower costs, access cheaper credit, minimize losses and decrease input costs.
Multinational corporations also tend to have a greater ability to absorb volatility in production and pricing and respond to uncertainty.
In addition, the other more established growers have longer relationships
with the companies that buy and process castor beans. Earth Gen has developed relationships with only a few buyers of castor beans
in China and has little history in doing business with these companies.
Government Regulation
United States
The United States is a grower and importer of castor beans. The
importation of castor beans and transportation may be subject to regulation based on the laws and regulations regarding all agricultural
products and those that may specifically pertain to castor beans. In the U.S., the transporting of castor beans may be subject
to special requirements. In certain states and in certain agricultural areas the cultivation of castor beans is banned. It is anticipated
that all imports of Earth Gen’s castor beans will be controlled by the chemical processing facilities that are the buyers
and will not be the direct responsibility of Earth Gen.
International Regulation
Operating in Laos and Vietnam subjects Earth Gen to a changing legal
environment in regards to using land, producing crops and exporting its castor beans. Earth Gen’s current business model
focuses on the growing and export of castor beans in Laos and Vietnam. As a result Earth Gen is subject to certain domestic export
and agricultural regulations in those countries as described below. Moreover, our crop exports will normally be required to obtain
a Certificate of Origin by the authorities in the importing country.
Earth Gen’s management and its advisors work very closely
with all local government authorities to be sure all rules and regulations are strictly followed. The Company is or may become
subject to various laws and regulations regarding agricultural practices, as well as environmental laws and regulations governing,
among other things, the importation of seed stock for planting, processing of the seed pods after harvest and the disposal of any
agricultural waste. In addition the use of various fertilizers and pesticides is subject to regulation.
In Laos, Earth Gen Laos, our wholly foreign-owned enterprise, must
be registered with the Ministry of Industry and Commerce, Enterprise Registration. The rights and activities of foreign investors
in Laos are governed under the Law on the Promotion and Management of Foreign Investment in the Lao PDR. To our understanding our
domestic growing activity does not require any specific registration with the local government. However prior to export, Earth
Gen must obtain a valid export license for the shipment of castor beans. Under current regulations, castor bean shipments qualify
for automatic licensing and do not incur export duties.
Similarly if the company begins operations once again in Vietnam
or any other country, Earth Gen will be subject to foreign investment and export regulations. For example the Vietnamese government
requires that the foreign investors must be able to finance their project in Vietnam. Depending on the Company's business, the
Vietnamese government will impose a required annual investment over two years. Any future foreign joint venture or wholly owned
subsidiaries owned by Earth Gen will be subject to significant start-up capital investment.
Vietnam’s Minister of Agriculture and Rural development is
responsible for regulating crops and livestock in Vietnam. To our knowledge, currently there are no specific regulations relating
to the growing or cultivation of castor beans in Vietnam. Vietnam does require that all exports be declared at customs under the
Minister of Finance prior to export but there are currently no export duties on castor beans.
Employees
During the formation stage of the Company, Earth Gen had no full
time employees. In 2013 and 2014, and 2015 George Shen served as President, Chief Executive Officer and acting Chief Financial
Officer. Throughout 2013 and 2014, and 2015 Company operations have been supported by outside consultants including operational
subcontractors in Laos and Vietnam, farming oversight, bookkeeping, other advisors and a part-time accountant.
In January 2014, George Shen became an employee of Earth Gen working
substantially full-time on Company business. Mr. Shen, our President and Chief Executive Officer is also serving as our Chief Financial
Officer. The balance of our US-based staff is currently part-time or work as consultants or advisors to the Company. The Company
also employs two full time employees who live in Laos who supervise our farming operations. The company plans to hire a Chief Financial
Officer on a part-time basis and expand the position to full-time when company resources will allow. The Company plans to add other
full-time employees as soon as practical after obtaining a level of capitalization to provide sufficient funding to retain full
time management. In addition, we expect to hire additional staff and to engage consultants in regulatory, compliance, investor
and public relations, and general administration as necessary. We also expect to engage experts in farming and processing of castor
beans to advise us in various capacities.
Intellectual Property
The Company does not own any proprietary intellectual property.
Our business, financial condition and
results of operations are subject to various risks and uncertainties, including those described below and elsewhere in this Registration
Statement. This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ
materially from expected and historical results. Our business, financial condition or results of operations could be materially
adversely affected by any of these risks. It is not possible to predict or identify all such factors. Consequently, the following
are not to be a complete discussion of all potential risks or uncertainties applicable to our business.
Limited operating history with net losses
Earth Gen was formed in August 2012. As a result the Company has
a limited operating history upon which an evaluation of the Earth Gen’s performance can be made. There have been no revenues
generated from the Company’s business operations for four months in 2012 and for the full year of 2013, 2014 and 2015. Income
in 2015 was limited to “Other Income” of $49,975 The Company expects to have limited revenues and it is likely that
until harvest revenues increase that the Company will incur further losses into the foreseeable future due to significant costs
associated with its business development, including costs for planting additional acres of land and providing technical services
to local farmers. There can be no assurance that the Company’s operations will ever generate sufficient revenues to fund
its continuing operations, or that the Company will ever generate positive cash flow from its operations, or that the Company will
attain or thereafter sustain profitability in any future period.
The likelihood of the Earth Gen’s success must be considered
in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the start
and growth of a business, the implementation of the Company’s business plan, and the world agricultural environment in which
the Company operates, including but not limited to:
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our results of operations may fluctuate significantly, which may adversely
affect the value of an investment in our common stock;
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we may be unable to build-out our farming operations in a timely manner
that will meet the objectives we have established for our business strategy or grow our business profitably or at all; and
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we have only completed a limited series of planting and harvest cycles
of land located in Laos and have no harvest in Vietnam. We have not yet completed a full cycle of a growing season in a large-scale
operation and because of our limited operating history, it may be difficult to accurately predict our long-term castor bean production
and yields and other important performance metrics.
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If we do not obtain additional financing, our business, prospects,
financial condition and results of operations will be adversely affected.
The Company anticipates that it will require substantial working
capital for the Company to pursue continued maintenance of its castor bean plantings and development of future planting operations
in Laos and elsewhere in Southeast Asia. The timing and amount of such capital requirements cannot be accurately predicted. Additional
financing may not be available to the Company when needed or, if available, it may not be obtained on commercially reasonable terms.
If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be forced to delay
or scale down some or all of its development activities or perhaps even cease the operation of its business.
The Company has no commitments for any additional financing, and
there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional equity financing
will be dilutive to the Company’s stockholders, and debt financing, if available, may involve restrictive covenants with
respect to dividends, raising future capital and other financial and operational matters. If the Company is unable to obtain additional
financing as needed, the Company may be required to reduce the scope of its operations or its anticipated expansion, which could
have a material adverse effect on the Company.
Uncertainty as to management’s ability to control costs
and expenses.
With respect to the implementation of the Company’s business
plan, management cannot accurately project or give any assurance with respect to its ability to control operating costs and/or
expenses. Consequently, if management is not able to adequately control costs and expenses, such operations may not generate any
profit or may result in operating losses.
We may apply working capital and future funding to uses that
ultimately do not improve our operating results or increase the value of your investment.
The Company will retain virtually complete discretion over the application
of its working capital and new investment capital. Because of the number and variety of factors that could determine the Company’s
use of funds, there can be no assurances that such uses will not vary substantially from the Company’s current operating
plan.
We intend to use existing working capital and future funding to
support the expansion of the number of acres being planted and/or the support of operations to educate and supervise the farmers
working with the company. We will also use capital for market and network expansion, acquisitions and general working capital purposes.
However, we do not have more specific plans for our capital and our management will have broad discretion in how we use available
capital reserves. Our capital could be applied in ways that do not improve our operating results or otherwise increase the value
of a shareholder’s investment.
We do not have a traditional credit facility with a financial
institution.
This absence may adversely impact our operations. We do not have
a traditional credit facility with a financial institution, such as a working line of credit. The absence of a facility could adversely
impact our operations, as it may constrain our ability to have the working capital for equipment purchases or other operational
requirements. If adequate funds are not otherwise available, we may be required to delay, scale back or eliminate portions of our
business development efforts. Without credit facilities, the Company could be forced to cease operations and investors in our securities
could lose their entire investment.
Dependence upon management; possible conflict of interest.
The Company is dependent upon the efforts of its current management.
At this time, our President and Chief Executive Officer is also serving as our Chief Financial Officer. The balance of our US-based
staff is currently part-time or work as consultants or advisors to the Company. The Company also employs two full time employees
who live in Laos who supervise our farming operations. Our one officer and director has duties and affiliations with other companies.
Even though these companies are not competitors or involved in agriculture, involvement of our officer and director may still present
a conflict of interest regarding decisions they make for Earth Gen or with respect to the amount of time available for Earth Gen.
The loss of any officer or director of the Company and in particular, Mr. Shen, could have a material adverse effect upon our business
and future prospects.
The Company does not presently have key-man life insurance upon
the life of Mr. Shen and has no plans at this time for such insurance on any of its future officers or directors. Our officer and
director has not been involved in farming prior to joining the Company and, as such, he did not have any technical experience in
planting or harvesting of crops prior to joining the Company. Upon adequate funding, management intends to hire qualified and experienced
personnel, including additional officers and directors, and specialists, professionals and consulting firms to advise management
as needed; however, there can be no assurance that management will be successful in raising the necessary funds in respect of recruiting,
hiring and retaining such qualified individuals and firms.
Aggressive growth strategy.
For the foreseeable future, the Company intends to pursue an aggressive
growth strategy for the expansion of its operations through agricultural programs. The Company’s ability to rapidly expand
its operations will depend upon many factors, including the Company’s ability to work in an international environment, establish
and maintain strategic alliances with local authorities, and obtain adequate capital resources on acceptable terms. Any restrictions
on the Company’s ability to expand may have a material adverse effect on the Company’s business, results of operations,
and financial condition. Accordingly, there are no assurances that the Company will be able to achieve its targets for sales growth,
or that the Company’s operations will be successful or achieve anticipated operating results.
Timing of planting and harvest are subject to many uncontrollable
factors.
The Company has developed programs for planting and harvesting based
on local farmer knowledge and experience in each region of the countries where the Company is planting or plans to plant. Each
farm location is evaluated for suitability as a castor bean farm based on soil conditions, location, accessibility, water supply
and other growing conditions. Even with careful evaluation, there are risks associated with timing of rainfall, insect infestations,
root rot and other diseases, all of which will affect the growth and harvest of the castor bean crops. Even as the Company endeavors
to decrease these risks through good farming practices, constant monitoring and the combined experience of our staff and our farmers,
the Company may still face difficulties. Some problems or occurrences may always remain beyond our control.
Operating castor bean farms in developing countries presents
special risks.
Strong central and regional governments control Laos, and Vietnam.
Also, those farmers who control the land and their workers have their own way of working based on long-held tradition and government
oversight. The Company plans to work closely with the regional and local government officials in an effort to build trust and appreciation
for the Company with the farmers, labor and local authorities by providing active support for local economic needs. However, there
can be no assurance that building these relationships will be successful.
The lack of on-site warehousing and geographical limitation
preventing local crop aggregation may increase our reliance on local shipping companies and increase our transportation costs.
The Company’s farms are presently operating in Laos are spread
out geographically over hundreds of miles preventing crop aggregation and processing at the farms. As a result, Earth Gen intends
to establish centrally located warehouse or processing facilities convenient to each farm group. Such a storage system will require
that crops first be transported to the warehouses for processing and aggregation, and then later be transported to port destinations
for export. Such logistical restrictions will require frequent deliveries from farms to warehousing facilities as well as additional
deliveries to port destinations, thereby significantly increasing the frequency of truck deliveries and associated transportation
costs.
