NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
NOTE
1-
ORGANIZATION AND BASIS OF PRESENTATION
Green
EnviroTech Holdings Corp. (“we”, “our”, the “Company”) was incorporated on June 26,
2007, under the name Wolfe Creek Mining, Inc. formed under the laws of the State of Delaware. On November 20, 2009, the Company
completed a reverse merger transaction pursuant to which it acquired Green EnviroTech Corp., a Nevada corporation. Wolfe Creek
Mining, Inc. up until November 20, 2009, was primarily engaged in the acquisition and exploration of mining properties. Green
EnviroTech Corp was incorporated on October 6, 2008 and was engaged in plastics recovery. The financial statements included herein
are the financials of Green EnviroTech Holdings Corp. and subsidiaries.
Going
Concern
These
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of business for the foreseeable future. For the year ended December
31, 2017, the Company had a net loss. The Company also had a working capital deficit and an accumulated deficit. Further losses
are anticipated in the development of the Company’s business. These factors raise substantial doubt as to our
ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon
the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and
repay its liabilities when they come due from normal business operations. Management intends to finance operating costs over the
next twelve months with loans and/or private placement of common stock.
The
continuation of the Company as a going concern is dependent upon the continued financial support from our shareholders and our
ability to obtain necessary equity financing to continue toward funding our first operation.
The
Company has had very little operating history to date. These consolidated financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Besides
generating revenues from proposed operations, the Company may need to raise additional funds to expand operations to the point
at which it can achieve profitability. The terms of new debt or equity that may be raised may not be on terms acceptable to the
Company. If it fails to raise adequate funds from unrelated third parties, its officers and directors may need to contribute additional
funds to sustain operations.
NOTE
2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiary, Smart Fuel Solutions, Inc. (“SFS”,
“Smart Fuel”, “Smart Fuel Solutions”) formed under the laws of the state of Florida. We acquired 82.5%
of Smart Fuel Solutions, Inc. on September 28, 2016; please refer to Notes 10 and 11 for more detail. On June 30, 2017, SFS was
dissolved and merged into the Company. On February 9, 2017, we established GETH CFP, Inc., a wholly owned subsidiary, formed in
Delaware. This subsidiary will be our new carbon finishing plant located in Ohio. Intercompany balances and transactions were
eliminated between the entities.
Reclassifications
Certain
reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.
There were no material impacts to the financial statements.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
We
consider cash equivalents when purchased to be all highly liquid debt instruments and other short-term investments with maturity
of three months or less.
We
maintain cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.
We do not have any cash equivalents as of December 31, 2017 and 2016, respectively.
Property,
plant and equipment
Property,
plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets. Costs of maintenance and repairs will be charged to expense as incurred.
Construction
in progress is stated at cost, which includes the costs of construction and other direct costs attributable to the construction.
No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put
into use. Interest on the borrowing related to construction is capitalized in accordance with ASC 835-20
Capitalization of
Interest.
As
of December 31, 2017, construction in progress consists of engineering and design costs incurred on our first planned GEN
1 End of Life Tire Processing Plant and the cost of carbon equipment that is being refurbished for use in our carbon finishing
plant. We acquired the carbon equipment as a result of the merger with SFS; please refer to Note 10 Acquisitions for more detail.
The carbon plant was not operational during the year ended December 31, 2017. Since the carbon equipment was not in service, there
was no depreciation taken.
During
the years ended December 31, 2017 and 2016, there were $8,044 and $980 interest capitalized, respectively. We had $934,774 in
construction in progress as of December 31, 2017 and $722,915 as of December 31, 2016.
Recoverability
of Long-Lived Assets
We
will review long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate
a possible impairment. The assessment for potential impairment will be based primarily on our ability to recover the carrying
value of our long-lived assets from expected future cash flows from our operations on an undiscounted basis.
