NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
BASIS OF PRESENTATION
|
REFERENCES TO THE COMPANY
In this Quarterly Report on Form 10-Q, the terms “
we
,” “
our
,” “
us
,” “
GreenShift
,” or the “
Company
” refer to GreenShift Corporation, and its subsidiaries on a consolidated basis. The term “
GreenShift Corporation
” refers to GreenShift Corporation on a standalone basis only, and not its subsidiaries.
The condensed balance sheet at December 31, 2011 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2011.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities which we control. All significant intercompany balances and transactions have been eliminated on a consolidated basis for reporting purposes.
COST METHOD OF ACCOUNTING FOR UNCONSOLIDATED SUBSIDIARIES
The Company accounts for its 10% investment in ZeroPoint Clean Tech, Inc. under the cost method. Application of this method requires the Company to periodically review these investments in order to determine whether to maintain the current carrying value or to write off some or all of the investments. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company’s management. These judgments include assessments of the likelihood of ZeroPoint to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments the Company must also attempt to anticipate trends in ZeroPoint’s industry as well as in the general economy.
USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
|
NOTE 2
|
DESCRIPTION OF BUSINESS
|
We develop and commercialize clean technologies that facilitate the more efficient use of natural resources. We are focused on doing so today in the U.S. ethanol industry, where we innovate and offer technologies that improve the profitability of licensed ethanol producers.
We generate revenue by licensing our technologies to ethanol producers in exchange for ongoing royalty and other license fees. Several plants were licensed to use our technologies during 2011 and 2012. Prior to February 15, 2011, we were also party to license agreements with ethanol producers that were granted the right to use our technologies and equipment at their locations in return for royalties equal to the spread between the market price of the corn oil recovered by our licensees with our technologies and equipment and a discounted purchase price of the corn oil. Our sales and costs of sales include the sales and the costs of the corn oil produced by these licensees with our technologies and equipment through February 15, 2011, the effective date of the YA Corn Oil Transaction (see Note 9,
Debt Obligations
, below).
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2012, the Company had $1,679,887 in cash, and current liabilities exceeded current assets by $41,042,413. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Our ability to satisfy our obligations will depend on our success in obtaining financing, our success in developing revenue sources, and our success in negotiating with the creditors. Management’s plans to resolve the Company’s working capital deficit include increasing revenue. There can be no assurances that the Company will be able to eliminate its working capital deficit and that the Company’s historical operating losses will not recur. The accompanying financial statements do not contain any adjustments which may be required as a result of this uncertainty.
|
NOTE 4
|
SIGNIFICANT ACCOUNTING POLICIES
|
SEGMENT INFORMATION
We determined our reporting units in accordance with FASB ASC 280, “
Segment Reporting
” (“ASC 280”). We evaluate a reporting unit by first identifying its operating segments under ASC 280. We then evaluate each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, we evaluate those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, we determine if the segments are economically similar and, if so, the operating segments are aggregated. We have one operating segment and reporting unit. We operate in one reportable business segment; we provide technologies and related products and services to U.S.-based ethanol producers. We are organized and operated as one business. We exclusively sell our technologies, products and services to ethanol producers that have entered into license agreements with the Company. No sales of any kind occur, and no costs of sales of any kind are incurred, in the absence of a license agreement. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. We do not operate any material separate lines of business or separate business entities with respect to our technologies, products and services. The Company does not accumulate discrete financial information according to the nature or structure of any specific technology, product and/or service provided to the Company’s licensees. Instead, management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. Discrete financial information is not available by more than one operating segment, and disaggregation of our operating results would be impracticable.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured. The Company recognizes revenue from licensing of the Company’s corn oil extraction technologies when corn oil sales occur. Licensing royalties are recognized as earned by calculating the royalty as a percentage of gross corn oil sales by the ethanol plants. For the purposes of assessing royalties, the sale of corn oil is deemed to occur when shipped, which is when four basic criteria have been met: (i) persuasive evidence of a customer arrangement; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured, and (iv) product delivery has occurred, which is generally upon or after shipment of corn oil by the relevant ethanol producer. The same criteria are utilized in the recognition of non-recurring receipts associated with the Company’s licensing activities. Deposits from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services, or when assets received in such exchange are readily convertible to cash or claim to cash, or when such goods or services are transferred. When an income item is earned, the related revenue item is recognized and any deferred revenue is reduced. To the extent revenues are generated from the Company’s licensing support services, the Company recognizes such revenues when the services are completed and billed. The Company provides process engineering services on fixed price contracts. These services are generally provided over a short period of less than three months. Revenue from fixed price contracts is recognized on a pro rata basis over the life of the contract as they are generally performed evenly over the contract period. The Company additionally performs under fixed-price contracts involving design, engineering, procurement, installation, and start-up of oil recovery and other production systems. Revenues and fees on these contracts are recognized using the percentage-of-completion method of accounting, and specifically the efforts-expended percentage-of-completion method using measures such as task duration and completion. The efforts-expended approach is used in situations where it is more representative of progress on a contract than the cost-to-cost or the labor-hours methods. The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
The Company computes its net income or loss per common share under the provisions of ASC 260, “
Earnings per Share
,” whereby basic net income or loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Dilutive net loss per share excludes potential common shares issuable upon conversion of all derivative securities if the effect is anti-dilutive. Thus, common stock issuable upon exercise or conversion of options, warrants, convertible preferred stock, or convertible debentures are excluded from computation of diluted net loss per share, but are included in computation of diluted net income per share. During the three and nine months ended September 30, 2011 and the nine months ended September 30, 2012, we reported net income and accordingly included potentially dilutive instruments in the fully diluted net income per share calculation. However, during the three months ended September 30, 2012, we reported a net loss and, in accordance with ASC 260, dilutive instruments were excluded from the net loss per share calculation for such periods.
FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values due to their short term maturities. The carrying values of the Company’s long-term debt approximate their fair values based upon a comparison of the interest rate and terms of such debt to the rates and terms of debt currently available to the Company. It was not practical to estimate the fair value of the convertible debt. In order to do so, it would be necessary to obtain an independent valuation of these unique instruments. The cost of that valuation would not be justified in light of the materiality of the instruments to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2011, the FASB amended the guidance on testing for goodwill impairment that allows an entity to elect to qualitatively assess whether it is necessary to perform the current two-step goodwill impairment test. If the qualitative assessment determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step test is unnecessary. If the entity elects to bypass the qualitative assessment any reporting unit and proceed directly to Step One of the test and validate the conclusion by measuring fair value, it can resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on the Company’s results of operations or financial condition.
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2011-04,
“Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”
ASU No. 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs, by ensuring that fair value has the same meaning in U.S. GAAP and IFRSs and that their respective disclosure requirements are the same except for inconsequential differences in wording and style. The amendments in ASU No. 2011-04 apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. Some of the disclosures required by ASU No. 2011-04 are not required for nonpublic entities. These amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments to result in a change in the application of the requirements in ASC Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The adoption of ASU 2011-04 did not have a material impact on the Company’s results of operations or financial condition.