Significant changes in the cost and availability of transportation
could adversely affect our results of operations.
Transportation costs associated with the delivery of our products,
in most cases by truck, constitute a significant portion of our costs. Increases in the cost of fuel or energy can result in increases
in the cost of transportation, which could materially and adversely affect our results of operations. Also, shortages in trucking
capacity, and inadequate local roads and infrastructure could limit our ability to deliver our products to ports and therefore
adversely affect our results of operations.
Some properties of the castor bean are highly toxic and the
beans must be handled carefully.
Ricin a highly toxic, naturally occurring protein is produced in
the seeds of the castor oil plant. The Company has set out protocols and informs its workers of the toxicity of castor beans. Ricin
is refined from the processed seeds. Earth Gen does not process seeds derived from the castor beans. All seeds resulting from our
production of castor beans are shipped to third party processors in other countries at which time the seeds and the processing
residue no longer are owned by or under the control of Earth Gen.
We are subject to risks associated with doing business globally
including compliance with domestic and foreign laws and regulations, economic downturns, political instability and other risks
that could adversely affect our operating results.
We plan to conduct our business globally and to have assets located
in several countries and geographic areas. We currently have oilseed operations in Laos and plan to begin operations in Vietnam.
We are required to comply with numerous and broad reaching laws and regulations administered by governmental authorities. We must
also comply with other general business regulations such as those directed toward accounting and income taxes, anti-corruption,
anti-bribery, global trade, handling of regulated substances, and other commercial activities, conducted by our employees and third
party representatives globally. Any failure to comply with applicable laws and regulations could subject us to administrative penalties
and injunctive relief, and civil remedies including fines, injunctions, and recalls of our products. In addition, changes to regulations
or implementation of additional regulations may require us to modify existing processing facilities and/or processes, which could
significantly increase operating costs and negatively impact operating results.
We will operate in both developed and emerging markets which are
subject to impacts of economic downturns, including decreased demand for our products, reduced availability of credit, or declining
credit quality of our suppliers, customers, and other counterparties. We anticipate that emerging market areas could be subject
to more volatile economic, political and market conditions. Economic downturns and volatile conditions may have a negative impact
on our operating results and ability to execute our business strategies.
Our operating results may be affected by changes in trade, monetary,
fiscal and environmental policies, laws and regulations, and other activities of governments, agencies, and similar organizations.
These conditions include but are not limited to changes in a country’s or region’s economic or political conditions,
trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection
of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange activities,
currency exchange fluctuations, burdensome taxes and tariffs, enforceability of legal agreements and judgments, other trade barriers,
and regulation or taxation of greenhouse gases. International risks and uncertainties, including changing social and economic conditions
as well as terrorism, political hostilities, and war, may limit our ability to transact business in these markets and may adversely
affect our revenues and operating results.
We are subject to extensive regulation.
Our operations are subject to regulation by the U.S. government
and the governments of a number of other countries including China, Vietnam, Laos and the other countries where the Company plans
to operate. In addition as the company expands operations it will become subject to the regulations of additional countries as
well. Additional regulations, which may include, but not be limited to, environmental regulations, transportation of agricultural
products, shipping restrictions, and import and export restriction may all be factors in the operation of the Company.
Government policies and regulations, in general, and specifically
affecting the agricultural sector and related industries, could adversely affect our operating results.
Agricultural production and trade flows are subject to government
policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies,
incentives, and import and export restrictions on agricultural commodities and commodity products, including policies related to
renewable fuel, and low carbon fuel mandates, can influence the planting of certain crops, the location and size of crop production,
whether unprocessed or processed commodity products are traded, the volume and types of imports and exports, the viability and
volume of production of certain of our products, and industry profitability. In addition, international trade disputes can adversely
affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Future government policies
may adversely affect the supply of, demand for, and prices of our products, restrict our ability to do business in its existing
and target markets, and could negatively impact our revenues and operating results.
Uncertainties with respect to the Laotian, Vietnamese and
other countries’ legal system could adversely affect us.
Our castor bean operations are currently located in Laos and Vietnam
and are subject to Laotian and Vietnamese laws and regulations. Laos and Vietnam have not developed a fully integrated legal system
and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in those countries. In
particular, because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations
involve uncertainties. In addition, any litigation in Laos or Vietnam may be protracted and result in substantial costs and diversion
of resources and management attention. It is expected that this will also be the situation in many of the other countries where
the situation is the same.
In particular, among other uncertainties regarding Laotian and Vietnamese
laws and regulations that could affect us, the following uncertainties may have a significant adverse impact on our business and
operations: the uncertainties related to contract law and relevant regulations may impede our ability to enforce contracts we have
entered into with our business partners, farmers, customers and suppliers and result in substantial costs and diversion of our
resources and management attention. We also cannot predict the effect of future developments in the Laotian and Vietnamese legal
systems, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the
preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us and to
our foreign investors.
We rely on third-party contracts.
We depend on others to provide products and services to the Company.
We do not control these people or companies and even though we will be non-exclusive with these product and service providers and
we will be able to change suppliers, a change may be difficult to implement.
We currently only have one supplier of castor seeds.
At this time, Earth Gen relies solely on Zibo Academy for its supply
of hybrid castor seeds the Company uses for planting. Although, there are other suppliers of hybrid castor seeds, the Company has
not yet conducted tests on those seeds in the areas where Earth Gen is now actively planting or where it plans to plant in the
future. If Zibo goes out of business or refuses to supply the Company, it could adversely affect the Company’s operations.
Many of our competitors are better established and have resources
significantly greater than we have, which may make it difficult to fend off competition for land workers and other resources.
The Company will compete with other agricultural operations in Vietnam
and Laos and elsewhere in the world. These operations have substantially greater financial and government backed resources, longer
operating histories, greater name recognition and more established relationships in the industry. In addition, a number of these
competitors may combine or form strategic partnerships. As a result, our competitors may be able to control a more favorable basis
in regard to pricing or other factors. Our failure to compete successfully with any of these companies would have a material adverse
effect on our business and the trading price of our common stock.
The market for castor beans is a world market price and subject
to fluctuation based on many factors, and we will compete with other companies within this market:
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World traded commodities markets;
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Mills and processing factories around the world;
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Local government supported markets.
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Moreover, we expect other existing and prospective competitors,
particularly if our development of large-scale production begins to develop as scheduled, that others will adopt technologies or
business plans similar to ours, or seek other means to develop operations competitive with ours. Many of our competitors are well
established and have larger and better-developed networks and systems, longer-standing relationships with customers and suppliers,
greater name recognition and greater financial, technical and marketing resources than we have.
We may have difficulty in attracting and retaining management
and outside independent members to our board of directors as a result of their concerns relating to their increased personal exposure
to lawsuits and stockholder claims by virtue of holding these positions in a publicly quoted company.
The directors and management of publicly quoted corporations are
increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims, as well as governmental and
creditor claims which may be made against them, particularly in view of recent changes in securities laws imposing additional duties,
obligations and liabilities on management and directors. Due to these perceived risks, directors and management are also becoming
increasingly concerned with the availability of directors’ and officers’ liability insurance to pay on a timely basis
the costs incurred in defending such claims. We currently do not carry limited directors’ and officers’ liability insurance.
Directors’ and officers’ liability insurance has recently become much more expensive and difficult to obtain. If we
are unable to continue or provide directors’ and officers’ liability insurance at affordable rates or at all, it may
become increasingly more difficult to attract and retain qualified outside directors to serve on our board of directors.
We may lose potential independent board members and management candidates
to other companies that have directors’ and officers’ liability insurance to insure them from liability or to companies
that have revenues or have received greater funding to date which can offer more lucrative compensation packages. The fees of directors
are also rising in response to their increased duties, obligations and liabilities as well as increased exposure to such risks.
As a company with limited operating history and resources, we will have a more difficult time attracting and retaining management
and outside independent directors than a more established company due to these enhanced duties, obligations and liabilities.
We will continue to incur increased costs as a result of becoming
a reporting company, and given our limited capital resources, such additional costs may have an adverse impact on our profitability.
As a result of filing a Form 10, we are now an SEC reporting company.
The Company currently has limited revenue. However, the rules and regulations under the Exchange Act require a public company to
provide periodic reports with interactive data files which will require the Company to engage legal, accounting and auditing services,
and XBRL and EDGAR service providers. The engagement of such services can be costly and the Company is likely to incur losses,
which may adversely affect the Company’s ability to continue as a going concern. In addition, the Sarbanes-Oxley Act of 2002,
as well as a variety of related rules implemented by the SEC, have required changes in corporate governance practices and generally
increased the disclosure requirements of public companies. For example, as a result of becoming a reporting company, we will be
required to file periodic and current reports and other information with the SEC and we must adopt policies regarding disclosure
controls and procedures and regularly evaluate those controls and procedures. Based on our management’s estimates, we anticipate
that our cost of being a public company, including legal, audit costs, printing, filing fees and other costs to be as much as $125,000
per year.
The additional costs we will incur in connection with becoming a
reporting company will serve to further stretch our limited capital resources. In other words, due to our limited resources, we
may have to allocate resources away from other productive uses in order to pay any expenses we incur in order to comply with our
obligations as an SEC reporting company. Further, there is no guarantee that we will have sufficient resources to meet our reporting
and filing obligations with the SEC as they come due.
Risks Related to Our Common Stock
We will be subject to the “penny stock” rules which
will adversely affect the liquidity of our common stock.
The Company’s stock is defined as a “penny stock”
under Rule 3a51-1 of the Exchange Act. In general, a “penny stock” includes securities of companies which are not listed
on the principal stock exchanges or NASDAQ and have a bid price in the market of less than $5.00; and companies with net tangible
assets of less than $2,000,000 ($5,000,000 if the issuer has been in continuous operation for less than three years), or which
has recorded revenues of less than $6,000,000 in the last three years. “Penny stocks” are subject to rule 15g-9, which
imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers
and “accredited investors” (generally, individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses, or individuals who are officers or directors of the issuer of the securities).
For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have
received the purchaser’s written consent to the transaction prior to sale. Consequently, this rule may adversely affect the
ability of broker-dealers to sell the Company’s stock, and therefore, may adversely affect the ability of the Company’s
stockholders to sell stock in the public market.
The sale of shares by our directors and officers may adversely
affect the market price for our shares.
Sales of significant amounts of shares held by our officers and
directors, or the prospect of these sales, could adversely affect the market price of our common stock. Management’s stock
ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which
in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
A significant number of our shares will be eligible for sale
and their sale or potential sale may depress the market price of our common stock.
Sales of a significant number of shares of our common stock in the
public market could harm the market price of our common stock. As additional shares of our common stock become available for resale
in the public market, the supply of our common stock will increase, which could decrease its price. In addition some or all of
the shares of common stock may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a
depressive effect on the market for our shares of common stock. Subject to certain restrictions, a person who has held restricted
shares for a period of six months may sell common stock into the market.
The elimination of monetary liability against the Company’s
directors, officers and employees under Nevada law and the existence of indemnification rights to the Company’s directors,
officers and employees may result in substantial expenditures by the Company and may discourage lawsuits against the Company’s
directors, officers and employees.
The Company’s articles of incorporation contain a specific
provision that eliminates the liability of directors for monetary damages to the Company and the Company’s stockholders;
further, the Company is prepared to give such indemnification to its directors and officers to the extent provided by Nevada law.
The Company may also have contractual indemnification obligations under its employment agreements with its executive officers.
The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement
or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and resultant costs
may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and
may similarly discourage the filing of derivative litigation by the Company’s stockholders against the Company’s directors
and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.
Even though our shares have been approved for quotation by
FINRA, the shares thinly quoted, so you may be unable to sell at or near bid prices or at all if you need to sell your shares to
raise money or otherwise desire to liquidate your shares.