If
such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds
the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying
value or fair value less estimated costs to sell.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
Income
Taxes
We
account for income taxes in accordance with Accounting Standards Codification (“ASC”) 740,
Income Taxes
. There
are two major components of income tax expense, current and deferred. Current income tax expense approximates cash to be paid
or refunded for taxes for the applicable period. Deferred tax assets and liabilities are determined based upon the difference
between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates, which will be in
effect when these differences reverse. Deferred tax expense or benefit is the result of changes between deferred tax assets and
liabilities.
A
valuation allowance is established when, based on an evaluation of objective verifiable evidence, it is more likely than not that
some portion or all of deferred tax assets will not be realized.
ASC
740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position
taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected
to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination,
based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge
of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a
current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain
tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
As
of December 31, 2017, we have analyzed filing positions in each of the federal and state jurisdictions where we are required
to file income tax returns, as well as all open tax years in these jurisdictions. We have identified the U.S. federal, California
and Ohio as our “major” tax jurisdictions. Generally, we remain subject to Internal Revenue Service and California
Franchise Tax Board examination of our 2010 through 2017 Tax Returns. We will file our first Ohio Corporate Franchise Tax
Board return for the year ended December 31, 2017, in 2018. We have certain tax attribute carry forwards, which will remain subject
to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which
such attributes are utilized.
We
believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that
will result in a material change to our financial position. Therefore, no reserves for uncertain income tax position have been
recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.
Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
(Loss)
Per Share of Common Stock
We
follow ASC 260,
Earnings per Share
. Basic net loss per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation
of diluted earnings per share when we report a loss because to do so would be anti-dilutive for periods presented. As of December
31, 2017 and 2016, we had outstanding common stock warrants totaling 24,358,341 and 18,959,341 respectively. Of the common stock
warrants outstanding as at December 31, 2017, there were 1,750,341 common stock warrants convertible at $0.08. There are common
stock warrants in the amount of 22,408,000, convertible at $0.10 per warrant and 200,000 common stock warrants convertible at
$0.50. We also had convertible debt to related parties in the amount of $1,510,537. Of this debt, $1,000,000 is convertible at
$0.20 per share. There is $134,000 owed to Chris Bowers also convertible at $0.50 per share and the balance amounting to
$376,537 is convertible at $0.10 per share. We had convertible debt to others in the amount of $149,295. Of this amount $100,000
is convertible at $0.10 per share and $49,295 is convertible at $0.50 per share. There are three, three year convertible long-term
debentures in the net amount of $73,845. The face amount of the convertible debt is $200,000 less net OID in the amount of $14,653
and net derivative discount in the amount of $111,502. The Holder is entitled to, at any time or from time to time, to convert
the Conversion Amount into Conversion Shares, at a conversion price for each share of Common Stock equal to the lesser of (a)
$0.15 or (b) Sixty- Five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the
twenty (20) Trading Days immediately preceding the date of the date of expected conversion. One of these three long-term convertible
debenture has a conversion rate 90% of the lowest bid price for 20 trading days before conversion.
Stock-Based
Awards
ASC
718
Compensation – Stock Compensation
prescribes accounting and reporting standards for all share-based payment transactions
in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options,
and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees,
including grants of employee stock options, are recognized as compensation expense in the financial statements based on their
fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for
the award, known as the requisite service period (usually the vesting period).
We
account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,
Equity – Based Payments to Non-Employees.
Measurement of share-based payment transactions with non-employees is based
on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments
issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance
completion date.
We
measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based
on the grant-date fair value of the award and recognize it as compensation expense over the period the employee is required to
provide service in exchange for the award, usually the vesting period. We estimate the fair value of share-based payment awards
on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service periods in our statement of operations. The forfeitures are estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the fiscal
periods ended December 31, 2017 and 2016, we estimated our forfeiture rate to be 0% based on the Company’s historical experience.