In July 2012, the FASB issued ASU
2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a "qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.The Company is currently evaluating the effect that this guidance will have on its consolidated financial position, results of operations and cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
|
NOTE 5
|
FAIR VALUE DISCLOSURES
|
Effective July 1 2009, the Company adopted ASC 820,
Fair Value Measurements and Disclosures
. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that require or permit fair value measurements. The Company accounted for the convertible debentures in accordance with ASC 480,
Distinguishing Liabilities from Equity
, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.
Effective July 1 2009, the Company adopted ASC 820-10-55-23A,
Scope Application to Certain Non-Financial Assets and Certain Non-Financial Liabilities
, delaying application for non-financial assets and non-financial liabilities as permitted. ASC 820 establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In January 2010, the FASB issued an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 rollforward disclosure. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
|
Level 1
|
quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives
|
|
|
|
|
Level 2
|
inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges
|
|
|
|
|
Level 3
|
unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models
|
|
|
|
The following table presents the embedded derivative, the Company’s only financial assets measured and recorded at fair value on the Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy during the nine months ended September 30, 2012:
|
Embedded conversion liabilities as of September 30, 2012:
|
|
|
|
|
Level 1
|
|
$
|
--
|
|
|
Level 2
|
|
|
--
|
|
|
Level 3
|
|
|
2,989,776
|
|
|
Total
|
|
$
|
2,989,776
|
|
The following table reconciles, for the period ended September 30, 2012, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:
|
Balance of embedded derivatives at December 31, 2011
|
|
$
|
3,079,447
|
|
|
|
|
|
|
|
|
Present value of beneficial conversion features of new debentures
|
|
|
2,430
|
|
|
Accretion adjustments to fair value – beneficial conversion features
|
|
|
216,550
|
|
|
Reductions in fair value due to repayments/redemptions
|
|
|
(253,232
|
)
|
|
Reductions in fair value due to principal conversions
|
|
|
(55,419
|
)
|
|
Balance at September 30, 2012
|
|
$
|
2,989,776
|
|
The fair value of the conversion features are calculated at the time of issuance and the Company records a conversion liability for the calculated value. The Company recognizes the initial expense for the conversion liability which is added to the carrying value of the debenture or the liability for preferred stock. The Company also recognizes expense for accretion of the conversion liability to fair value over the term of the note. The Company has adopted ASC 480,
Distinguishing Liabilities from Equity
, as the conversion feature embedded in each debenture and/or convertible preferred share could result in the note principal and/or preferred shares being converted to a variable number of the Company’s common shares.
|
NOTE 6
|
PROPERTY AND EQUIPMENT
|
During the nine months ended September 30, 2011, the Company liquidated its interest in its remaining corn oil extraction systems for a total of $12.5 million (see Note 9,
Debt Obligations
, below). Pursuant ASC 410-20,
Asset Retirement Obligations
, the Company had recognized the fair value of the asset retirement obligation for the removal of its corn oil extraction facilities. The present value of the estimated asset retirement costs was capitalized as part of the carrying amount of the related long-lived assets. This liability was $691,435 as of December 31, 2010, and it has been written-off in connection with the satisfaction of the closing conditions for the YA Corn Oil Transaction during the nine months ended September 30, 2011 (see Note 9,
Debt Obligations
, below). During the nine months ended September 30, 2012 and 2011, the Company recorded $0 and $115,311 in depreciation expense.
The Company maintains an inventory of equipment and components used in systems designed to extract corn oil from licensed ethanol production facilities. The inventory, which consists of equipment and component parts, is held for sale to the Company’s licensees on an as needed basis. Inventories are stated at the lower of cost or market, with cost being determined by the specific identification method. Inventories at September 30, 2012 and December 31, 2011 were $2,178,890 and $1,153,357, respectively.
Deposits from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services or when assets received in such exchange are readily convertible to cash or claim to cash or when such goods/services are transferred. When such income item is earned, the related revenue item is recognized, and the deferred revenue is reduced. To the extent revenues are generated from the Company’s licensing support services, the Company recognizes such revenues when services are completed and billed. The Company has received deposits from its various clients that have been recorded as deferred revenue in the amount of $253,149 and $1,197,404 as of the periods ended September 30, 2012 and December 31, 2011, respectively.
The following is a summary of the Company’s financing arrangements as of September 30, 2012:
|
|
|
|
9/30/2012
|
|
|
Current portion of long term debt:
|
|
|
|
|
|
Mortgages and other term notes
|
|
$
|
21,743
|
|
|
Current portion of notes payable
|
|
|
50,000
|
|
|
Total current portion of long term debt
|
|
$
|
71,743
|
|
|
|
|
|
|
|
|
Current portion of convertible debentures
:
|
|
|
|
|
|
YA Global Investments, L.P., 6% interest, conversion at 90% of market
|
|
$
|
20,766,311
|
|
|
Andypolo, LP, 6% interest, conversion at 90% of market
|
|
|
4,352,525
|
|
|
Barry Liben, 6% interest, conversion at 90% of market
|
|
|
90,500
|
|
|
Circle Strategic Allocation Fund, LP, 6% interest, conversion at 90% of market
|
|
|
282,968
|
|
|
EFG Bank, 6% interest, conversion at 90% of market
|
|
|
190,000
|
|
|
Epelbaum Revocable Trust, 6% interest, conversion at 90% of market
|
|
|
281,118
|
|
|
JMC Holdings, LP, 6% interest, conversion at 90% of market
|
|
|
226,137
|
|
|
Dr. Michael Kesselbrenner, 6% interest, conversions at 90% of market
|
|
|
18,500
|
|
|
David Moran & Siobhan Hughes, 6% interest, conversion at 90% of market
|
|
|
4,000
|
|
|
Susan Schneider, 6% interest, conversions at 90% of market
|
|
|
20,500
|
|
|
Stuttgart, LP, 6% interest, conversion at 90% of market
|
|
|
248,683
|
|
|
Yorkville Advisors (GP), LLC, 6% interest, conversion at 90% of market
|
|
|
70,718
|
|
|
Conversion liabilities
|
|
|
2,675,176
|
|
|
Acutus Capital, LLC, 6% interest, no conversion discount
|
|
|
640,000
|
|
|
Minority Interest Fund (II), LLC, 6% interest, no conversion discount
|
|
|
2,686,062
|
|
|
Viridis Capital, LLC, 6% interest, no conversion discount
|
|
|
236,319
|
|
|
Related Party Debenture, 6% interest, no conversion discount
|
|
|
203,550
|
|
|
Related Party Debenture, 6% interest, no conversion discount
|
|
|
70,000
|
|
|
Total convertible debentures
|
|
$
|
33,063,066
|
|
A total of $30,387,890 in principal from the convertible debt noted above is convertible into the common stock of the Company. The following chart is presented to assist the reader in analyzing the Company’s ability to fulfill its fixed debt service requirements (net of note discounts) as of September 30, 2012 and the Company’s ability to meet such obligations:
|
Year
|
|
Amount
|
|
|
2012
|
|
$
|
26,623,702
|
|
|
2013
|
|
|
3,835,931
|
|
|
2014
|
|
|
--
|
|
|
2015
|
|
|
--
|
|
|
2016
|
|
|
--
|
|
|
Thereafter
|
|
|
--
|
|
|
Total minimum payments due under current and long term obligations
|
|
$
|
30,459,633
|
|
YA GLOBAL INVESTMENTS, L.P.