Our shares are quoted on OTC-Markets market under the trading symbol
of “EGBB”. Since the shares have been quoated the trading has been sporadic and is the shares are “thinly-quoted,”
meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively
small or nonexistent. This situation will be attributable to a number of factors, including the fact that we are a small company
which will be relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community
that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse
and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such
time as we became more seasoned and viable.
As a consequence, there may be periods of several days or more when
trading activity in our shares is minimal or non-existent, as compared to a mature issuer which has a large and steady volume of
trading activity that will generally support continuous sales without an adverse effect on share price. It is possible that a broader
or more active public trading market for our common stock will not develop or be sustained, or that trading levels will not continue.
Our stock is traded on the OTCQB. The OTCQB is an electronic quotation
system operated by OTC Markets Group that displays quotes from broker-dealers for many over-the-counter securities. These securities
tend to be inactively quoted stocks, including penny stocks and those with a narrow geographic interest. Market makers and other
brokers can use OTC Markets to publish their bid and ask quotation prices. The OTC Markets is not a stock exchange. To be quoted
in the OTC Markets, companies do not need to fulfill any financial requirements. The companies quoted in the OTC Markets tend to
be closely held, extremely small, thinly quoted, or bankrupt. Most do not meet the minimum U.S. listing requirements for trading
on a stock exchange such as the New York Stock Exchange.
Our stock also may be traded on the OTCBB. The OTCBB is a quotation
service for the Financial Industry Regulatory Authority (“FINRA”) market makers, and not an issuer listing service
or securities market. There is no minimum bid price requirement. OTCBB companies are not considered to be “listed.”
There are, however, certain requirements an issuer must meet in order for its securities to be eligible for a market maker to enter
a quotation on the OTCBB. In order for a security to be eligible for quotation by a market maker on the OTCBB, the security must
be registered with the SEC and the issuer must be current in its required filings.
We have never paid or declared any dividends on our common
stock.
We have never paid or declared any dividends on our common stock.
Likewise, we do not anticipate paying, in the near future, dividends or distributions on our common stock. Any future dividends
will be declared at the discretion of our board of directors and will depend, among other things, on our earnings, our financial
requirements for future operations and growth, and other facts as we may then deem appropriate.
Our directors have the right to authorize the issuance of
shares of preferred stock and additional shares of our common stock.
Our directors, within the limitations and restrictions contained
in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred
stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting
rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such
series. Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock. Should we issue
additional shares of our common stock at a later time, each investor’s ownership interest in our stock would be proportionally
reduced. No investor will have any preemptive right to acquire additional shares of our common stock, or any of our other securities.
Now that our shares are quoted on the OTCQB or the OTCBB,
if we fail to remain current in our reporting requirements, we could be removed from the OTCBB or OTCQB, which would limit the
ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies whose shares are quoted for sale on the OTCBB and the
OTCQB must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under Section 13 of
the Exchange Act, in order to maintain price quotation privileges on the OTCQB and OTCBB. If we fail to remain current in our reporting
requirements, we could be removed from the OTCBB or OTCQB. As a result, the market liquidity for our securities could be adversely
affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities
in the secondary market.
Even though our shares are publicly quoted, the market price
for our common stock will most likely be particularly volatile given our status as a relatively unknown company with a small and
thinly quoted public float, limited operating history and lack of net revenues which could lead to wide fluctuations in our share
price. The price at which you purchase our common stock may not be indicative of the price that will prevail in the trading market.
Even with our shares being publicly quoted, the market for our common
stock will most likely be characterized by significant price volatility when compared to seasoned issuers, and we expect that our
share price will be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price would be
attributable to a number of factors. First, as noted above, the shares of our common stock will likely be sporadically and/or thinly
quoted. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may
disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline
precipitously in the event that a large number of shares of our common stock are sold on the market without commensurate demand,
as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price.
Anti-takeover provisions may impede the acquisition of Earth
Gen.
Certain provisions of the Nevada Revised Statutes have anti-takeover
effects and may inhibit a non-negotiated merger or other business combination. These provisions are intended to encourage any person
interested in acquiring Earth Gen to negotiate with, and to obtain the approval of, our directors, in connection with such a transaction.
As a result, certain of these provisions may discourage a future acquisition of Earth Gen, including an acquisition in which the
stockholders might otherwise receive a premium for their shares. Additionally, Earth Gen currently has 10,000,000 authorized preferred
shares, which allows our board of directors to issue preferred stock without stockholder approval and with rights and privileges
determined solely by the board of directors. Issuance of such preferred stock could impede or delay a hostile takeover.
If we fail to establish and maintain an effective system of
internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and
file our financial results accurately and timely could harm our business and adversely impact the trading price of our common stock.
Effective internal control is necessary for us to provide reliable
financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage
our business as effectively as we would if an effective control environment existed, and our business, brand and reputation with
investors may be harmed.
In addition, reporting a material weakness may negatively impact
investors’ perception of us. We have allocated, and will continue to allocate, significant additional resources to remedy
any deficiencies in our internal control. There can be no assurances that our remedial measures will be successful in curing the
any material weakness or that other significant deficiencies or material weaknesses will not arise in the future.
Our Chairman and Chief Executive Officer is also our largest
stockholder, and as a result he can exert control over us and has actual or potential interests that may diverge from yours.
Mr. Shen may have interests that diverge from those of other holders
of our common stock. As a result, Mr. Shen may vote the shares he owns or controls or otherwise cause us to take actions that may
conflict with your best interests as a stockholder, which could adversely affect our results of operations and the trading price
of our common stock.
Through this control, Mr. Shen can control our management, affairs
and all matters requiring stockholder approval, including the approval of significant corporate transactions, a sale of our company,
decisions about our capital structure and the composition of our Board of Directors.
Our stock price might be volatile.
Even if an active a market develops for our stock, the price of
our stock may be highly volatile and could be subject to fluctuations in price in response to various factors, some of which are
beyond our control. These factors include:
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quarterly variations in our results of operations or those of our
competitors;
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announcements by us or our competitors of acquisitions, new products,
significant contracts, commercial relationships or capital commitments;
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disruption to our operations or those of other sources critical to
our operations;
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the emergence of new competitors;
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our ability to develop and market new and enhanced products on a timely
basis;
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seasonal or other variations;
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commencement of, or our involvement in, litigation;
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dilutive issuances of our stock or the stock of our subsidiaries,
or the incurrence of additional debt;
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changes in our board or management;
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adoption of new or different accounting standards;
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changes in governmental regulations or in the status of our regulatory
approvals;
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changes in earnings estimates or recommendations by securities analysts;
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general economic conditions and slow or negative growth of related
markets.
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In addition, the stock market in general, and the market for shares
of agricultural companies in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. We expect the value of our Common stock will be subject to such fluctuations.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None.
Description of Property
We do not own any real property. The Company leases space for its
U.S. office at 17870 Castleton Street, # 205 City of Industry, California 91748, from its CEO and shareholder, George Shen under
a month to month lease agreement. George Shen now leases the space to be used by the Company on a month to month basis The annual
base lease obligation is $40,320 for year one, $41,940 in the second year. The Company’s headquarters in Laos has been moved
to a new facility in Xieng Khouang, Bpek District. The lease is for 12 months at $312 per month and the one-year rental of $3,750
was paid in full at the start of the lease. The Company paid $3,750. for the full year in advance. Related utilities are paid monthly.
The lease may be terminated on four weeks’ notice with a refund of unused rent. The property is completely fenced in by brick
walls topped by chained link fencing and barbed wire. Inside the compound and attached to the building is a large covered area
that is used for processing of crops and storage. This is a secured area with sliding gate at the entrance and is enclosed with
a covered fence built by the company. Earth Gen terminated its lease for office space in Las Vegas, Nevada.
On February 14, 2014, Earth Gen entered into a lease agreement with
one landowner for land totaling 183 hectares in Laos. The term of the lease is for twelve years with an option for Earth Gen to
renew for an additional twelve years. Earth Gen is obligated to pay taxes on the land of up to $1,000 per year with any taxes in
excess of that amount are the obligation of the landowner. In addition, Earth Gen is obligated to provide all elements required
to grow castor beans on the land and start using the land for castor bean farming operations before the end of 2014. The compensation
to the landowner is based on the size of the harvest produced on the land. The payment is a fixed fee per metric ton for all castor
beans harvested on the land.
In March 2014 Earth Gen entered into agreements with two landowners
for leases to create castor bean farms in close proximity to the Company’s other operations. These additional parcels total
90 hectares. The Company’s other agreements with landowners, is substantially the same as the first lease agreement from
March 2014. These lease agreements are designed to work with larger landowners who are not actively farming. Based on the terms
of the agreements, Earth Gen provides all required items to farm the land and pays for use of the land on a revenue sharing basis
with no requirement to make lease payments until there is a harvest. Earth Gen provides all evaluation costs, preparation costs,
planting, maintenance, harvest and labor costs and upon harvest, Earth Gen is obligated to pay $50.00 per metric ton of dried weight
of castor seeds harvested from the farmers land.
We believe our current and future facilities are adequate for our
current and near-term needs. Additional space may be required as we expand our activities. We do not currently foresee any significant
difficulties in obtaining any required additional facilities.
We have entered into three lease agreements in XingKhuang Province
Laos with local landowners for an aggregate of 273 hectares of farming land. We currently do not have any lease agreements in Vietnam.
The individual Laotian lease agreement terms are as follows:
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Leasee
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Region
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Leased Area
Size
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Initial Lease
Term
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Expiration
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Bounthong Dalavong
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Phonengan Neua Village
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30 hectare
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12 years
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March 18, 2026
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Chong Cher Vang
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Phonemixay Village
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60 hectare
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12 years
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March 18, 2026
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Nongpa Chang
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Ban Nyuan Village
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183 hectare
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12 years
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February 14, 2026
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ITEM 3.
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LEGAL PROCEEDINGS
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We are not currently a party to any proceedings. In the ordinary
course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any,
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm
our business.
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ITEM 4.
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MINE SAFETY DISCLOSURES
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Not applicable.
PART II.
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ITEM 5.
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MARKET FOR REGISTRANTS COMMON EQUITY RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASERS OF EQUITY SECURITIES
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Common Stock Information
Our common stock became eligible for trading on the OTCQB quotation
system on September 22, 2015 when it was approved for quotation by FINRA. There was no quoting for the stock until after Deposit
Trust Corporation approved the Company’s stock for electronic clearing on December 30, 2015. In January of 2016 the first
quotes were posted.
The transfer agent for our common stock is Corporate Stock Transfer
located at 3200 Cherry Creek Drive South, #430, Denver CO 80209.
All references to numbers of shares are based on a post reverse
split of one for twenty-five basis approved by shareholders on March 25, 2014, and filed with the Nevada Secretary of State on
May 15, 2014 with an effective date of July 24, 2014.
As of December 31, 2015, there were 562
holders of record
of our Common stock with 81,256,574 shares outstanding. As of December 31, 2015 there were no shares in street name and on March
31, 2016 there were 4,648,800 shares are held in street name.
Dividends
We have never declared or paid any cash dividends. We currently
intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate
paying any cash dividends on our common stock in the foreseeable future.
A stock dividend of 3 shares of common stock for each one share
owned by shareholders of record was declared and approved by the Board of Directors on October 15, 2013.
Recent Sales of Unregistered Securities
Private Placements of Common Stock 2015
From January 1 to March 31, 2015, Earth Gen issued to investors
713,334 shares of its common for an aggregate amount of $105,500. For the three-month period ended March 31, 2015, the Company
received $28,000 for subscriptions payable to issue 253,167 shares of common stock, which were issued on June 29, 2015.