There were no stock options granted to employees during the years ended December 31, 2017 and 2016.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
During
the years ended December 31, 2017 and 2016, we granted common stock warrants to investors, lenders, consultants and certain
officers as discussed in Note 3. The fair value of stock warrants issued in conjunction with the issuance of common stock is recorded
against common stock as stock issuance cost. The fair value of stock warrants issued in conjunction with notes payable is recognized
as a discount on the related debt and amortized to interest expense over the term to maturity.
The
fair value of stock-based awards to consultants, employees and directors is calculated using the Black-Scholes option pricing
model in valuing options and warrants. The inputs for the valuation analysis of the options and warrants include the market value
of the Company’s common stock, the estimated volatility of the Company’s common stock, the exercise price and the
risk free interest rate. As of December 31, 2017 and 2016 total unrecognized compensation expense related to non-vested share-based
compensation arrangements was $0.
Fair
Value Measurements
We
have adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair
value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s
valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent
sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
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●
|
Level
1 inputs: Quoted prices for identical instruments in active markets.
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|
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●
|
Level
2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
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●
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Level
3 inputs: Instruments with primarily unobservable value drivers.
|
Recently
Issued Accounting Standards
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”. The ASU was issued to address the complexity
associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics
of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when
analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument
(or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence
of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied
retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the
implementation date and the impact of this amendment on its consolidated financial statements.”
Related
Party
The
Company follows ASC 850, “
Related Party Disclosures,”
for the identification of related parties and disclosure
of related party transactions.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
NOTE
3-
LOAN PAYABLE – RELATED PARTY AND CONVERTIBLE
The
Company has had a Line of Credit with H. E. Capital, S. A. since December 3, 2010. This Line of Credit accrues interest at the
rate of 8% per annum and is convertible at $0.10 per share. The due date of the loan was extended to December 31, 2018. During
the year ended December 31, 2017, H.E. Capital converted $230,000 of the debt into 2,300,000 common shares of the Company which
H.E. Capital assigned 2,000,000 common shares directly to a third party. H.E. Capital also advanced to the Company $65,000. The
Company paid $45,200 to H. E. Capital during 2017 to reduce debt. For the year ended December 31, 2016, H.E. Capital assigned
$190,000 of its debt and advanced the Company $352,000. For other financial services H.E. Capital charged the Company $60,000.
H. E. Capital converted $42,905 of its debt in 2016 for 720,721 common shares of the Company. During 2016, H. E. Capital reclassified
$76,060 of accounts payable and accruals it acquired to the line of credit. The balance of the loan at December 31, 2017 was $286,537
with accrued interest in the amount of $59,743. During 2017, H.E. Capital converted $100,000 of its accrued interest into 1,000,000
of common shares of the Company. For the year ended December 31, 2016, H.E. Capital loan balance was $496,737 with accrued interest
in the amount of $125,625.
History
of the H. E. Capital loans is as follows:
|
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|
December
31, 2017
|
|
|
December
31,2016
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$
|
496,737
|
|
|
$
|
241,582
|
|
|
Proceeds
|
|
|
65,000
|
|
|
|
352,000
|
|
|
Cash
payments
|
|
|
(45,200
|
)
|
|
|
—
|
|
|
Reclassification
from accounts payable & accruals
|
|
|
—
|
|
|
|
76,060
|
|
|
Consulting
fees
|
|
|
—
|
|
|
|
60,000
|
|
|
Assignments
|
|
|
—
|
|
|
|
(190,000
|
)
|
|
Non-cash
conversion
|
|
|
(230,000
|
)
|
|
|
(42,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending
Balance
|
|
$
|
286,537
|
|
|
$
|
496,737
|
|
On
February 1, 2016, we issued an 8%, $134,000 Note Payable to our CEO Chris Bowers for funds received. The funds were used for working
capital in Smart Fuel Solutions, Inc. (SFS). On September 28, 2016 when we acquired controlling interest in SFS (see Note 5) we
assumed the note. The note is convertible at $0.50 per share. As of December 31, 2017 and 2016, the accrued interest on this note
was $15,324 and $4,604 respectively.