On June 17, 2010, the Company and its subsidiaries signed a series of agreements with YA Global Investments, L.P. (“YA Global”) to reduce convertible debt due from the Company to YA Global (the “YACO Agreements”). On July 30, 2010, the Company and YA Global entered into an agreement pursuant to which the transactions contemplated by the YACO Agreements (the “YA Corn Oil Transaction”) were to close effective August 1, 2010 (the “Effective Date”) subject to satisfaction of certain closing conditions. The conditions to effectiveness of this transaction were satisfied and the transaction was deemed effective for reporting purposes as of February 15, 2011. Since the conditions of closing were not satisfied as of December 31, 2010, the Company’s results of operations for the year ended December 31, 2010 were reported on the basis that the closing of the YA Corn Oil Transaction had not occurred as of such date. The YACO Agreements provided for various GreenShift-owned corn oil extraction facilities based on GreenShift’s patented and patent-pending technologies to be transferred as of August 1, 2010 to a newly formed entity, YA Corn Oil Systems, LLC (“YA Corn Oil”). In exchange, $10,000,000 of the convertible debt issued by GreenShift to YA Global was deemed satisfied as of August 1, 2010. The conditions for the YA Corn Oil Transaction were satisfied as of February 15, 2011, and the Company subsequently earned a performance bonus of $2,486,568 as of February 28, 2011 and another bonus of $2,500,000 as of March 31, 2011. The Company recognized a $5.8 million gain on extinguishment of debt and reduced liabilities for asset retirement obligation and accounts payable by an additional $847,000 as a result of the completion of the YA Corn Oil Transaction. The performance bonuses earned during 2011 were recognized as revenue and applied to reduction of the Company’s convertible debt with YA Global pursuant to the terms of the YACO Agreements. Certain indemnification events subsequently occurred, resulting in the Company recording an accrued expense of about $2.1 million during the year ended December 31, 2011. The Company entered into an Amended and Restated Management Agreement with YA Corn Oil on January 17, 2012, pursuant to which the foregoing amounts were reconciled, resulting in the payment to YA Global of such expense in the form of convertible debt. The Company's accrual is evaluated at the completion of each reporting period, and additional expense or income will be recognized in the future should an event come to pass which either justifies reduction or removal of the liquidated damages accrual, or otherwise gives rise to an actual or a potential, but determinable, expense.
In connection with the completion of the YA Corn Oil Transaction, the Company issued YA Global an amended and restated convertible debenture in the amount of $33,308,023, inclusive of previously accrued interest (the “A&R Debenture”). The A&R Debenture matures on December 31, 2012 and bears interest at the rate of 6% per annum. YA Global shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. YA Global will not be permitted, however, to convert into a number of shares that would cause it to own more than 4.99% of the Company’s outstanding common shares. The A&R Debenture is additionally subject to ongoing compliance conditions, including the absence of change of control events and timely issuance of common shares upon conversion. The difference between August 1, 2010 date of the YACO Agreements and the February 15, 2011 effective date for reporting purposes resulted in an increased interest expense of $915,464 as of December 31, 2010 that was subsequently, on February 15, 2011, eliminated in connection with the completion of the YA Corn Oil Transaction.
During the year ended December 31, 2011, YA Global subdivided the A&R Debenture and assigned to a total of sixteen of its equity-holders portions of the A&R Debenture totaling $6,281,394 in principal, which assignments reduced the balance due to YA Global alone under the A&R Debenture as of December 31, 2011. $6,177,028 of the portion of the A&R Debenture assigned by YA Global remained outstanding at December 31, 2011. The Company accounted for the A&R Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the A&R Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company had determined the fair value of the A&R Debenture at December 31, 2011 to be $23,525,327 which represented the face value of the debenture plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recognized a decrease in the conversion liability relating to the A&R Debenture of $62,777 for assignments and/or repayments during the period and recorded an expense of $127,671 for the accretion of the present value of the conversion liability for the period. The carrying value of the A&R Debenture was $22,811,980 at September 30, 2012, including principal of $20,766,311 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $2,045,669 at September 30, 2012 to its estimated settlement value of $2,085,148 at December 31, 2012. Interest expense of $963,451 for the A&R Debenture was accrued for the nine months ended September 30, 2012.
RELATED PARTY OBLIGATIONS
As of December 31, 2010, the Company had convertible debentures payable to Minority Interest Fund (II), LLC (“MIF”) in an aggregate principal amount of $3,988,326 (the “MIF Debenture”) and convertible debentures payable to Viridis Capital, LLC in an aggregate principal amount of $518,308 (the “Viridis Debenture”). As discussed more fully in Note 13,
Related Party Transactions
, below, the Company entered into agreements with MIF and Viridis to amend and restate the terms of the MIF Debenture and Viridis Debenture effective September 30, 2011 to extend the maturity date to June 30, 2013; to eliminate and contribute $502,086 in accrued interest and $1,065,308 of principal; to reduce the applicable interest rate to 6% per annum; to eliminate MIF’s and Viridis’ right to convert amounts due at a discount to the market price of the Company’s common stock; and to reverse various non-cash assignments of debt involving related parties. The restated balances due to MIF and Viridis at September 30, 2011, were $3,017,061 and $237,939, respectively. No interest was payable to either MIF or Viridis after these amendments. MIF received 62,500 shares of Series D Preferred Stock in partial consideration of the contribution of principal and accrued interest and the various other modified terms of MIF’s agreements with the Company. The outstanding principal balance of the Viridis Debenture at September 30, 2012, was $236,319, and an interest expense of $10,693 for this obligation was accrued for the nine months ended September 30, 2012. On September 30, 2011, the Company issued $1,090,000 and $351,000 in convertible debt to Acutus Capital, LLC (“Acutus”) and family members of the Company’s chairman, respectively, for cash investments previously provided to the Company. The terms of these debentures provide for interest at 6% per annum, a maturity date of June 30, 2013, and the right to convert amounts due into Company common stock at 100% of the market price for the Company’s common stock at the time of conversion. The foregoing debentures are subject to conditions which limit the transfer of shares issued upon conversion to 5% of the average monthly volume for the Company’s common stock.