From April 1, 2015 to June 30, 2015, Earth Gen received $101,100
for issuing 1,430,000 shares at a price of $0.07 per share. Additional equity issued during this period also included 36,400 shares
of common stock to various parties for services rendered valued at $2,548. 1,100,000 shares of common stock were issued in conversion
of $70,700 in accrued compensation due Company officer George Shen and for $7,000 in cash advances from George Shen.
From July 1, 2015 through September 30, 2015, Earth Gen issued to
investors 71,428 shares of restricted common stock for proceeds of $5,000 Additional equity issued during this period also included
1,500,000 shares of common stock for services rendered valued at $105,000.
From October 1, 2015 through December 31, 2015 the Company issued
571,428 shares of restricted common stock for cash proceeds of $40,000. The Company issued 500,000 shares of restricted common
stock for services provided for services provided in conjunction with operations in Laos valued at $35,000.
The securities described above were issued to investors in reliance
upon the exemption from registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act
and Regulation D promulgated thereunder relating to transactions by an issuer not involving any public offering. No commissions
were paid and no agreements to register shares were offered in the private placements.
All Purchasers of shares described above represented to us in connection
with their purchase that they were accredited investors and were acquiring the shares for their own account for investment purposes
only and not with a view to, or for sale in connection with, any distribution thereof. The purchasers received written disclosures
that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration
statement or an available exemption from such registration.
All information on Company securities are based on post March 26,
2014 approved reverse split of one share for every twenty-five shares. Our authorized capital stock consists of 700,000,000 shares
of capital stock of which 690,000,000 shares are common stock, $0.0001 par value per share, and 10,000,000 shares are “blank
check” preferred stock, par value $0.0001 per share. We are registering our common stock under this Form 10 pursuant to Section
12(g) of the Exchange Act.
As of December 31, 2015, there were 81,256,574 shares of our common
stock issued and outstanding. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the
holders of common stock are entitled to receive dividends out of legally available assets at such times and in such amounts as
our Board of Directors may from time to time determine. There are no Preferred shares issued at the time of this filing. Each stockholder
is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not authorized.
Our common stock is not subject to conversion or redemption and
holders of common stock are not entitled to preemptive rights. Upon the liquidation, dissolution or winding up of the Company,
the remaining assets legally available for distribution to stockholders, after payment of claims of creditors and payment of liquidation
preferences, if any, on outstanding preferred stock, are distributable ratably among the holders of common stock and any participating
preferred stock outstanding at that time. Each outstanding share of common stock is fully paid and non-assessable. Our Board of
Directors has the authority to issue authorized but unissued shares of common stock without any action by our stockholders.
A rescission agreement dated October 28,
2013 (the “Rescission Agreement”) was entered into among EarthBlock, Earth Gen and the holders of the Exchange Shares
and the Additional Shares all of whom received a disclosure document (together with the Rescission Agreement, the “Rescission
Documents”) as to the reasons for the rescission and who had represented that they were accredited investors. The Rescission
Agreement set forth the terms and provisions pursuant to which the parties agreed to take all steps necessary to unwind the Exchange
including the surrender of the Exchange Shares for cancellation and Earth Gen to issue to each former Earth Gen shareholder their
respective original equity interests in Earth Gen, except that the Additional Shares will remain outstanding and ratably dilute
the Exchange Shareholders’ original equity ownership in Earth Gen.
The Rescission Agreement offer was terminated on October 10, 2014.
Pursuant to the terms of the Rescission Agreement, Earth Gen issued a total of 50,645,600 Earth Gen common stock shares (the “Exchange
Shares”) to participating Exchange Shareholders commensurate with their respective original equity interests in Earth Gen.
Earth Gen also issued a total of 7,030,400 Additional Shares to post-Exchange shareholders who invested directly in Earth Gen after
the closing of the Exchange. One Shareholder owning 7,560,000 Exchange Shares did not become a party to the Rescission Agreement
and will retain his EarthBlock shares with no equity interest in Earth Gen. Additionally, 5,458,800 Exchange Shares could not participate
in the Rescission offer because the shares were canceled, sold or exchanged in lieu of the rescission. No additional Earth Gen
common stock shares will be issued as a result of the rescission of the Exchange.
The securities described above were issued to investors in reliance
upon the exemption from registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act
and Regulation D promulgated thereunder relating to transactions by an issuer not involving any public offering. No commissions
were paid and no agreements to register shares were offered in the private placements. All Purchasers of shares described above
represented to us in connection with their purchase that they were accredited investors and were acquiring the shares for their
own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof. The
purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale
must be made pursuant to a registration statement or an available exemption from such registration.
All information on Company securities are based on post March 26,
2014 approved reverse split of one share for every twenty five shares and amended Articles of Incorporation filed with the Nevada
Secretary of State on May 16, 2014. Our authorized capital stock consists of 700,000,000 shares of capital stock of which 690,000,000
shares are common stock, $0.0001 par value per share, and 10,000,000 shares are “blank check” preferred stock, par
value $0.0001 per share. We are registering our common stock under this Form 10 pursuant to Section 12(g) of the Exchange Act.
|
|
ITEM 6.
|
SELECTED CONSOLIDATED FINANCIAL DATA
|
Not applicable.
|
|
ITEM 7
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
Discussions of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the related notes and other financial information
appearing elsewhere in this Form 10K. Readers are also urged to carefully review and consider the various disclosures made by us
which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures
made in Item1A of this Registration Statement under the caption “Risk Factors.”
Except as otherwise noted, all share and per share amounts set forth
in this Registration Statement have been adjusted to reflect the 1-for-25 reverse stock split of our common stock that was effected
on July 24, 2014.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
This Annual Report contains forward-looking statements, which reflect
the views of our management with respect to future events and financial performance. These forward-looking statements are subject
to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking
statements are identified by words such as “if,” “shall,” “may,” “might,” “will
likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “project,” “intend,” “goal,” “objective,” “predict,”
“potential” or “continue,” or the negative of these terms and other comparable terminology. These forward-looking
statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other
unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends
in our business. These statements are only predictions based on our current expectations and projections about future events that
we believe to be reasonable. There are important factors that could cause our actual results, level of activity, performance or
achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed
or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption
“Risk Factors” in this report. We undertake no duty to update any of these forward-looking statements after the date
of filing of this report to conform such forward-looking statements to actual results or revised expectations, except as otherwise
required by law.
Overview
Our primary business is the cultivation of non-food agricultural
products for use in manufacturing processes, renewable energy and transportation fuel. Currently, our focus is on the cultivation
of castor beans, an agricultural crop currently in high demand and short supply. Castor beans are an integral component in processing
manufactured products for many countries and have attracted attention as a “renewable energy crop” with great value
due to its high oil content in comparison to other oil seed crops.
Our goal is to become a major producer of castor beans in Southeast
Asia and other tropical growing areas. Our business model is to supply the growing demand for castor beans by cultivating and growing
in areas not suitable for food crops. Our plan to use areas of relatively poor soil conditions allows us to produce castor beans
without competing with potentially more valuable products.
We plan to build our business by providing castor beans to chemical
conversion facilities, which utilize chemical processes that require the use castor oil, in China and other countries such as Japan,
Taiwan, Europe and the United States. Furthermore, as the world supply of castor beans grows along with our own production, we
will benefit from a “tipping point” created when there is enough surplus castor bean supply to allow for its use as
biodiesel. Based on current commercial demand for castor bean oil, long term need for clean fuel, and favorable industry conditions
in China, the United States and Europe, we believe that, subject to obtaining the necessary capital, we are positioned for rapid
near and long term growth.
Results of Operations
Our consolidated financial statements are stated in United States
Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). The discussion
of the results of our operations compares the year ended December 31, 2015 with the year ended December 31, 2014, and is not necessarily
indicative of the results which may be expected for any subsequent periods. Our prospects should be considered in light of the
risks, expenses and difficulties encountered by companies in similar positions. We may not be successful in addressing these risks
and difficulties.
Comparison of FiscalYears Ended December 31 , 2015 and 2014
To date, we have incurred significant losses from operations, and
at December 31, 2015, had an accumulated deficit of $2,761,057. At December 31, 2015, we had $1,379 of cash and cash equivalents.
Since inception we raised an aggregate of approximately $2,901,588 in equity financing to fund our operations. Until such time
when we generate sufficient revenues from operations, we will continue to be dependent on raising substantial amounts of additional
capital through any one of a combination of debt or equity offerings. There is no assurance that we will be able to raise additional
capital when necessary or how much revenue will be obtained from our farming operations.
The financial data for the year ended December 31, 2015 when compared
with the operations for the year ended December 31, 2014 reflect a different stage of the Company’s development. In December
31, 2014, the Company started to finalize infrastructure and relationships with national and local government officials and farmers
in Laos to start large scale planting operations. There were limited operations consisting of test planting in Laos and Vietnam
in year ended December 31, 2014. Also the Company was beginning to create the infrastructure and identify the staff and consultants
needed for farming operations in Southeast Asia. In the year ended December 31, 2014, there were very limited planting operations
in Laos. In the year ended December 31, 2015 operations consisted of farm maintenance operations as all planting was completed
in 2014.
|
|
|
12 Months of Operations Ended
Dcember 31, 2015
($)
|
|
|
12 Months of Operations
Ended Dcember 31, 2014
($)
|
|
|
Revenue
|
|
|
—
|
|
|
|
—
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
214,485
|
|
|
|
410,970
|
|
|
Legal and professional
|
|
|
96,113
|
|
|
|
154,252
|
|
|
Stock based compensation
|
|
|
142,548
|
|
|
|
414,790
|
|
|
Travel
|
|
|
9,139
|
|
|
|
77,598
|
|
|
Other general and administrative
|
|
|
59,016
|
|
|
|
149,342
|
|
|
Inventory reserve
|
|
|
115,963
|
|
|
|
64,320
|
|
|
Loss from operations
|
|
|
(637,264
|
)
|
|
|
(1,271,272
|
)
|
|
Net loss before income taxes
|
|
|
(701,577
|
)
|
|
|
(1,283,838
|
)
|
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
|
Net loss
|
|
|
(701,577
|
)
|
|
|
(1283,838
|
)
|
Operating Expenses
In year 2015, General and Administrative (“G&A”)
expense decreased by $
685,651
versus the same period in 2014. The decrease was due to a general
decrease in corporate activity associated with planting and cultivation operations in Laos and the reduced requirement for support
staff in the U.S. In Laos, staff and consultants were reduced as training and need for less personnel during the maintenance phase
of farm development versus the planting phase reduced. As a result, in year 2015, consulting fees decreased by $196,485
and travel expense decreased by $68,459. Legal and professional expenses decreased by $58,139 compared to the same period
last year mainly because the preparation of the registration statement on Form 10 was completed in 2014. The lower stock based
compensation as payments for services also contributed to the decrease in G&A expenses by $272,242.
The change in operations from planting crops
to maintaining farm operations and the filing of documents required for the Company’s Form 10 and other filings as required
by the Securities and Exchange Act of 1934 had a big impact on reducing operating expenses in 2015 versus 2014.
By early 2015 Earth Gen had completed test planting and most planting
operations were already completed. Based on the experience of limited planting operations in 2015 management prepared budgets and
operating procedures that would provide operating plans and protocols operations in 2015 that reduced expenses.
The Company recorded an inventory reserve of $115,963 for the year
ended December 31, 2015 due to the low harvest. For the year ended December 31, 2014 the Company just started to assess inventory
reserve in third quarter of 2014.
.
The Company recorded a reserve of $58,058 on the loan receivable
from Earthblock due to the uncertainty in collectability.