On
March 3, 2017, we approved a new working capital line of credit loan with our CEO, Chris Bowers in the amount up to $150,000 at
8% due December 31, 2017. This note has been extended until December 31, 2018. The note has conversion rights into our common
shares at $0.10 per share. As of December 31, 2017, this note has a balance of $90,000 with accrued interest in the amount
of $6,420. The Company evaluated this convertible LOC for Beneficial Conversion Features (BCF) and concluded that the LOC incurred
a BCF when it was issued on March 3, 2017. The BCF resulted in a debt discount in the amount of $35,300 which was amortized in
full during the year ended December 31, 2017.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
On
August 15, 2016, we accepted a Line of Credit (LOC) in the amount of $500,000 from our CEO Chris Bowers. On November 14, 2016,
we accepted a second Line of Credit (LOC) in the amount of $500,000 from our CEO. These two LOCs had an outstanding balance in
the amount of $1,000,000 and $900,000 for the years ended December 31, 2017 and 2016, respectively. There was no accrued interest
as of December 31, 2017 and 2016. These LOCs accrue interest at the rate of 1% per month based upon $1,000,000 total balance.
We have been paying $10,000 per month in interest on the two LOCs. The due date of the two loans is December 31, 2018. The funds
were used for working capital of the Company. The first LOC has two Addendums attached to it. Addendum A clarifies debt conversion
rights attached to the LOC at $0.20 per share of common stock. Addendum B clarifies other rights attached to the LOC. These other
rights are numbered below. (The second LOC has the same rights as that of the first LOC). The Company evaluated these convertible
LOCs for Beneficial Conversion Features (BCF) and concluded that the second LOC incurred a Beneficial Conversion Features (BCF)
when it was issued on November 14, 2016. The BCF resulted in a debt discount in the amount of $105,600 of which $96,800 was amortized
for the year ended December 31, 2017 and $8,800 for the year ended December 31, 2016. These certain other rights in Addendum B
provide for the following:
|
|
1.
|
LOC
has Repayment rights: The LOC has priority principal and interest repayment rights from other sources of capital received
by the Company.
|
|
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|
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|
2.
|
LOC
has Warrant rights: Bowers has the right to receive 500,000 (five hundred thousand) $0.10 warrants for providing the LOC and
250,000 (two hundred fifty thousand) $0.10 warrants per $100,000 drawn against the $500,000 LOC. This would be a total of
1,750,000 $0.10 warrants to be issued to Bowers and/or Assigns for providing the funding and the Company using all $500,000
LOC.
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|
|
|
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3.
|
LOC
has Additional Stock Conversion rights: At any time while the LOC is outstanding, Bowers has the right to convert per $100,000
of the LOC for 500,000 shares of duly paid and non-assessable common stock of the Company at a conversion price of $0.20 per
share (subject to adjustment in the event of stock splits or stock dividends) by providing a notice of conversion in a form
reasonably acceptable to the Company. The full conversion of the LOC would be 2,500,000 shares of the Company common stock.
|
The
Company evaluated the addendums under ASC 470-50 and concluded that these addendums did not qualify for debt modification.
On
May 18, 2016, the Company issued an eight percent (8%) Note Payable to Smart Fuel Solutions, Inc. for $53,500. This note was not
convertible. These funds were used for working capital. This note was paid in full on June 2, 2016 from an increase in the line
of credit from H. E. Capital, S.A.
The
Company analyzed the conversion options in the convertible loan payables for derivative accounting consideration under ASC 815,
Derivative and Hedging, and determines that the transactions do qualify for derivative treatment. Please see Note 14.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
NOTE
4-
LOAN PAYABLE – OTHER – NON-CONVERTIBLE
On
November 15, 2012, we issued a promissory note to an individual in the amount of $170,000 at 8% interest. The note was extended
to June 30, 2018. The Company used the funds to pay off the convertible notes held by Asher Enterprise, Inc. As of December 31,
2017 and 2016 the loan has an outstanding balance of $170,000 and accrued interest in the amount of $20,530 and $6,856 respectively.