OTHER CONVERTIBLE DEBENTURES
During the year ended December 31, 2011, YA Global assigned $4,391,643 in convertible debt to Andypolo, LP (“Andypolo” and the “Andypolo Debenture”). Andypolo shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Andypolo Debenture in accordance with ASC 480,
Distinguishing Liabilities from Equity
, as the conversion feature embedded in the Andypolo Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Andypolo Debenture at December 31, 2011 to be $4,839,710 which represented the face value of the debenture of $4,391,643 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $39,119 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $29,920 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $4,212 for the conversions. The carrying value of the Andypolo Debenture was $4,826,300 at September 30, 2012, including principal of $4,352,525 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $473,775 at September 30, 2012 to its estimated settlement value of $483,614 at December 31, 2012. Interest expense of $197,738 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $321,237 in convertible debt to Stuttgart, LP (“Stuttgart” and the “Stuttgart Debenture”). Stuttgart shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Stuttgart Debenture in accordance with ASC 480,
Distinguishing Liabilities from Equity
, as the conversion feature embedded in the Stuttgart Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Stuttgart Debenture at December 31, 2011 to be $298,795 which represented the face value of the debenture of $271,237 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $22,554 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $1,870 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $2,382 for the conversions. The carrying value of the Stuttgart Debenture was $275,730 at September 30, 2012, including principal of $248,683 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $27,047 at September 30, 2012 to its estimated settlement value of $27,631 at December 31, 2012. Interest expense of $11,621 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $263,498 in convertible debt to JMC Holdings, LP (“JMC” and the “JMC Debenture”). JMC shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the JMC Debenture in accordance with ASC 480,
Distinguishing Liabilities from Equity
, as the conversion feature embedded in the JMC Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the JMC Debenture at December 31, 2011 to be $190,214 which represented the face value of the debenture of $170,758 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $8,027 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $1,486 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $832 for the conversions. The carrying value of the JMC Debenture was $205,497 at September 30, 2012, including principal of $185,387 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $20,110 at September 30, 2012 to its estimated settlement value of $20,599 at December 31, 2012. Interest expense of $8,402 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $70,266 in convertible debt to David Moran & Siobhan Hughes (“Moran-Hughes” and the “Moran-Hughes Debenture”). Moran-Hughes shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Moran-Hughes Debenture in accordance with ASC 480,
Distinguishing Liabilities from Equity
, as the conversion feature embedded in the Moran-Hughes Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Moran-Hughes Debenture at December 31, 2011 to be $77,380 which represented the face value of the debenture of $70,266 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $265 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $6,950 for the conversions. The carrying value of the Moran-Hughes Debenture was $4,429 at September 30, 2012, including principal of $4,000 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $429 at September 30, 2012 to its estimated settlement value of $444 at December 31, 2012. Interest expense of $1,142 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $111,000 in convertible debt to Barry Liben (“Liben” and the “Liben Debenture”). Liben shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Liben Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Liben Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Liben Debenture at December 31, 2011 to be $122,225 which represented the face value of the debenture of $111,000 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $20,500 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $790 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $2,165 for the conversions. The carrying value of the Liben Debenture was $100,350 at September 30, 2012, including principal of $90,500 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $9,850 at September 30, 2012 to its estimated settlement value of $10,055 at December 31, 2012. Interest expense of $4,718 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $341,550 in convertible debt to Circle Strategic Allocation Fund, LP (“Circle Strategic” and the “Circle Strategic Debenture”). Circle Strategic shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Circle Strategic Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Circle Strategic Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Circle Strategic Debenture at December 31, 2011 to be $376,034 which represented the face value of the debenture of $341,500 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $58,532 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $2,267 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $6,068 for the conversions. The carrying value of the Circle Strategic Debenture was $313,702 at September 30, 2012, including principal of $282,968 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $30,733 at September 30, 2012 to its estimated settlement value of $31,441 at December 31, 2012. Interest expense of $13,193 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $75,000 in convertible debt to EFG Bank (“EFG” and the “EFG Debenture”). EFG shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the EFG Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the EFG Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the EFG Debenture at December 31, 2011 to be $82,584 which represented the face value of the debenture of $75,000 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $562 for the accretion to fair value of the conversion liability for the period. The carrying value of the EFG Debenture was $83,146 at September 30, 2012, including principal of $75,000 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $8,146 at September 30, 2012 to its estimated settlement value of $8,333 at December 31, 2012. Interest expense of $3,378 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned an additional $115,000 in convertible debt to EFG Bank (“EFG” and the “EFG Debenture”). EFG shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the EFG Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the EFG Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the EFG Debenture at December 31, 2011 to be $126,630 which represented the face value of the debenture of $115,000 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $861 for the accretion to fair value of the conversion liability for the period. The carrying value of the EFG Debenture was $127,491 at September 30, 2012, including principal of $115,000 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $12,491 at September 30, 2012 to its estimated settlement value of $12,778 at December 31, 2012. Interest expense of $5,180 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $385,000 in convertible debt to Epelbaum Revocable Trust (“Epelbaum” and the “Epelbaum Debenture”). Epelbaum shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Epelbaum Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Epelbaum Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Epelbaum Debenture at December 31, 2011 to be $423,934 which represented the face value of the debenture of $385,000 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $103,882 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $2,516 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $10,869 for the conversions. The carrying value of the Epelbaum Debenture was $311,699 at September 30, 2012, including principal of $281,118 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $30,581 at September 30, 2012 to its estimated settlement value of $31,235 at December 31, 2012. Interest expense of $14,119 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $34,000 in convertible debt to Judy Klein (“Klein” and the “Klein Debenture”). Klein shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Klein Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Klein Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Klein Debenture at December 31, 2011 to be $37,439 which represented the face value of the debenture of $34,000 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $34,000 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $86 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $3,525 for the conversions. As of September 30, 2012, the balance on the Klein Debenture had been paid in full. Interest expense of $340 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned an additional $40,750 in convertible debt to JMC Holdings, LP (“JMC” and the “JMC Debenture”). JMC shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the JMC Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the JMC Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the JMC Debenture at December 31, 2011 to be $44,871 which represented the face value of the debenture of $40,750 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $305 for the accretion to fair value of the conversion liability for the period. The carrying value of the JMC Debenture was $45,176 at September 30, 2012, including principal of $40,750 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $4,426 September 30, 2012 to its estimated settlement value of $4,528 at December 31, 2012. Interest expense of $1,835 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $18,500 in convertible debt to Dr. Michael Kesselbrenner TTEE Money Purchase Plan (“Kesselbrenner” and the “Kesselbrenner Debenture”). Kesselbrenner shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Kesselbrenner Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Kesselbrenner Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Kesselbrenner Debenture at December 31, 2011 to be $20,371 which represented the face value of the debenture of $18,500 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $139 for the accretion to fair value of the conversion liability for the period. The carrying value of the Kesselbrenner Debenture was $20,510 at September 30, 2012, including principal of $18,500 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $2,010 at September 30, 2012 to its estimated settlement value of $2,056 at December 31, 2012. Interest expense of $833 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $10,000 in convertible debt to MD Global Partners, LLC (“MD Global” and the “MD Global Debenture”). MD Global shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the MD Global Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the MD Global Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the MD Global Debenture at December 31, 2011 to be $11,011 which represented the face value of the debenture of $10,000 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $10,000 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $26 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $1,037 for the conversions. As of September 30, 2012, the balance on the MD Global Debenture had been paid in full.
During the year ended December 31, 2011, YA Global assigned $20,500 in convertible debt to Susan Schneider (“Schneider” and the “Schneider Debenture”). Schneider shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Schneider Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Schneider Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Schneider Debenture at December 31, 2011 to be $22,573 which represented the face value of the debenture of $20,500 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $154 for the accretion to fair value of the conversion liability for the period. The carrying value of the Schneider Debenture was $22,727 at September 30, 2012, including principal of $20,500 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $2,227 at September 30, 2012 to its estimated settlement value of $2,278 at December 31, 2012. Interest expense of $923 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, YA Global assigned $28,500 in convertible debt to Saul Skoler (“Skoler” and the “Skoler Debenture”). Skoler shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Skoler Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Skoler Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Skoler Debenture at December 31, 2011 to be $31,370 which represented the face value of the debenture of $28,500 plus the present value of the conversion feature. During the nine months ended September 30, 2012, $28,500 in principal was converted into common stock. During the nine months ended September 30, 2012, the Company recorded an expense of $85 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $2,955 for the conversions. As of September 30, 2012, the balance on the Skoler Debenture had been paid in full. Interest expense of $283 for these obligations was accrued for the nine months ended September 30, 2012.