Liquidity and Capital Resources
Our working capital for the periods presented is summarized as follows:
|
|
|
As of
December 31, 2015
($)
|
|
|
As of
December 31,
2014
($)
|
|
|
Current assets
|
|
$
|
396,470
|
|
|
$
|
553,052
|
|
|
Current liabilities
|
|
|
226,640
|
|
|
|
184,342
|
|
|
Working capital
|
|
$
|
169,830
|
|
|
$
|
368,710
|
|
The following table shows cash flows for the periods presented:
|
|
|
Year Ended
December
31,2015
($)
|
|
|
Year Ended
December 31,2014
($)
|
|
|
Net cash (used in) operating activities
|
|
$
|
(291,313
|
)
|
|
$
|
(1,263,497
|
)
|
|
Net cash (used in) investing activities
|
|
|
-
|
|
|
|
(16,219
|
)
|
|
Net cash provided by financing activities
|
|
|
290,600
|
|
|
|
1,127,630
|
|
|
Net increase in cash
|
|
$
|
(713
|
)
|
|
$
|
(152,086
|
)
|
Operating Activities
For the year ended December 31, 2015, net cash used in operating
activities was $291,313. This was primarily due to a net loss of $701,577 adjusted by non-cash related expenses including depreciation
of $3,849, amortization of beneficial conversion feature (“BCF”) debt discount of $51,639, inventory reserve of $115,963,
related party loan reserve of $58,058 and stock-based compensation of $142,548, then increased by favorable changes in working
capital of $38,207. The favorable changes in working capital mainly resulted from an increase in related party payables of $37,999
and an increase in accounts payable and accrued expense of $18,360, offset by an increase in inventory of $18,000 in capitalized
costs of growing crops.
For the year ended December 31, 2014, net cash
used in operating activities was $1,263,497. This was primarily due to a net loss of $1,283,338, adjusted by non-cash related expenses
including depreciation of $1,933, amortization of BCF debt discount of $11,361, inventory reserve of $64,320 and stock-based compensation
of $414,790, then decreased by unfavorable changes in working capital of $472,563. The unfavorable changes in working capital mainly
resulted from an increase in inventory of $551,314 in capitalized costs of growing crops and an increase in prepaid expenses and
other receivable of $1,514, offset by an increase in accounts payable and accrued expense of $65,059.
Investing activities
:
For the year ended December 31, 2014, net cash
used in investing activities included equipment acquisition of $15,119 and a non-interest bearing 24-month loan of $1,100 to a
non-profit institute, which, in turn, makes micro loans to farmers.
Financing activities
For the year ended December 31, 2015, net cash
provided by financing activities mainly resulted from common stock issued in private placements of $278,600. In addition a net
of $12,000 was provided by the net of proceeds from new notes less the repayment of existing notes.
For the year ended December 31, 2014, net cash
provided by financing activities mainly resulted from common stock issued in private placements of $1,039,630, which includes $31,250
form the exercise of 1,000,000 warrants. In addition $83,000 and $5,000 in capital were obtained from the issuance of convertible
notes and promissory notes.
Equity Financings Since August 28, 2012
Since inception, Earth Gen’s funding has been provided by
the sale of its common stock for cash. During the year ended December 31, 2015, the Company had proceeds from common stock issuances
of $278,600. The Company had total paid in capital of $2,946,743 from inception to December 31, 2015.
Cash Requirements
Our primary objectives for the year 2015 period were to develop
and pursue the commercialization of our planned farming operations. We continuously search for industry experts to expand our management
team and better position our company. In addition, we expect to raise sufficient capital to fund our operations and to develop
additional farmland for cultivation of castor beans and provide support in the form of equipment and personnel to expand operations
and provide required working capital.
We estimate our operating expenses and working capital requirements
for the next 12 months to be approximately as follows:
|
Expense
|
|
Amount
|
|
|
Castor bean agricultural operation
|
|
$
|
300,000
|
|
|
Employee compensation
|
|
|
400,000
|
|
|
General and administration
|
|
|
250,000
|
|
|
Professional services fees
|
|
|
100,000
|
|
|
Total
|
|
$
|
1,050,000
|
|
Historically our funding has been a mixture of private offerings
and debt. As of December, 2015, we had cash and cash equivalents of approximately $1,379 and total current assets of $396,470.
Of this $396,470 in current assets, we have no specific time at which the Company will receive cash for these current assets.
The Company does not have a commitment for capital. The Company
believes that its current cash and expected net cash from operations will provide insufficient capital to cover expenses and debt
obligations for the next twelve-month period. The Company intends to use a combination of new equity investment, loans and cash
flow from operations to meet its operational needs. At this time the Company has 238 hectares of castor bean farms in production
with two harvests expected over the next twelve months period. We estimate an annual yield from our operational farmland of approximately
$600,000 based on having two and one half tons of castor beans harvested from each hectare per harvest and selling those beans
at $500 per ton on average during 2016 based on historical trend for demand and the futures price quoted on the National Commodities
and Derivatives Exchange of India (“NCDEX” Trading System).
Based on projected availability of cash, the Company believes that
it has or will have sufficient funds and working capital to cover operating expenses through at least through June, 2016. The Company
is expecting to start deliveries of crops in late June 2016 and in November of 2016. The terms for those sales are cash on delivery.
Crop deliveries are expected to add to working capital based on the amount of castor beans being harvested and accepted for payment.
However, it is difficult to estimate the size of the harvest and the exact delivery dates so capital requirements beyond June 30,
2016 are difficult to predict.
If working capital is not available in sufficient amounts, the Company
will be required to reduce the amount expended on new planting and new farm development to save working capital for operations
and to use expected future harvest cash flow for growth. The ability to obtain additional working capital from investors or from
future farm operations may not develop or be available when needed, which will interfere with planned operations and cause results
to vary based on these uncertainties.
If we obtain additional financing by issuing equity securities,
our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available,
will increase our liabilities and future cash commitments. We may be unable to maintain operations at a level sufficient for investors
to obtain a return on their investments in our common stock. Further, we may continue to be unprofitable.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
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
assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require
the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently
uncertain. However, we do not believe that there are any alternative methods of accounting for our operations that would have a
material effect on our financial statements.
Inventory
Expenditures on growing crops are valued at the lower of cost or
market and are deferred and charged to cost of sales when the related crops are harvested and sold. In assessing the ultimate realization
of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels.
The Company’s reserve requirements generally increase or decrease with its projected demand requirements and market conditions.
The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts
and orders in hand. In addition, the Company estimates net realizable value based on intended use, current market value and inventory
ageing analyses. The Company writes down the inventories for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.
Property, Plant, and Equipment
Property, plant, and equipment are stated at
cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of
the assets. Judgment is required to determine the estimated useful lives of assets. Changes in these estimates and assumptions
could materially affect our financial position and results of operations.
Accounting for Long-Lived Assets / Intangible Assets
We assess the impairment of long-lived assets, consisting of property
and equipment, and finite-lived intangible assets, whenever events or circumstances indicate that the carry value may not be recoverable.
Examples of such circumstances include: (1) loss of legal ownership or title to an asset; (2) significant changes in our strategic
business objectives and utilization of the assets; and (3) the impact of significant negative industry or economic trends.
Recoverability of assets to be held and used in operations is measured
by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the assets. The factors
used to evaluate the future net cash flows, while reasonable, require a high degree of judgment and the results could vary if the
actual results are materially different than the forecasts. In addition, we base useful lives and amortization or depreciation
expense on our subjective estimate of the period that the assets will generate revenue or otherwise be used by us. If such assets
are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling
costs.
We also periodically review the lives assigned to our intangible
assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows
from the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material
change in our reported results would increase.
Derivative Liabilities
Warrants
In connection with the 2013 private placements, the Company issued
warrants for 6,400,000 shares of Earth Gen Common Stock on August 1, 2013 and 1,600,000 warrants on September 12, 2013. Each of
these warrants entitled the holder to purchase one (1) share of Earth Gen common stock at $0.03 per share starting on January 1,
2014 and ending on December 15, 2016. As of December 31, 2014, 1,000,000 warrants have been exercised in exchange for total cash
proceeds of $31,250 or $0.03 per share.
In connection with the January 2014 private placement, the Company
issued warrants to purchase 202,000 shares of Earth Gen common stock on March 20, 2014. Each warrant entitles the holder to purchase
one (1) share of Earth Gen common stock at $0.50 per share starting on July 15, 2014 and ending on September 30, 2016.
In connection with the April 2015 private placement, the Company
issued warrants to purchase 3,000,000 shares of Earth Gen common stock on April 26, 2015. Each warrant entitles the holder to purchase
one (1) share of Earth Gen common stock at $0.07 per share starting on May 1, 2015 and ending on December 15, 2015.
In connection with the April 2015 private placement, the Company
issued warrants to purchase 6,000,000 shares of Earth Gen common stock on April 26, 2015. Each warrant entitles the holder to purchase
one (1) share of Earth Gen common stock at $0.07 per share starting on May 1, 2015 and ending on March 31, 2016.
In connection with the April 2015 private placement, the Company
issued warrants to purchase 3,000,000 shares of Earth Gen common stock on April 26, 2015, these warrants expired and are no longer
able to exercised as of December 15, 2015.
In connection with a consulting agreement, the Company issued warrants
to purchase 300,000 shares of Earth Gen common stock on December 12, 2015 as compensation to the consultant. Each warrant entitles
the holder to purchase one (1) share of Earth Gen common stock at $0.07 per share starting on April 30, 2016 and ending on December
15, 2017. The fair value of warrants granted was calculated using the Black-Scholes model and amortized over the vesting period.
These warrants have standard anti-dilution language to allow for
recapitalizations and distributions. The warrants are equity classified and amounts attributable to the warrants are classified
within additional paid-in capital. All reference to numbers of shares issued for warrants and per share price is based on a post-stock-dividend
and post-reverse-split amount.
|
|
ITEM 7.A
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
|
As a “smaller reporting company,” we are not required
to provide the information required by this item.
|
|
ITEM 8
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and notes thereto and related report of
our independent registered public accounting firm are attached to this Report beginning on Page F-1.
|
|
ITEM 9.
|
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND
FINANCIAL DISCLOSURES
|
None.
|
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management,
including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the
Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not
effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under
the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s
CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial
Reporting.
The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in
general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation
of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2015. The framework used by management in making that assessment was
the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our CEO and CFO have determined and concluded
that, as of December 31, 2015, the Company’s internal control over financial reporting was not effective.
As defined by Auditing Standard No. 5, “An Audit of Internal
Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming
Amendments,” established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency
or combination of deficiencies that result in a more than a remote likelihood that a material misstatement of annual or interim
financial statements will not be prevented or detected. In connection with the assessment described above, management identified
the following control deficiencies that represent material weaknesses as of December 31, 2015:
(1) Lack
of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee
it has no independent directors These factors are counter to corporate governance practices as defined by the various stock exchanges
and may lead to less supervision over management.
(2) We
do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience
that is necessary for adequate controls and procedures.
(3) Need
for greater integration, oversight, communication and financial reporting of the books and records of our satellite offices.
Our management determined that these deficiencies constituted
material weaknesses.
Due to our small size, we were not able to immediately take any
action to remediate these material weaknesses. In the second quarter of 2015, we have invested in inventory management and general
ledger software that should improve our internal controls. The implementation is scheduled for 2016. We plan to address additional
control deficiencies in the near future. Notwithstanding the assessment that our Internal Controls over Financial Reporting was
not effective and that there were material weaknesses identified herein, we believe that our consolidated financial statements
contained in this Annual Report fairly present our financial position, results of operations and cash flows for the years covered
thereby in all material respects.
This annual report does not include an attestation report of the
Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting
occurred during the period covered by this report, fourth quarter of the fiscal year ended December 31, 2015 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
|
|
ITEM
10.
|
DIRECTORS,
OFFICERS AMD CORPORATE GOVERNANCE
|
Set forth below is certain information regarding our directors and
executive officers as of December 31, 2015:
|
Name
|
|
Position
|
|
Age
|
|
Director/Officer
Since
|
|
George Shen
|
|
President, Chairman, Officer and Director
|
|
59
|
|
August 28,2012
|
Business Experience
The following is a brief account of the education and business experience
of our sole director and executive officer during at least the past five years, indicating their principal occupation during the
period, and the name and principal business of the organization by which he was employed.