The accrued interest in the amount of $49,295 reported for the $170,000 on June 30, 2016 was converted into a new note dated July
1, 2016 with $0.50 per share conversion rights and accruing interest at 8%. This note is extended to June 30, 2018.The accrued
interest on this new note on December 31, 2017 was $5,932 and was $1,988 on December 31, 2016. The $170,000 balance is not convertible;
only the $49,295 note is convertible at $0.50 per share. See Note 5
On
March 29, 2017, we entered into a lease and working capital credit facility with Caliber Capital & Leasing LLC and its assignee,
Real Estate Acquisition Development Sales, LLC (“READS”). Under the agreements, READS is providing an initial commitment
of up to $2.5 million for the construction of our first processing line in our centralized Carbon Finishing Plant in Ohio. We
received our first advance on the commitment on October 6, 2017. As of December 31, 2017, we have an outstanding balance in the
amount of $493,000 with accrued interest in the amount of $8,044. The interest accrues at 9.5% and is allocated to construction
in progress. This is a revolving working capital line due in one year with two one year extensions. The remaining draw is in
doubt and GETH is in final negotiations with other funding institutions to fill the gap in funding.
NOTE
5-
LOAN PAYABLE – OTHER –CONVERTIBLE
On
May 16, 2016, we approved H.E. Capital S.A.’s (HEC) request to assign to a private company $200,000 of its Line of Credit
Note. We approved the request and reduced HEC’s Line of Credit Note for that amount and record a new note. On July 19, 2016,
the private company converted $100,000 of its note into 1,000,000 common shares of the Company’s stock. The note bears interest
at 8%, is convertible at $0.10 per share and is due on December 31, 2017. The note was extended to December 31, 2018. As of December
31, 2017 and 2016, the balance of this loan is $100,000 with accrued interest in the amount of $14,422 and $6,422 respectively.
On
July 1, 2016, we issued a convertible promissory note to an individual in the amount of $49,295 at 8% interest due on December
31, 2017. This note is convertible at $0.50 per share. This note has been extended to June 30, 2018. This note represents the
accrued interest on the $170,000 note we owe the individual. This note was generated at their request. As of December 31,
2017 and 2016, this note had accrued interest in the amount of $5,932 and $1,988 respectively.
On
April 12, 2017, we received working capital funds in the amount of $100,000 from a private company. The note has an interest rate
of 8% and is due on April 11, 2018. The note has a variable conversion price feature per the agreement, in which, if the stock
price is below $0.20 per share at conversion, the lender can convert at a 15% discount on stock price. On July 21, 2017, the private
company holding this note with its accrued interest in the amount of $2,192 exercised their right to convert the note in
exchange for 1,481,040 shares of our common stock. The conversion price was the price of the stock at the time with a 15% discount
to the market price. During the third quarter, it was determined this note had derivative discount in the amount of $28,130 which
was amortized in the third quarter when the note was converted.
On
May 5, 2017, we received working capital funds in the amount of $77,500 from Auctus Fund LLC (“Auctus”). The note
had an interest rate of 10% and was due February 5, 2018. This note was paid in full on November 3, 2017, and the derivative discount
of $40,538 was fully amortized to interest expense during the year ended December 31, 2017.
On
May 16, 2017, we received working capital funds in the amount of $74,650 from EMA Financial LLC (“EMA”). The note
was in the amount of $77,500 with an original issue discount (OID) in the amount of $2,850, had an interest rate of 10%, and was
due May 1, 2018. This note was paid in full on November 10, 2017, and the derivative discount and OID totaling $51,480
was fully amortized to interest expense during the year ended December 31, 2017.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
On
November 1, 2017, the Company issued an eight percent (8%) convertible note in the amount of $75,000. The note is convertible
at $0.05 per share for the Company’s common stock. On November 7, 2017, the noteholder converted the note and the Company
issued 1,500,000 shares as full settlement of the loan.