During the year ended December 31, 2011, Cascade assigned $70,718 in convertible debt to Yorkville Advisors, LLC (“Yorkville” and the “Yorkville Debenture”). Yorkville shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the Yorkville Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Yorkville Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Yorkville Debenture at December 31, 2011 to be $77,870 which represented the face value of the debenture of $70,718 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recorded an expense of $530 for the accretion to fair value of the conversion liability for the period. The carrying value of the Yorkville Debenture was $78,399 at September 30, 2012, including principal of $70,718 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $7,681 at September 30, 2012 to its estimated settlement value of $7,858 at December 31, 2012. Interest expense of $3,185 for these obligations was accrued for the nine months ended September 30, 2012.
ASC 480,
Distinguishing Liabilities from Equity
, sets forth the requirements for determination of whether a financial instrument contains an embedded derivative that must be bifurcated from the host contract, therefore the Company evaluated whether the conversion feature for Series D Preferred Stock would require such treatment; one of the exceptions to bifurcation of the embedded conversion feature is that the conversion feature as a standalone instrument would be classified in stockholders’ equity. Management has determined that the conversion option would not be classified as a liability as a standalone instrument, therefore it meets the exception for bifurcation of the embedded derivative under ASC 815,
Derivatives and Hedging
. ASC 815,
Derivatives and Hedging
, addresses whether an instrument that is not under the scope of ASC 480,
Distinguishing Liabilities from Equity
, would be classified as liability or equity; one of the factors that would require liability classification is if the Company does not have sufficient authorized shares to effect the conversion. If a company could be required to obtain shareholder approval to increase the company's authorized shares in order to net-share or physically settle a contract, share settlement is not controlled by the company. The majority of the Company’s outstanding shares of Series D Preferred Stock are owned by Viridis Capital, LLC, an entity controlled by Kevin Kreisler, the chairman and chief executive officer of the Company. If all the Series D shares held by Viridis Capital were converted and exceeded the number of authorized common shares, there would be no contingent factors or events that a third party could bring up that would prevent Mr. Kreisler from authorizing the additional shares. There would be no need to have to go to anyone outside the Company for approval since Mr. Kreisler, through Viridis Capital, is the Company’s majority shareholder. As a result, the share settlement is controlled by the Company and with ASC 815,
Derivatives and Hedging
. The Company assessed all other factors in ASC 815,
Derivatives and Hedging
, to determine how the conversion feature would be classified.
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NOTE 10
|
GUARANTY AGREEMENT
|
Viridis Capital, LLC (“Viridis”) is the majority shareholder of the Company and is solely owned by Kevin Kreisler, the Company’s founder, chairman and chief executive officer. Viridis has guaranteed all of the Company’s senior debt and has pledged all of its assets, including its shares of Company Series D Preferred Stock, to YA Global to secure the repayment by the Company of its obligations to YA Global (see Note 11,
Stockholders’ Equity
, below). Viridis has also guaranteed all amounts due to Cantrell Winsness Technologies, LLC in connection with the acquisition by the Company’s subsidiary of its patented and patent-pending extraction technologies (see Note 13,
Related Party Transactions
, below). The Company has separately agreed to indemnify and hold Viridis harmless from any and all losses, costs and expenses incurred by Viridis in connection with its guaranty of the Company’s obligations.
On October 31, 2006, the Company guaranteed a secured note issued by a wholly owned subsidiary of the Company’s former subsidiary, GS AgriFuels Corporation, in the principal amount of $6,000,000 to Stillwater Asset-Backed Fund, LP. The balance due to Stillwater at September 30, 2012 and December 31, 2011 was $2,071,886. The operations of GS AgriFuels were discontinued during 2009 and liquidated in 2010.
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NOTE 11
|
STOCKHOLDERS’ EQUITY
|
SERIES D PREFERRED STOCK
Shares of the Series D Preferred Stock (the “Series D Shares”) may be converted by the holder into Company common stock. The conversion ratio is such that the full 1,000,000 Series D Shares originally issued convert into Company common shares representing 80% of the fully diluted outstanding common shares outstanding after the conversion (which includes all common shares outstanding plus all common shares potentially issuable upon the conversion of all derivative securities not held by the holder). The holder of Series D Shares may cast the number of votes at a shareholders meeting or by written consent that equals the number of common shares into which the Series D Shares are convertible on the record date for the shareholder action. In the event the Board of Directors declares a dividend payable to Company common shareholders, the holders of Series D Shares will receive the dividend that would be payable if the Series D Shares were converted into Company common shares prior to the dividend. In the event of a liquidation of the Company, the holders of Series D Shares will receive a preferential distribution of $0.001 per share, and will share in the distribution as if the Series D Shares had been converted into common shares. Effective September 30, 2011, Minority Interest Fund (II), LLC (“MIF”) was issued 62,500 shares of Series D Preferred Stock in partial consideration of the contribution of principal and accrued interest and various other modified terms of MIF’s agreements with the Company. The Company’s Series D Preferred Stock is beneficially owned by Viridis Capital, LLC (633,853 shares), Edward Carroll (187,500 shares), Acutus Capital, LLC (124,875 shares) and Minority Interest Fund (II), LLC (103,534 shares).
ASC 480, Distinguishing Liabilities from Equity, sets forth the requirements for determination of whether a financial instrument contains an embedded derivative that must be bifurcated from the host contract, therefore the Company evaluated whether the conversion feature for Series D Preferred Stock would require such treatment; one of the exceptions to bifurcation of the embedded conversion feature is that the conversion feature as a standalone instrument would be classified in stockholders’ equity. Management has determined that the conversion option would not be classified as a liability as a standalone instrument, therefore it meets the exception for bifurcation of the embedded derivative under ASC 815, Derivatives and Hedging. ASC 815 addresses whether an instrument that is not under the scope of ASC 480 would be classified as liability or equity; one of the factors that would require liability classification is if the Company does not have sufficient authorized shares to effect the conversion. If a company could be required to obtain shareholder approval to increase the company's authorized shares in order to net-share or physically settle a contract, share settlement is not controlled by the company. The majority of the Company’s outstanding shares of Series D Preferred Stock are owned by Viridis Capital, LLC, an entity controlled by Kevin Kreisler, the chairman and chief executive officer of the Company. If all the Series D shares held by Viridis Capital were converted and exceeded the number of authorized common shares, there would be no contingent factors or events that a third party could bring up that would prevent Mr. Kreisler from authorizing the additional shares. There would be no need to have to go to anyone outside the Company for approval since Mr. Kreisler, through Viridis Capital, is the Company’s majority shareholder. As a result, the share settlement is controlled by the Company and with ASC 815. The Company assessed all other factors in ASC 815 to determine how the conversion feature would be classified.