George Shen, Chairman, President, Chief Executive Officer
Mr. Shen is the Chairman, President, Chief Executive Officer and
acting Chief Financial Officer of Earth Gen and brings extensive international business experience to his executive and director
positions. Mr. Shen has held senior management positions for companies operating in China, Hong Kong, Taiwan, Columbia, Nicaragua,
and Peru. Mr. Shen has worked for, and or represented Bank of America, Dean Witter Reynolds (now Morgan Stanley), Clarion Communication
(now part of Qwest) in Asia as the President of Asian Operations, and Realforce Energy Group, as well as served as a senior advisor
for business development for Davis Petroleum in China and in Latin America. Mr. Shen is also a former member of the US Department
of Commerce Advisory Committee on Environment and Energy. and served on the Board of Director of Justiceville. Mr. Shen served
in the US Marine Corps from 1979 to 1983 and volunteered to go back to the California National Guard post the events of 9/11. Mr.
Shen received a JD degree from Northwestern California School of Law and received his BS degree in Business Economics from Chapman
University. He later earned an MBA degree from Central China Normal University with a special thesis on Chinese Banking Reform.
Term of Office
Our directors are elected at each annual meeting of stockholders
and serve until the next annual meeting of stockholders or until their successor has been duly elected and qualified, or until
their earlier death, resignation or removal.
Anti-Takeover Effects of Certain Provisions of Nevada State Law
We may in the future become subject to Nevada’s control share
law. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of who are
stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation.
The law focuses on the acquisition of a “controlling interest”
which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person
to exercise the following proportions of the voting power of the corporation in the election of directors: (i) one-fifth or more
but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise
such voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring person,
and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution
of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates
that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from
the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights
to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person
is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, the control
share law does not govern their shares.
If control shares are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring
person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder’s
shares.
Nevada’s control share law may have the effect of discouraging
takeovers of the corporation. In addition to the control share law, Nevada has a business combination law, which prohibits certain
business combinations between Nevada corporations, and “interested stockholders” for three years after the “interested
stockholder” first becomes an “interested stockholder” unless the corporation’s board of directors approves
the combination in advance. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial
owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation,
or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner,
directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition
of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow
a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests
rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is to discourage
parties interested in taking control of the company from doing so if it cannot obtain the approval of our board of directors.
The Company’s Articles of Incorporation, as amended, provides
that, to the fullest extent that limitations on the liability of directors and officers are permitted by the Nevada Revised Statutes,
no director or officer of the Company shall have any liability to the Company or its stockholders for monetary damages. The Nevada
Revised Statutes provide that a corporation’s charter may include a provision which restricts or limits the liability of
its directors or officers to the corporation or its stockholders for money damages except: (1) to the extent that it is provided
that the person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or
profit in money, property or services actually received, or (2) to the extent that a judgment or other final adjudication adverse
to the person is entered in a proceeding based on a finding in the proceeding that the person’s action, or failure to act,
was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.
The Company’s Bylaws, as amended, include an indemnification
provision under which the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by
or in the right of the Company, by reason of the fact that he is or was a director, officer, employee or agent of the Company,
or is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Company’s Bylaws further provide that the Company shall
indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent
of another Company, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement
and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.
Additionally, the Company’s Bylaws provide that expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company as authorized under the Bylaws.
The Nevada Revised Statutes also permits a corporation, and our
Articles of Incorporation and Bylaws therefore permit the Company to purchase and maintain liability insurance or make other financial
arrangements on behalf of any person who is or was a director, officer, employee or our agent, or is or was serving at the request
of the corporation as a director, officer, employee or agent, of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against them and incurred by them in any such capacity, or arising out of their status
as such, whether or not we would have the power to indemnify them against such liability under our Bylaws.
However, nothing in our charter or Bylaws protects or indemnifies
a director, officer, employee or agent against any liability to which he would otherwise be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent that a director
has been successful in defense of any proceeding, the Nevada Revised Statutes provide that he shall be indemnified against reasonable
expenses incurred in connection therewith.
INSOFAR AS INDEMNIFICATION
FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING
THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION
IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
|
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
The following table summarizes all compensation recorded by us in
each of Fiscal 2015 and Fiscal 2014 for our named executive officer.
Summary Compensation Table
|
Name
|
|
For the
Periods
|
|
Salary
($)
|
|
|
Stock
Awards
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
George Shen(1)
|
|
12 months ended December 31, 2015
|
|
$
|
60,000
|
|
|
|
-NONE-
|
|
|
|
-NONE-
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Shen(1)
|
|
12 months ended December 31, 2014
|
|
$
|
60,000
|
|
|
|
-NONE-
|
|
|
|
-NONE-
|
|
|
$
|
60,000
|
|
(1) Mr.
Shen was appointed our President, Chief Executive Officer and acting Chief Financial Officer on August 28, 2012.
Employment Agreements
Earth Gen entered into any employment agreement with Tyler Garner,
Senior Managing Director of Farming Operations. The term of the agreement is from October 10, 2015 to December 31, 2017. He is
to be paid $3500 per month with a $1000 per month per deim reimbursement. After December 31, 2017 his employment is month-to-month
“at will”. It is anticipated that in future that if Company operations reach a sustainable level and that the Company’s
working capital has reach proper levels that the Board of Directors will consider providing certain other key employees with employment
and bonus agreements.
Compensation of Directors
Mr. Shen, the sole director of the Company, received no compensation
for his services as a director.
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
|
The following table sets forth certain information regarding the
beneficial ownership of our common stock by George Shen, the only officer and director and other beneficial owners who own more
than 5% of our common stock as of March 31, 2016. Unless otherwise indicated in the footnotes to the following table, the address
of each person named in the table is: c/o Earth Gen-Biofuel Inc. at 7870 Castleton Street, # 205, City of Industry, California
91748. All amounts are based on post reverse split shares as filed with the Nevada Secretary of State on May 16, 2014 and was effective
as July 24, 2014.
|
Name of Beneficial Owner
|
|
Number of Shares Owned
|
|
|
Percentage
Beneficially Owned(2,3
and 4)
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
George Shen (1)
|
|
|
8,600,000
|
|
|
|
25.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Current Directors and Executive Officers as a Group (2) person
|
|
|
8,600,000
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Lucia Kao (3)
|
|
|
2,708,800
|
|
|
|
5.2
|
|
|
Sean Kai Dan
|
|
|
9,280,000
|
|
|
|
11.5
|
%
|
|
Elias Chavando(4)
|
|
|
5,623,000
|
|
|
|
6.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All 5% or more shareholders
|
|
|
40,379,152
|
|
|
|
48.7
|
%
|
(1) Based
on 84,093,431 shares of our common stock issued and outstanding as of March 31, 2016.
(2) George
Shen owns 8,600,000 shares in his personal name. George’s Family Trust DTD 2007 owns 12,500,000. George’s Family Trust
is an irrevocable trust and Mr. Shen claims no ownership or control over these shares. The total of shares owned by Mr. Shen and
George’s Family Tuust is 21,100,000 shares which is 25.12 % of the issued and outstanding shares.
(3) Lucia Kao owns 2,708,800 shares in her own name and controls
1,658,352 shares held in the name of China US Yan Ying Investment Holdings. The combined number of shares is 4,367,152 which is
5.2% of the total issued and outstanding shares.
(4) Elias Chavando has voting control of Conexus Telecom Inc.
which owns 3,072,000 shares. Mr. Chavando owns 2,560,000 shares in his own name for total voting control 5,632,000 shares.
Except as otherwise indicated, we believe that the beneficial owner
of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect
to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with respect to securities.
|
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
|
Transactions with Related Persons
The Company subleases space for its U.S. office at 17870 Castleton
Street, # 205 City of Industry, CA. 91748 from its CEO and shareholder, George Shen under a month-to-month lease agreement. Prior
to June 30, 2013, the Company was provided office space at no charge by George Shen. Starting July 1, 2013, the Company has been
paying office rent at $3,395 directly to the independent third-party lessor under a month-to-month lease agreement between Mr.
Shen and the lessor.
Director Independence
We are not currently listed on any national securities exchange
that has a requirement that the majority of our Board of Directors be independent. George Shen is currently our only director and
he is also the largest shareholder and would not be considered independent because he is also our President, Chief Executive Officer
and acting Chief Financial Officer.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a Code of Business Conduct and
Ethics that applies to all of our directors, officers and employees. The Code of Business Conduct and Ethics is available for review
in print, without charge, to any stockholder who requests a copy by writing to us at Earth Gen-Biofuel Inc., 7870 Castleton Street,
# 205, City of Industry, California 91748, Attention: Investor Relations. Each of our directors, employees and officers are required
to comply with the Code of Business Conduct and Ethics. There have not been any amendments or waivers from the Code of Business
Conduct and Ethics relating to any of our executive officers or directors in the past year.
We are not currently a party to any proceedings. In the ordinary
course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any,
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm
our business.
Compliance with Section 16(a) of the Securities Exchange Act
of 1934, as Amended:
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company’s directors and executive officers and persons who own more than 10% of a registered class of the Company’s
equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions
in, securities of the Company. Copies of these filings must be furnished to the Company.
To the Company’s knowledge based solely on its review of the
copies of the Section 16(a) reports furnished to the Company and written representations to the Company that no other reports were
required, the Company believes that all individual filing requirements applicable to the Company’s directors and executive
officers were complied with under Section 16(a) during 2014.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The firm of SadlerGibb & Associates LLP acts as our independent
registered public accounting firm. The aggregate fees billed for the fiscal years ending December 31, 2015 and 2014 for professional
services rendered by the firm for the audit of our annual financial statements and review of the financial statements in our financial
statements on Form-10 and Form 10-Q were as follows:
|
|
|
Year End
|
|
|
Year End
|
|
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
Audit Fees
|
|
$
|
23,000
|
|
|
$
|
19,000
|
|
|
Audit Related Fees
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Tax Preparation Fees
|
|
$
|
0
|
|
|
$
|
0
|
|
|
All Other Fees
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Total
|
|
$
|
23,000
|
|
|
$
|
19,000
|
|
Our Board of Directors preapproved all services provided by the
auditors and the Board of Directors reviewed all fees and all of the above services.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Nature of Operations and Basis of Presentation
Earth Gen-Biofuel, Inc. (the “Company” or “Earth
Gen”) was incorporated in the state of Nevada on August 28, 2012 to pursue the business of becoming an international agricultural
company focused on growing plants that are the basis for providing renewable sources for manufacturing processes and energy.
On September 25, 2012, Earth Gen entered into an Agreement of
Share Exchange and Plan of Reorganization (the “Exchange Agreement”) with EarthBlock Technologies, Inc. (“EarthBlock”),
a Nevada publicly traded corporation, pursuant to which EarthBlock acquired 100% of the ownership of the Company in exchange for
63,666,400 shares of EarthBlock’s common stock (the “Exchange”) on the basis of four shares of EarthBlock for
one share of Earth Gen outstanding as of October 14, 2012.
Upon the completion of the Exchange, Earth Gen operated as a
wholly owned subsidiary of EarthBlock and focused its efforts to begin its international agricultural operations. In October of
2012, Earth Gen began to organize farmers and government related agencies in Laos and Vietnam to control land for growing castor
beans. Prior to Earth Gen becoming a subsidiary of EarthBlock, Earth Gen’s management had spent over two years creating the
relationships and working with local farmers to build an organization and obtain the knowledge and expertise to become a major
grower of castor beans in these countries.