The
Company analyzed the conversion options in the convertible loan payables for derivative accounting consideration under ASC 815,
Derivative and Hedging, and determined that the transactions did qualify for derivative treatment as indicated with the notes
so effected. The Company then analyzed these convertible notes for Beneficial Conversion Features (BCF) and concluded there were
no BCF on these loan payable convertible notes. Please see Note 14.
NOTE
6-
SECURED DEBENTURES
On
January 24, 2011, the Company entered into a series of securities purchase agreements with accredited investors (the “Investors”),
pursuant to which the Company sold an aggregate of $380,000 in 12% secured debentures (the “Debentures”). The Debentures
were initially due at the earlier of 6 months from the date of issuance or upon the Company receiving gross proceeds from subsequent
financings in the aggregate amount of $1,000,000. The Debentures bear interest at the rate of 12% per annum, payable upon maturity.
The Debentures are secured by the assets of the Company pursuant to security agreements entered into between the Company and the
Investors. As a result of the 1 for 100 reverse common stock split on March 27, 2013, the warrants issued to Legend Securities,
Inc. are exercisable for 190 common shares at a price of $40.00 per share. These warrants expired during the year ended December
31, 2016.
On
February 2, 2012, the Company issued 10,001 shares of common stock valued at $30,000 to the Secured Debenture Holders for extending
the maturity date of the debentures to September 24, 2012. The Company by direction of Legend Securities, Inc. also issued to
the holders of the Secured Debentures five-year warrants to purchase 100,000 shares of common stock at an exercise price of $0.10
per share. The warrants were issued to the holders of the Secured Debentures simultaneously with the issuance of the above mentioned
stock and were valued at $2,998. As a result of the 1 for 100 reverse common stock split on March 27, 2013, these warrants are
exercisable for 1,000 common shares at a price of $10.00 per share. These warrants expired on February 2, 2017.
The
balance of these Debentures on December 31, 2017 and 2016 was $305,000. The accrued interest for the years ended December 31,
2017 and 2016 was $274,328 and $237,220 respectively. The Debentures are currently past due.
NOTE
7-
LOAN PAYABLE – OTHER –CONVERTIBLE –LONG TERM
On
July 20, 2017, we entered into an equity purchase agreement for up to $5,000,000 of our common stock with Peak One Opportunity
Fund, LP (Peak One). In connection with that same agreement, we also entered into a related registration rights agreement. We
issued a non-interest bearing convertible debenture maturing on July 20, 2020 in the amount of $75,000 to Peak One as a commitment
fee in connection with the agreement, as well as agreed to issue 300,000 shares of our common stock as commitment shares. On July
25, 2017, we issued these shares valued at $27,000. The note is convertible after 180 days from issuance at a conversion price
equal to 90% of the lowest closing bid price of the last 20 days prior to the conversion date. During the third quarter, it was
determined this note had derivative discount in the amount of $75,000 of which $6,439 was amortized leaving a balance of $68,561
as of December 31, 2017.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
On
July 27, 2017, we received a $75,000 installment in connection with Peak One Opportunity LP (Peak One) purchase agreement for
certain Company convertible debentures totaling $425,000. We issued to Peak One a three year $75,000 non-interest bearing debenture
maturing on July 26, 2020. The debenture had an OID (original issue discount) in the amount of $12,500. As of December 31, 2017,
$625 had been amortized with a remaining OID in the amount of $11,875. The debentures when issued are convertible into common
shares of the Company with certain terms and conditions as set forth in the agreement. The Holder is entitled to, at any time
or from time to time, to convert the conversion amount into conversion shares, at a conversion price for each share of common
stock equal to the lesser of (a) $0.15 or (b) sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg
LP) of the common stock for the twenty (20) trading days immediately preceding the date of the date of conversion of the debentures
subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.
During the third quarter, it was determined this note had derivative discount in the amount of $26,492 of which $2,263 was amortized
leaving a balance of $24,229 at December 31, 2017. See Note 14.