SERIES F PREFERRED STOCK
Effective January 1, 2010, GS CleanTech Corporation, a wholly-owned subsidiary of the Company, executed an Amended and Restated Technology Acquisition Agreement (“TAA”) with Cantrell Winsness Technologies, LLC (“CWT”), David F. Cantrell, David Winsness, Gregory P. Barlage and John W. Davis (the “Sellers”) pursuant to which the parties amended and restated the method of calculating the purchase price for the Company’s corn oil extraction technology (the “Technology”). The TAA provides for the payment by the Company of royalties in connection with the Company’s corn oil extraction technologies, the reduction of those royalties as the Sellers receive payment, and a mechanism for conversion of accrued or prepaid royalties into Company common stock. To achieve this latter mechanism, the Company agreed to issue to the Sellers a one-time prepayment in the form of 1,000,000 shares of redeemable Series F Preferred Stock with a face value of $10 per preferred share. The Series F preferred shares are redeemable at face value and a rate equal to the amount royalties paid or prepaid under the TAA. In addition, the Sellers have the right to convert the Series F preferred shares to pay or prepay royalties at a rate equal to the cash proceeds received by the Sellers upon sale of the common shares issued upon conversion Series F preferred shares. The TAA provides for the payment to the Sellers of an initial royalty fee equal to the lesser of $0.10 per gallon or a percentage of net cash flows, both of which are reduced ratably to $0.025 per gallon upon payment, prepayment or conversion as described above. The Company’s obligations under the TAA are guaranteed by Viridis Capital, LLC, which guarantee was subordinated by the Sellers to the rights of YA Global under its guaranty agreement with Viridis Capital (see Note 14, Guaranty Agreements, below). The Company accounted for the Series F preferred shares in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the convertible Series F preferred shares could result in the preferred shares being converted to a variable number of the Company’s common shares. The Company determined the value of the Series F preferred shares at the grant date to be $925,926 which represented the estimated value of the preferred shares based on common shares into which they could be converted at the grant date, which included the present value of the conversion feature, which was determined to be $428,381. During the year ended December 31, 2010, the Company recognized a total expense of $925,926 based on the grant date value. During the nine months ended September 30, 2012, the Company recognized a reduction in conversion liability at present value of $179,344 for the redemptions that occurred via payments of royalties under the agreement and recorded an expense of $47,018 for the accretion to fair value of the conversion liability for the period. The carrying value of the liability for the Series F shares was $812,145 at September 30, 2012, including the grant date value plus the accretion less redemptions of the conversion liability during the year. The liability for the conversion feature shall increase from its present value of $314,600 at September 30, 2012 to its estimated settlement value of $778,027 at June 10, 2020. The only conditions under which the Company would be required to redeem its convertible preferred stock for cash would be in the event of a liquidation of the Company or in the event of a cash-out merger of the Company.
The Company completed a 1 for 1,000 reverse stock split on September 9, 2011. This stock split became effective under applicable laws on September 9, 2011. All stock prices, share amounts, per share information, stock options and stock warrants in this report reflect the impact of the reverse stock split. Every thousand shares of issued and outstanding Company common stock was automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. All fractional shares resulting from the reverse split were rounded to a full share. During the nine months ended September 30, 2012 and 2011, the Company issued a total of 28,517,609 shares and 10,177,016 shares of common stock, respectively, upon conversion in period of $786,408 and $1,062,662, respectively, of principal and accrued interest due pursuant to the Company’s various convertible debentures (see Note 9,
Debt Obligations
, above).
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NOTE 12
|
COMMITMENTS AND CONTINGENCIES
|
INFRINGEMENT
On October 13, 2009, the U.S. Patent and Trademark Office (“PTO”) issued U.S. Patent No. 7,601,858, titled "
Method of Processing Ethanol Byproducts and Related Subsystems
” (the ’858 Patent) to GS CleanTech Corporation, a wholly-owned subsidiary of GreenShift Corporation. On October 27, 2009, the PTO issued U.S. Patent No. 7,608,729, titled "
Method of Freeing the Bound Oil Present in Whole Stillage and Thin Stillage
” (the ’729 Patent) to GS CleanTech. Both the ‘858 Patent and the ‘729 Patent relate to the Company’s corn oil extraction technologies.
On October 13, 2009, GS CleanTech filed a legal action in the United States District Court, Southern District of New York captioned
GS CleanTech Corporation v. GEA Westfalia Separator, Inc.; and DOES 1-20
, alleging infringement of the ‘858 Patent ("New York I Action"). On October 13, 2009, GS CleanTech filed a Motion to Dismiss with the same court relative to a separate complaint filed previously by Westfalia captioned
GEA Westfalia Separator, Inc. v. GreenShift Corporation
that alleged (1) false advertising in violation of the Lanham Act § 43(a); (2) deceptive trade practices and false advertising in violation of New York General Business Law §§ 349, 350 and 350-a; and (3) common law unfair competition ("New York II Action"). On October 13, 2009, Westfalia filed its First Amended Complaint in the New York II Action to include as a plaintiff, ethanol production company Ace Ethanol, LLC , and to add claims seeking a declaratory judgment of invalidity and non-infringement of the ‘858 Patent. On October 13, 2009, ICM, Inc. filed a complaint in the United States District Court, District of Kansas in the matter captioned
ICM, Inc. v. GS CleanTech Corporation and GreenShift Corporation
, alleging unfair competition, interference with existing and prospective business and contractual relationships, and deceptive trade practices and also seeking a declaratory judgment of invalidity and non-infringement of the ‘858 Patent.
On October 15, 2009, in the New York I Action, GS CleanTech filed a Notice of Filing First Amended Complaint for infringement of the ‘858 Patent, along with a copy of the First Amended Complaint, which added ICM, Ace Ethanol, Lifeline Foods LLC and ten additional DOES as defendants in the New York I Action. On October 23, 2009, GS CleanTech's First Amended Complaint in the New York I Action was entered by the court. On November 5, 2009, in ICM’s Kansas lawsuit, GS CleanTech filed a motion to dismiss or, in the alternative, to transfer the Kansas case to New York for inclusion in the New York I Action. Also on November 5, 2009, in ICM’s Kansas lawsuit, ICM filed a motion to enjoin CleanTech and GreenShift from prosecuting the claims against ICM in the New York I Action.
During February 2010, GS CleanTech commenced a legal action in the United States District Court, Southern District of Indiana captioned
GS CleanTech Corporation v. Cardinal Ethanol, LLC
, and a separate legal action in the United States District Court, Northern District of Illinois captioned
GS CleanTech Corporation v. Big River Resources Galva, LLC and Big River Resources West Burlington, LLC
. ICM sold Cardinal and Big River the equipment that each of Cardinal and Big River have used and are using to infringe the ‘858 Patent as alleged by GS CleanTech. ICM has assumed the defense of each of the above matters.
During May 2010, GS CleanTech commenced the following additional actions:
GS CleanTech Corporation v. Lincolnland Agri-Energy, LLC
, in the United States District Court, Northern District of Illinois;
GS CleanTech Corporation v. Al-Corn Clean Fuel, LLC; Chippewa Valley Ethanol Company, LLLP; Heartland Corn Products, LLC and Bushmills Ethanol, Inc.