The common stock of EarthBlock was registered with the SEC under
the Exchange Act and was quoted on OTCQB operated by the OTC Markets Group Inc. EarthBlock failed to comply with Exchange Act Section
13(a) because it had not filed any periodic reports with the SEC since the period ended December 31, 2007. EarthBlock consented
to a deregistration order of the SEC, and pursuant to Section 12(j) of the Exchange Act, registration of EarthBlock’s common
stock was revoked and trading in EarthBlock’s common stock was suspended.
Additionally, the shareholders of Earth Gen were not made aware
of the full extent of a material liability of EarthBlock that resulted from the operations of EarthBlock’s non-operational
subsidiary EarthBlock Texas Homes, Inc. As a result of the liability not being included in proper detail and information regarding
its effect on EarthBlock’s financial statements, EarthBlock’s previously disclosed financial condition was inaccurate.
On September 25, 2013, the Board of Directors of EarthBlock
and of Earth Gen voted to rescind the acquisition of Earth Gen by EarthBlock and authorized the officers of the Corporation to
take the steps required to complete the rescission of the Exchange.
A rescission agreement dated October 28, 2013 (the “Rescission
Agreement”) was entered into by and among EarthBlock, Earth Gen and the shareholders. A majority of Earth Gen shareholders
approved the Rescission Agreement on October 28, 2013. The Rescission Agreement sets forth the terms and provisions where the parties
agreed to take all steps necessary and proper to unwind the Exchange including the surrender of the Exchange Shares for cancellation
and Earth Gen to issue to each Exchange Share shareholder his respective original equity interests in Earth Gen. The Additional
Shares will remain outstanding and will ratably dilute the Exchange Share shareholders pre-Exchange, original equity ownership
in Earth Gen as a result.
The Rescission Agreement offer terminated on October 10, 2014.
Pursuant to the terms of the Rescission Agreement, Earth Gen issued a total of 50,645,600 Earth Gen common stock shares to participating
holders of Exchange Shares commensurate with the holders’ respective original equity interests in Earth Gen. Earth Gen also
issued a total of 7,030,400 Additional Shares. No additional Earth Gen common stock shares will be issued as a result of the rescission
of the Reverse Merger. One Shareholder owning 7,560,000 Exchange Shares did not become a party to the Rescission Agreement and
will retain his EarthBlock common stock shares and with no equity interest in Earth Gen.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2014, Earth Gen-Biofuel Lao Sole
Co Ltd (“Earth Gen Laos”) was formed under the laws of Laos to meet Laos’s regulatory and legal requirements
to do business in Laos. This company is 100% controlled by Earth Gen. Earth Gen Laos has its own in-country bank accounts denominated
in US dollars through which it pays all local operating expenses of the business activities of Earth Gen in Laos.
Note 2—Going Concern
These financial statements have been prepared
on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the
normal course of business. As of December 31, 2015, the Company has an accumulated deficit since inception. The continuation of
the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify
future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the
Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a
going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3—Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The carrying amounts reported in the accompanying financial
statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities
of the financial instruments.
Fair value is defined as the exit price, or the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of
the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use
of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market
data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions
about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs
that may be used to measure fair value:
Level 1 - Observable inputs such as quoted prices in active
markets;
Level 2 - Inputs, other than the quoted prices in active markets,
that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no
market data, which require the reporting entity to develop its own assumptions.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities are classified based on the lowest level
of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly
basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within
the fair value hierarchy.
As of December 31, 2015, the Company's cash are considered Level
1 instruments. The Company does not have any Level 2 or 3 instruments.
Basic and Diluted Loss per Common Share
Basic loss per share is calculated by dividing
the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period.
Diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted
average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic
weighted number of shares adjusted for any potentially dilutive debt or equity. Diluted loss per share excludes all dilutive potential
shares if their effect is anti-dilutive.
The Company has issued common stock purchase
warrants and entered into convertible note; however, they are anti-dilutive given the net loss incurred for the periods presented.
As a result, 4,889,286 potentially dilutive common stock equivalents (presented post-dividend and post-split) were excluded from
the calculation of diluted loss per common share as of December 31, 2015. Therefore, dilutive and basic losses per common share
are equal.
Comprehensive Income
The Company has no items that represent other comprehensive
income (loss). Net loss and comprehensive loss are identical.
Cash and Cash Equivalents
All highly-liquid investments with a maturity of three (3) months
or less are considered to be cash equivalents.
Inventory
Inventory consists of raw materials consisting
of castor bean seeds. Inventories are recorded at the lower of cost or market, using the first-in, first-out method. Cost is determined
at the actual cost for raw materials.
Expenditures on growing crops are valued at
the lower of cost or market and are deferred and charged to cost of sales when the related crops are harvested and sold. The deferred
growing costs included in inventories in the balance sheets consist primarily of land rental cost and service costs.
In assessing the ultimate realization of inventories,
management makes judgments as to future demand requirements compared to current or committed inventory levels. The Company’s
reserve requirements generally increase or decrease with its projected demand requirements and market conditions. The Company estimates
the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts and orders in hand.
In addition, the Company estimates net realizable
value based on intended use, current market value and inventory ageing analyses. The Company writes down the inventories for estimated
obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based
upon assumptions about future demand and market conditions.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Based on the above assessment, the Company recorded an inventory
reserve of $115,963 and $64,320 as of December 31, 2015 and 2014, respectively.
Property and Equipment
Property and equipment are stated at cost. The Company’s
fixed assets are depreciated using the straight-line method over the assets' estimated useful lives. Maintenance and repairs are
charged to operations as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition
of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations.
Depreciation is computed for financial statement purposes on
a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
Category
|
|
Estimated Useful Lives
|
|
Computers and technology
|
|
2 – 3 years
|
|
Office equipment
|
|
3 – 5 years
|
|
Machinery
|
|
5 – 7 years
|
Impairment of Long-lived Assets
Long-lived assets are tested for impairment in accordance with
ASC 360-10-45 “Impairment or Disposal of Long-Lived Assets”. The Company periodically evaluates potential impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company
recognizes impairment of long-lived assets in the event that the net book values of such assets exceed the future undiscounted
cash flows attributable to such assets. During the reporting periods, the Company has not identified any indicators that would
require testing for impairment.
Revenue Recognition
Revenue from sales of the Company’s products is recognized
upon customer acceptance, which occurs at the time of delivery to the customer, provided persuasive evidence of an arrangement
exists, such as signed sales contract, the significant risks and rewards of ownership have been transferred to the buyer at the
time when the products are delivered to its customers with no significant post-delivery obligation on our part, the sales price
is fixed or determinable and collection is reasonably assured. The Company does not provide its customers with contractual rights
of return and post-delivery discount for any of its products. When there is any significant post-delivery performance obligations
exists, revenue is recognized only after such obligations are fulfilled. The Company evaluates the terms of sales agreement with
its customers in order to determine whether any significant post-delivery performance obligations exist.
Income Taxes
The Company follows ASC 740, Income Taxes for recording the
provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement
and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability
is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability
each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets
will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than
not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period
of change.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes may arise from temporary differences resulting
from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified
as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising
from temporary differences that are not related to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse.
In addition, the calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions
based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than
50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on
its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy
of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts
the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision
become known.
Stock-based Compensation
The Company will account for stock options issued to employees
under ASC 718 “Compensation-Stock Compensation”. Under ASC 718, share-based compensation cost to employees is measured
at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite vesting
period.
The Company measures compensation expense for its non-employee
stock-based compensation under ASC 505 “Equity”. The fair value of the option issued or committed to be issued is used
to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at
the value of the Company's common stock on the date that the commitment for performance by the counterparty has been reached or
the counterparty's performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation
expense and credited to additional paid-in capital.
Note 4—Inventory
Inventory consists of:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Capitalized costs of growing crops
|
|
$
|
569,314
|
|
|
$
|
551,314
|
|
|
Total inventory
|
|
|
569,314
|
|
|
|
551,314
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: inventory reserve
|
|
|
(180,283
|
)
|
|
|
(64,320
|
)
|
|
Inventory, net
|
|
$
|
389,031
|
|
|
$
|
486,994
|
|
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 5— Property and Equipment
Property and equipment
consist of:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
11,240
|
|
|
$
|
11,240
|
|
|
Automobile
|
|
|
7,000
|
|
|
|
7,000
|
|
|
Office equipment
|
|
|
4,216
|
|
|
|
4,216
|
|
|
Total
|
|
|
22,456
|
|
|
|
22,456
|
|
|
Less: accumulated depreciation
|
|
|
(6,600
|
)
|
|
|
(2,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
15,856
|
|
|
$
|
19,705
|
|
For the years ended December 31, 2015 and 2014 depreciation
expenses were $3,849 and $1,933, respectively.
Note 6— Due from Related Parties
The Company and EarthBlock advance each other
monies in the normal course of business. During the period ended December 31, 2015, net funds provided to EarthBlock were $58,058.
There have been no new advances for the year ending December 31, 2015. The advances do not have written note, do not accrued interest
and are due on demand.
As of December 31, 2015 and December 31, 2014,
the Company owed $19,444 and $55,641 to George Shen, CEO and shareholder of the Company for accrued service fees and monies advanced
to and repaid from the Company in the normal course of business. On June 29, 2015, the Company paid accrued service fees of $70,700
to Mr. Shen and money advanced by Mr. Shen of $7,000 with the issuance of 1,100,000 shares of the Company’s restricted common
stock.
Prior to September 30, 2013, the Company was provided office
space at no charge by George Shen Starting July 1, 2013, the Company has been paying office rent at $3,360 under a month-to-month
lease agreement and is now paying $3,495 per month.
The Company obtained short-term loans from
a company in which George Shen is also an officer and from certain shareholders for working capital purposes.
Promissory note from related parties consists
of:
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
Promissory note due related party, interest at 2% per annum, default interest at additional 5%, due July 30, 2015, note is in default
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
|
Promissory note due related party, no interest, due January 30, 2016
|
|
|
1,000
|
|
|
|
-
|
|
|
Promissory note due shareholder, no interest, due September 20, 2013, note is in default
|
|
|
3,000
|
|
|
|
5,000
|
|
|
Promissory note due shareholder, no interest, default interest at additional 5%, due October 30, 2015, note is in default
|
|
|
2,000
|
|
|
|
-
|
|
|
Promissory note due shareholder, no interest, due January 31, 2016
|
|
|
1,000
|
|
|
|
-
|
|
|
Promissory note due shareholder, no interest, due March 15, 2016
|
|
|
2,500
|
|
|
|
-
|
|
|
Payable due shareholder, no written note
|
|
|
3,495
|
|
|
|
-
|
|
|
Total
|
|
$
|
14,995
|
|
|
$
|
7,000
|
|
For the over-due promissory notes, there has
been no demand for repayment.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 7— Notes Payable
The Company obtained short-term loans from
an unrelated parties for working capital purposes.
Note payable consists of:
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
Promissory notes due unrelated party, interest at 2% per annum, default interest at additional 5%, due July 30, 2015
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
Promissory notes due unrelated party, no interest, default interest at additional 5%, due October 30, 2015
|
|
|
3,500
|
|
|
|
-
|
|
|
Total
|
|
$
|
3,500
|
|
|
$
|
3,000
|
|
Note 8— Convertible Note
On December 15, 2014, the Company issued a $7,000 convertible
note. The convertible note bears interest at 2% per annum, due July 30, 2015, convertible into common stock of the Company anytime
after June 20, 2015 at a conversion price of $0.07 per share. If the outstanding balance of the convertible note is not paid when
due, the default interest is 5% per annum above the rate that would otherwise be in effect with the default interest accruing,
from and including such due date, on a cumulative, compounding basis. Note is in default, there has been no demand for repayment.