On
November 28, 2017, we received a $50,000 installment in connection with Peak One Opportunity LP (Peak One) purchase agreement
for certain Company convertible debentures totaling $425,000. We issued to Peak One a three year $50,000 non-interest bearing
debenture maturing on November 27, 2020. The debenture had an OID (original issue discount) in the amount of $8,000. As of December
31, 2017, $222 had been amortized with a remaining OID in the amount of $7,778. The debentures when issued are convertible into
common shares of the Company with certain terms and conditions as set forth in the agreement. The Holder is entitled to, at any
time or from time to time, to convert the conversion amount into conversion shares, at a conversion price for each share of common
stock equal to the lesser of (a) $0.15 or (b) sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg
LP) of the common stock for the twenty (20) trading days immediately preceding the date of the date of conversion of the debentures
subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.
During the third quarter, it was determined this note had derivative discount in the amount of $14,208 of which $496 was amortized
in 2017 leaving a balance of $13,712 at December 31, 2017. See Note 14.
These
debentures total $200,000 and reflect a net original issue discount (OID) in the amount of $19,653 and a net derivative discount
in the amount of $106,502. The net of the debentures and the OID with the derivative discount as shown on the balance sheet
is $73,845.
NOTE
8-
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred
Stock
The
Company has 25,000,000 preferred shares of $0.001 par value stock authorized. The Company has no preferred stock issued and outstanding.
However, please see Note 15 Subsequent Events.
Common
Stock
The
Company has 250,000,000 common shares of $0.001 par value stock authorized. On December 31, 2017, we had 40,126,655 common shares
outstanding as compared to 28,517,597 common shares outstanding on December 31, 2016.
Warrants
The
Company uses a Black-Scholes pricing model in valuing options and warrants. The inputs for the valuation analysis of the options
and warrants include the market value of the Company’s common stock, the estimated volatility of the Company’s common
stock, the exercise price and the risk free interest rate. As of December 31, 2017 and 2016 total unrecognized compensation expense
related to non-vested share-based compensation arrangements was $0.
The
key inputs in determining grant date fair value are as follows:
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Outstanding
- December 31, 2015
|
|
|
5,404,861
|
|
|
$
|
0.10
|
|
|
Expired-Jan
24, 2016
|
|
|
(2,090
|
)
|
|
$
|
24.16
|
|
|
Granted-Feb
1, 2016
|
|
|
1,500,000
|
|
|
$
|
0.10
|
|
|
Expired-Aug
1, 2016
|
|
|
(1,429
|
)
|
|
$
|
24.16
|
|
|
Granted-Aug
1, 216
|
|
|
4,675,000
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted-Aug
28, 2016
|
|
|
1,860,000
|
|
|
$
|
0.10
|
|
|
Granted-Aug
31, 2016
|
|
|
600,000
|
|
|
$
|
0.10
|
|
|
Granted-Sept
2, 2016
|
|
|
1,380,000
|
|
|
$
|
0.10
|
|
|
Granted-Sept
28, 2016
|
|
|
2,493,000
|
|
|
$
|
0.10
|
|
|
Granted-Oct
7, 2016
|
|
|
1,000,000
|
|
|
$
|
0.10
|
|
|
Granted-Nov
15, 2016
|
|
|
50,000
|
|
|
$
|
0.50
|
|
|
Exercisable
as of December 31, 2016
|
|
|
18,959,342
|
|
|
$
|
0.10
|
|
|
Outstanding
- December 31, 2016
|
|
|
18,959,342
|
|
|
$
|
0.10
|
|
|
Expired-Feb
9, 2017
|
|
|
(1,000
|
)
|
|
$
|
0.10
|
|
|
Granted-Jan
9, 2017
|
|
|
600,000
|
|
|
$
|
0.10
|
|
|
Granted-May
25, 2017
|
|
|
100,000
|
|
|
$
|
0.50
|
|
|
Granted-Jun
8, 2017
|
|
|
50,000
|
|
|
$
|
0.10
|
|
|
Granted-Dec
13, 2017
|
|
|
4,650,000
|
|
|
$
|
0.10
|
|
|
Exercisable
as of December 31, 2017
|
|
|
24,358,342
|
|
|
$
|
0.10
|
|
|
Outstanding
- December 31, 2017
|
|
|
24,358,342
|
|
|
$
|
0.10
|
|
The
weighted average remaining life of the outstanding common stock warrants as of December 31, 2017 and 2016 was 2.89 given the
extension of the term and 2.92 years. The aggregate intrinsic value of the outstanding common stock warrants as of December
31, 2017 and 2016 was $88,045 and $2,713,758 respectively.