, in the United States District Court, District of Minnesota;
GS CleanTech Corporation v. United Wisconsin Grain Producers, LLC
, in the United States District Court, Western District of Wisconsin;
GS CleanTech Corporation v. Iroquois BioEnergy Company, LLC
, in the United States District Court, Northern District of Indiana;
GS CleanTech Corporation v. Blue Flint Ethanol, LLC
, in the United States District Court, District of North Dakota; and,
GS CleanTech Corporation v. Lincolnway Energy, LLC
, in the United States District Court, Northern District of Iowa.
On May 6, 2010, GreenShift submitted a "
Motion to Transfer Pursuant to 28 U.S.C. § 1407 for Consolidated Pretrial Proceedings
" to the United States Judicial Panel on Multidistrict Litigation (the "Panel") located in Washington, D.C. In this motion, GreenShift moved the Panel to transfer and consolidate all pending suits involving infringement of GreenShift’s patents to one federal court for orderly and efficient review of all pre-trial matters. On August 6, 2010, the Panel ordered the consolidation and transfer of all pending suits in the U.S. District Court, Southern District of Indiana for pretrial proceedings (the "MDL Case").
On July 14, 2010, GS CleanTech commenced an action entitled
GS CleanTech Corporation v. Adkins Energy, LLC
, in the United States District Court, Northern District of Illinois alleging infringement of the ‘858 Patent. On August 4, 2010, Adkins filed an answer to the complaint and included counterclaims seeking a declaratory judgment that Adkins does not infringe the '858 Patent and that the '858 Patent is invalid, and also alleging breach of contract. On November 30, 2010, the Adkins action was transferred to the MDL Case.
On October 14, 2010, GS CleanTech commenced an action entitled
GS CleanTech Corporation v. Flottweg Separation Technology, Inc. and Flottweg AG
, in the United States District Court, District of Connecticut alleging infringement of the ‘858 Patent. On November 15, 2010, GS CleanTech filed an amended complaint alleging that
Flottweg Separation Technology, Inc., has infringed the ‘858 Patent. On November 15, 2010, the Flottweg action was transferred to the MDL Case.
As part of the MDL Case, on November 15, 2010, GS CleanTech amended its complaint filed in the New York I Action to include a claim of patent infringement personally against the founder, CEO and President of ICM, and ICM amended its complaint filed in the Kansas action to include a claim seeking a declaratory judgment that the '858 Patent is unenforceable. On November 30, 2010, in the MDL Case, GS CleanTech filed a motion to dismiss ICM's amended complaint (including its claim seeking a declaratory judgment that the '858 Patent is unenforceable) or, in the alternative, to transfer the Kansas case to New York for inclusion in the New York I Action. ICM has opposed the motion to dismiss. On December 10, 2010, in the MDL Case, GS CleanTech filed motions to strike the affirmative defenses that the '858 Patent is unenforceable asserted by Cardinal Ethanol, LLC; Big River Resources Galva, LLC; and Big River Resources West Burlington, LLC; and Lincolnland Agri-Energy, LLC. Each defendant has opposed the respective motion to strike. On February 14, 2011, GS CleanTech notified the court in the MDL Case that it will not be proceeding with a motion for preliminary injunction. On February 24, 2011, in the MDL Case, in connection with its breach of contract counterclaim against GreenShift Corporation, Adkins Ethanol, LLC filed a motion for judgment on the pleadings or in the alternative partial summary judgment on the issue of liability on the issue of breach of contract and partial summary judgment on the issue of damages. On March 24, 2011, GreenShift filed an opposition to Adkins’ motion.
All of the parties in the MDL Action filed their respective briefs with the Court in connection with proposed claim construction for certain claim limitations in the '858 Patent. A hearing on the claim construction matter was then held by the Court in the MDL Action on August 22, 2011. On September 29, 2011, the Court issued its ruling with respect to claim construction.
There have been no other substantive rulings on the merits on any of the actions included in the MDL Case and Management is unable to characterize or evaluate the probability of any outcome at this time. The Company intends to take all necessary steps to bring infringement of its patents to an end, including filing additional lawsuits involving any and all infringing use of the Company’s patents. The Company further plans to seek additional relief for instances of willful infringement. The Company’s position is that any infringing ethanol producer is liable for any infringing use of the Company’s patented technologies beginning on the publication date of the application that led to the ‘858 Patent.
OTHER MATTERS
The Company is party to the matter entitled
JMJ Financial v. GreenShift et. al.
, an action in which the plaintiff has alleged breach of contract and other causes of action for which the plaintiff seeks damages of about $300,000 plus costs. The Company intends to vigorously defend this action. At this stage of the proceedings, we cannot evaluate the likelihood of an unfavorable outcome in excess of the amounts previously accrued.
On October 31, 2006, the Company guaranteed a secured note issued by a wholly owned subsidiary of the Company’s former subsidiary, GS AgriFuels Corporation, in the principal amount of $6,000,000 to Stillwater Asset-Backed Fund, LP. The balance due to Stillwater at December 31, 2010 was $2,071,886. This obligation is guaranteed by the Company; however, Stillwater is party to an intercreditor agreement with the Company’s senior lender which provides that no payments can be made by the Company against the balance due to Stillwater until the senior lender has been fully paid. The operations of GS AgriFuels were discontinued during 2009 and liquidated in 2010.
The Company is also involved in various collection matters for which vendors are seeking payment for services rendered and goods provided. The Company and its subsidiaries are party to numerous matters pertaining to outstanding amounts alleged to be due. Management is unable to characterize or evaluate the probability of any outcome at this time.
Under the Company’s insurance programs, coverage is obtained for catastrophic exposures, as well as those risks required to be insured by law or contract. There is a $2,500 deductible per occurrence for environmental impairments. Environmental liability insurance is carried with policy limits of $1,000,000 per occurrence and $2,000,000 aggregate.
The Company is party to employment agreements with Kevin Kreisler, the Company’s Chief Executive Officer, Ed Carroll, the Company’s President and Chief Financial Officer, David Winsness, the Company’s Chief Technology Officer, Greg Barlage, the Company’s Chief Operating Officer, and Richard Krablin, the Company’s Vice President. Each agreement also included terms for reimbursement of expenses, periodic bonuses, four weeks’ vacation and participation in any employee benefits provided to all employees of GreenShift Corporation.
The Company’s Articles of Incorporation provide that the Company shall indemnify its officers, directors, employees and agents to the full extent permitted by Delaware law. The Company’s Bylaws include provisions to indemnify its officers and directors and other persons against expenses (including attorney’s fees, judgments, fines and amounts paid for settlement) incurred in connection with actions or proceedings brought against them by reason of their serving or having served as officers, directors or in other capacities. The Company does not, however, indemnify them in actions in which it is determined that they have not acted in good faith or have acted unlawfully. The Company is further subject to various indemnification agreements with various parties pursuant to which the Company has agreed to indemnify and hold such parties harmless from and against expenses and costs incurred (including attorney’s fees, judgments, fines and amounts paid for settlement) in connection with the provision by such parties of certain financial accommodations to the Company. Such parties indemnified by the Company include YA Global Investments, L.P., YA Corn Oil Systems, LLC, Viridis Capital, LLC, Minority Interest Fund (II), LLC, Acutus Capital, LLC, and various family members of the Company’s chairman that have provided the Company with cash investments.
|
NOTE 13
|
RELATED PARTY TRANSACTIONS
|
Minority Interest Fund (II), LLC (“MIF”) is party to certain convertible debentures issued by the Company (see Note 9,
Debt Obligations
, above). The managing member of MIF is a relative of the Company’s chairman.