On October 29, 2014, the Company issued a $36,000 convertible
note. The convertible note bears interest at 5% per annum, due December 15, 2015, convertible into common stock of the Company
anytime after May 15, 2015 at a conversion price of $0.07 per share. If the outstanding balance of the convertible note is not
paid when due, the default interest is 2% per annum above the rate that would otherwise be in effect with the default interest
accruing, from and including such due date, on a cumulative, compounding basis. Note is in default, there has been no demand for
repayment.
On September 30, 2014, the Company issued a $40,000 convertible
note. The convertible note bears interest at 5% per annum, due September 15, 2015, convertible into common stock of the Company
anytime after January 30, 2015 at a conversion price of $0.10 per share. If the outstanding balance of the convertible note is
not paid when due, the default interest is 2% per annum above the rate that would otherwise be in effect with the default interest
accruing, from and including such due date, on a cumulative, compounding basis. Note is in default, there has been no demand for
repayment.
The Company calculated $63,000 for the
intrinsic value of the beneficial conversion feature (“BCF”) of the convertible notes (based on the last sale price
of $0.15 per share) and recorded the $63,000 BCF as a debt discount and as an addition to additional paid-in capital on effective
date of the notes. The debt discount is being amortized to interest expense over the term of the note. As of December 31, 2015,
the BCF has been fully amortized. For the years ended December 31, 2015 and 2014, $51,639 and $11,361 of BCF debt discount was
amortized to interest expense.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9—Stockholders’ Equity
At December 31, 2015, the Company is authorized
to issue 690,000,000 shares of $0.0001 par value common stock and 10,000,000 of $0.0001 par value preferred stock.
In anticipation of the rescission of the
exchange agreement with EarthBlock and to prevent dilution to existing shareholders of the Company, on October 15, 2013, the board
of directors of the Company approved a stock dividend of three shares for each outstanding share. The stock dividend is being treated
as a stock split due to its high volume. All share and per share information has been retroactively adjusted to reflect the stock
split.
On March 27, 2014, the Company’s
shareholders approved a recapitalization of the capital stock in the form of reverse stock split of its common stock in a ratio
of 1-for-25. The shareholders also approved an amendment to the Articles of Incorporation to reduce the number of authorized shares
of stock to 700,000,000 from 3,000,000,000. Of the 700,000,000 authorized shares, there are 10,000,000 shares of preferred stock
and 690,000,000 shares of common stock.
As of December 31, 2015, 81,256,574 shares
were issued and outstanding. As a result of above stock split and reverse split, at December 31, 2014, 75,080,817 shares were issued
and outstanding after adjusted for the stock split and reverse split.
Private Placements of Common Stock
From January 1, 2015 to December 31, 2015,
Earth Gen issued to investors 3,039,357 shares of its common stock at the offering price of $0.07 to $0.15 per share for an aggregate
amount of $278,600. No commissions were paid. There was no agreement to register shares offered in this private placement.
The securities described above were issued
to investors in reliance upon the exemption from registration requirements of the Securities Act, as set forth in Section 4(2)
under the Securities Act and Regulation D promulgated thereunder relating to transactions by an issuer not involving any public
offering. No commissions were paid and no agreements to register shares were offered in the private placements. All Purchasers
of shares described above represented to us in connection with their purchase that they were accredited investors and were acquiring
the shares for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution
thereof. The purchasers received written disclosures that the securities had not been registered under the Securities Act and that
any resale must be made pursuant to a registration statement or an available exemption from such registration.
Restricted Stock Awards (“RSA”)
Issued for Services
All reference to numbers of shares issued
for warrants and per share price is based on a post-stock-dividend and post-reverse-split amount. During the years ended December
31, 2015 and 2014, the Company granted 2,036,400 and 3,299,267 RSAs to various consultants for their services provided to the Company.
As of December 31, 2015 and 2014, all RSAs
are vested and there was no unrecognized compensation cost related to RSAs.
For the years ended December 31, 2015 and
2014, stock-based compensation expense was $142,548 and $
414,790, respectively. The value
of the shares issued was based on the fair value of the stock issued, which was based on the most recent sale of common stock for
cash.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants
In connection with the 2013 private placements, the Company
issued warrants for 6,400,000 shares of Earth Gen Common Stock on August 1, 2013 and 1,600,000 warrants on September 12, 2013.
Each of these warrants entitled the holder to purchase one (1) share of Earth Gen common stock at $0.03 per share starting on January
1, 2014 and ending on December 15, 2016. As of December 31, 2014, 1,000,000 warrants have been exercised in exchange for total
cash proceeds of $31,250 or $0.03 per share.
In connection with the January 2014 private placement, the Company
issued warrants to purchase 202,000 shares of Earth Gen common stock on March 20, 2014. Each warrant entitles the holder to purchase
one (1) share of Earth Gen common stock at $0.50 per share starting on July 15, 2014 and ending on September 30, 2016.
In connection with the April 2015 private placement, the Company
issued warrants to purchase 3,000,000 shares of Earth Gen common stock on April 26, 2015. Each warrant entitles the holder to purchase
one (1) share of Earth Gen common stock at $0.07 per share starting on May 1, 2015 and ending on December 15, 2015.
In connection with the April 2015 private placement, the Company
issued warrants to purchase 6,000,000 shares of Earth Gen common stock on April 26, 2015. Each warrant entitles the holder to purchase
one (1) share of Earth Gen common stock at $0.07 per share starting on May 1, 2015 and ending on March 31, 2016.
In connection with a consulting agreement, the Company issued
warrants to purchase 300,000 shares of Earth Gen common stock on December 12, 2015 as compensation to the consultant. Each warrant
entitles the holder to purchase one (1) share of Earth Gen common stock at $0.07 per share starting on April 30, 2016 and ending
on December 15, 2017. The fair value of warrants granted was calculated using the Black-Scholes model and amortized over the vesting
period. At December 31, 2015, unrecognized stock-based consulting expense was $18,518.
These warrants have standard anti-dilution language to allow
for recapitalizations and distributions. The warrants are equity classified and amounts attributable to the warrants are classified
within additional paid-in capital. All reference to numbers of shares issued for warrants and per share price is based on a post-stock-dividend
and post-reverse-split amount.
A summary of the status of the Company’s warrants outstanding
as of December 31, 2015 is presented below:
|
|
|
Number of
Shares
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
7,202,000
|
|
|
Granted
|
|
|
9,300,000
|
|
|
Expired
|
|
|
(3,000,000
|
)
|
|
Outstanding at December 31, 2015
|
|
|
13,502,000
|
|
|
Exercisable at December 31, 2015
|
|
|
13,202,000
|
|
The following table summarizes information about warrants outstanding
as of
December 31
, 2015:
Options and Warrants
Outstanding
|
|
|
Options and Warrants
Exercisable
|
|
|
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
7,000,000
|
|
|
|
0.96
|
|
|
$
|
0.03
|
|
|
|
7,000,000
|
|
|
$
|
0.03
|
|
|
$
|
0.50
|
|
|
|
202,000
|
|
|
|
0.75
|
|
|
$
|
0.50
|
|
|
|
202,000
|
|
|
$
|
0.50
|
|
|
$
|
0.07
|
|
|
|
6,300,000
|
|
|
|
0.33
|
|
|
$
|
0.07
|
|
|
|
6,000,000
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
13,502,000
|
|
|
|
0.66
|
|
|
$
|
0.06
|
|
|
|
13,202,000
|
|
|
$
|
0.06
|
|
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 9—Income Taxes
The Company is subject to taxation in the United States. As
of December 31, 2015, the Company had Federal net tax operating loss carry forwards of approximately $2,638,679 available to offset
future taxable income. The carry forwards expire in varying amounts through 2034.
Significant components of the Company’s
deferred tax assets as of December 31, 2015 and 2014 are listed below:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
238,536
|
|
|
$
|
436,335
|
|
|
Total deferred tax assets
|
|
|
238,536
|
|
|
|
436,335
|
|
|
Less: valuation allowance
|
|
|
(238,536
|
)
|
|
|
(436,335
|
)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A valuation allowance of $238,536 and $436,335
for the years ended December 31, 2015 and 2014, respectively, was recognized to offset the net deferred tax assets, as realization
of such assets is uncertain.
A reconciliation of incomes
taxes using the statutory income tax rate, compared to the effective rate, is as follows:
|
|
|
Year Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Federal tax benefit at the expected statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
Change in valuation allowance
|
|
|
-34
|
%
|
|
|
-34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
-
|
|
|
|
-
|
|
Uncertain Tax Positions
Interest associated with unrecognized tax
benefits are classified as income tax and penalties are classified in general and administrative expenses in the consolidated statements
of operations.
EARTH GEN-BIOFUEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December
31, 2015 and 2014, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently, the Company
is not subject to examination by major tax jurisdictions.
Note 10—Commitments and Contingencies
Farm Lease Agreements
On March 10, 2014, Earth Gen entered into
a lease agreement for 136 hectares of farm land located at Phoengam Neua Village, Pek Districk, Xiengkhuang Province in the People’s
Republic of Lao. The term of the lease is for twelve years with an option for Earth Gen to renew for an additional twelve years.
Earth Gen is obligated to pay taxes on the land of up to $1,000 per year any taxes in excess of that amount are the obligation
of the landowner. In addition, Earth Gen is obligated to provide all elements required to grow castor beans on the land and start
using the land in partial or in full for castor bean farming operations before the end of 2014. The compensation to the landowner
under the agreement is $50.00 per metric ton of castor beans harvested and is due ninety days after the harvest.
In addition to this agreement, Earth Gen has
entered into two additional agreements, under the terms substantially equivalent to the original agreement described above, for
103 additional hectares in Xiengkhuang Province in close proximity to the Phoengram Neua Village farm.
Note 11 – Subsequent Events
From January 1, 2016 through March 31, 2016,
the Company obtained cash proceeds of $15,000 from January 1, 2016 to March 31, 2016 for the purchase of 150,000 shares of restricted
common stock at a price of $0.10 per share. Of the shares purchase 50,000 shares were issued and 100,000 shares were pending issue
as of March 31, 2016.
During the period January 1, 2016 through
March 31, 2016 the Company granted 186,857 RSAs to various consultants for their services provided to the Company and valued at
$18,686. As of March 31, 2016, all RSAs are vested. The value of the shares issued was based on the fair value of the stock at
the time of it was issued or agreed upon value of services rendered.
On March 16, 2016 Earth Gen formed a Nevada
corporation, Earth-Eco Agriculture Inc. a company formed to complete the purchase of farming rights in Laos. On March 16, 2016,
Earth-Eco Agriculture Inc. purchase the rights to all products derived from a Laos farm whose owner is a US citizen. The farm covers
nearly twenty-seven acres and has approximately 9,000 Aguilaria trees, which are cultivated to produce Agarwood. The purchase agreement
called for Earth Gen to issue 2,500,000 shares of restricted common stock in exchange for owing 100% of Earth-Eco Agriculture.
Earth Eco Agriculture will in turn issue those shares to Seller for of the rights for 70% of all agarwood production from the farm
for a period of 40 year from the date of the agreement. The seller will also receive a deferred payment of $100,000 due at the
time Earth-Eco obtains $300,000 in equity financing or $100,000 from the profits of operations. If the $100,000 is not available
from these two sources then starting in January of 2017 Earth Eco will be obligated to pay the Seller $5,000 per month. At this
time it is not anticipated that sales of any products will be made in 2016, however it is anticipated that funding will be provided
to Earth Eco direct investments in Earth-Eco to support operations.
On March 22, 2016 the Company entered into
a promissory Note for a loan of $22,985 with an affiliate of the Company. The note bears no interest and is due November 30, 2016
with a one hundred day extension.