The Company entered into agreements with MIF and Viridis to amend and restate the terms of the MIF Debenture and Viridis Debenture effective September 30, 2011 to extend the maturity date to June 30, 2013; to eliminate and contribute $502,086 in accrued interest and $1,065,308 of principal; to reduce the applicable interest rate to 6% per annum; to eliminate MIF’s and Viridis’ right to convert amounts due at a discount to the market price of the Company’s common stock; and to reverse various non-cash assignments of debt involving related parties (see Note 9,
Debt Obligations
, above).
The restated balances due to MIF and Viridis at September 30, 2011, were $3,017,061 and $237,939, respectively. No interest was payable to either MIF or Viridis after these amendments. In addition, the balances of convertible debt due to Acutus Capital, LLC (“Acutus”) and family members of the Company’s chairman were amended and restated at September 30, 2011, to $1,090,000 and $351,000, respectively, in connection with cash investments previously provided to the Company. The terms of these debentures provide for interest at 6% per annum, a maturity date of June 30, 2013, and the right to convert amounts due into Company common stock at 100% of the market price for the Company’s common stock at the time of conversion. MIF received 62,500 shares of Series D Preferred Stock in partial consideration of the contribution of principal and accrued interest and the various other modified terms of MIF’s agreements with the Company. The foregoing debentures are subject to conditions which limit the transfer of shares issued upon conversion to 5% of the average monthly volume for the Company’s common stock.
During the year ended December 31, 2011, the Company’s chairman waived $265,192 in deferred salaries due from prior years as of September 30, 2011, $138,001 in unreimbursed expenses, and $112,020 previously assigned to an employee of the Company. Various other related party employees waived an aggregate of $133,101 in deferred compensation from prior years, and one former employee (a family member of the Company’s chairman) agreed to accept payment of $92,337 in deferred salaries due from prior years in the form of restricted Company common stock at $0.11 per share.
Between January 1, 2008 and December 31, 2010, Viridis, MIF, Acutus, and management personnel provided the Company with the cash resources we needed for our overhead needs, including all legal expenses incurred in the prosecution of infringing use of our patented technologies. Viridis is owned by our chairman, MIF is owned by a family member of our chairman, and Acutus is owned by our chairman's attorney. In addition, Viridis has guaranteed all of the Company’s debt due to YA Global and all amounts due to Cantrell Winsness Technologies, LLC, in connection with the acquisition by the Company’s subsidiary of its patented and patent-pending extraction technologies (see Note 10,
Guaranty Agreements
, above). The Company has separately agreed to indemnify and hold Viridis and its affiliates harmless from any and all losses, costs and expenses incurred by Viridis and its affiliates in connection with its and their various investments with the Company as well as Viridis’ guarantees of Company’s obligations.
Effective December 31, 2010, Viridis and the Company entered into an agreement pursuant to which Viridis acquired the stock of two inactive subsidiaries from the Company for $5,000. The terms of the agreement provided for the acknowledgment by the parties of the continuing first priority security interest of the Company’s senior lender on the stock and assets of each entity, and the continuing guarantees and obligations of Viridis, each entity, and the Company with respect to amounts due from the Company to its senior lender.
Effective January 1, 2010, GS CleanTech Corporation, a wholly-owned subsidiary of the Company, executed an Amended and Restated Technology Acquisition Agreement (“TAA”) with Cantrell Winsness Technologies, LLC (“CWT”), David F. Cantrell, David Winsness, Gregory P. Barlage and John W. Davis (the “Sellers”) pursuant to which the parties amended and restated the method of calculating the purchase price for the Company’s corn oil extraction technology (the “Technology”). The TAA provides for the payment by the Company of royalties in connection with the Company’s corn oil extraction technologies, the reduction of those royalties as the Sellers receive payment, and a mechanism for conversion of accrued or prepaid royalties into Company common stock. To achieve this latter mechanism, the Company agreed to issue to the Sellers a one-time prepayment in the form of 1,000,000 shares of redeemable Series F Preferred Stock (“CWT Preferred Shares”) with a face value of $10 per preferred share (see Note 11, Shareholders’ Equity, above). The CWT Preferred Shares are redeemable at face value and a rate equal to the amount royalties paid or prepaid under the TAA. In addition, the Sellers have the right to convert the CWT Preferred Shares to pay or prepay royalties at a rate equal to the cash proceeds received by the Sellers upon sale of the common shares issued upon conversion CWT Preferred Shares. The TAA provides for the payment to the Sellers of an initial royalty fee equal to the lesser of $0.10 per gallon or a percentage of net cash flows, both of which are reduced ratably to $0.025 per gallon upon payment, prepayment or conversion as described above. The Company’s obligations under the TAA are guaranteed by Viridis Capital, LLC, which guarantee was subordinated by the Sellers to the rights of YA Global under its guaranty agreement with Viridis Capital (see Note 10, Guaranty Agreement, above). As of December 31, 2009, the Company accrued royalty fees payable of $1,047,832 and prepaid royalty fees of another $300,000, for a total of $1,347,832. $750,000 of this amount was capitalized and then amortized and included in the Company’s cost of sales for the years ended December 31, 2011 ($321,429), December 31, 2010 ($267,857) and December 31, 2009 ($160,714). During the year ended December 31, 2009, the Company issued unsecured convertible debentures (collectively, the “TAA Debentures”) to each of David Cantrell, David Winsness, Greg Barlage, and John W. Davis in consideration for amounts due and/or accrued pursuant to the TAA ($1,347,832). The TAA Debentures were acquired by MIF during 2009 and paid to a balance of $851,422 as of December 31, 2010. The Company subsequently accrued royalties of $271,186 and $932,924 during 2010 and 2011, respectively, which amounts were then offset against prepaid royalties of $300,000 from 2009 and an additional $519,311 from 2011, corresponding to a balance of about $1,562,118 in accrued royalties payable under the TAA as of September 30, 2012.
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NOTE 14
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
The following is a summary of supplemental disclosures of cash flow information for the nine months ended September 30, 2012 and 2011:
|
|
|
9/30/2012
|
|
|
9/30/2011
|
|
|
|
|
|
|
|
|
|
|
Cash paid for the following:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Total
|
|
|
--
|
|
|
|
--
|
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
Performance bonuses applied to convertible debentures
|
|
$
|
--
|
|
|
$
|
4,986,568
|
|
|
Debentures converted into common stock
|
|
|
834,728
|
|
|
|
740,648
|
|
|
Forgiveness of affiliate payable
|
|
|
--
|
|
|
|
180,000
|
|
|
Forgiveness of affiliate receivable charged against paid in capital
|
|
|
--
|
|
|
|
1,655,851
|
|