Stock
and Warrant issues during the year ended December 31, 2016:
Stock
Issues:
|
|
●
|
we
issued 1,000,000 common shares in July at $0.10 a share to settle a note in the amount of $100,000. There was a loss of $50,000
on this conversion.
|
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
|
|
●
|
we
issued 820,721 common shares in August to settle $52,905 of debt including which, 720,721 shares were issued to a related
party H.E. Capital. There was a loss of $76,870 on the conversion.
|
|
|
●
|
we
issued 125,000 common shares in August for consulting services valued at $18,750.
|
|
|
●
|
we
issued 439,070 common shares in December to convert $229,535 of accounts payable. There was a gain of $102,249 on the transactions.
|
|
|
●
|
we
issued 693,636 common shares during October 2016-December 2016 for consulting services valued at $153,143.
|
|
|
●
|
we
issued 650,000 common shares in December for future consulting services valued at $188,435 and recorded as prepaid expenses
which has been fully amortized.
|
|
|
●
|
we
issued 862,413 common shares in December to settle $162,500 of debt and $49,608 of accrued interest. There was a loss of $42,661
on the conversion.
|
Warrant
Issues:
|
|
●
|
we
issued 1,500,000 common stock warrants in February for services rendered valued at $30,000 by the Black-Sholes method. These
warrants were fully vested and have an exercise price of $0.10 per share, and expire on February 1, 2021.
|
|
|
●
|
we
had 3,519 common stock warrants expire in July 2016.
|
|
|
●
|
we
issued an aggregate of 3,675,000 common stock warrants in August including which 2,000,000 warrants were issued to Chris Bowers,
the current CEO, for providing lines of credit and for services rendered and 1,500,000 warrants were issued to other related
parties; HE Capital received 1,250,000 warrants for services rendered and Wayne Leggett received 250,000 warrants for services
rendered. The rest of the warrants were also issued to entities for services rendered. All of the warrants issued were valued
at $584,289 by the Black-Sholes method. All of these warrants were fully vested. 3,625,000 of these warrants have an exercise
price of $0.10 per share, and expire on December 31, 2019. 50,000 of these warrants have an exercise price of $0.50 per share,
and expire on August 15, 2019.
|
|
|
●
|
we
issued 1,000,000 common stock warrants in August to Gary DeLaurentiis, our former CEO and a related party, for his service
as a director in 2016. These warrants were valued at $148,952 by the Black-Sholes method. These warrants were fully vested
and have an exercise price of $0.10 per share, and expire on December 31, 2019.
|
|
|
●
|
we
issued an aggregate of 3,840,000 common stock warrants during August and September to a total of five current and former employees
settle $2,154,135 in accrued and unpaid salary. This included 600,000 warrants to Gary DeLaurentiis for $417,100 in accrued
and unpaid salary. These warrants were fully vested and have an exercise price of $0.10 per share, and expire on December
31, 2019.
|
|
|
●
|
we
issued 1,050,000 common stock warrants in October and November for services rendered valued at $168,722 by the Black-Sholes
method. 50,000 of these warrants were fully vested when issued and have an exercise price of $0.50 per warrant expiring on
November 15, 2019. The remaining warrants in the amount of 1,000,000 were fully vested when issued and have an exercise price
of $0.10 per warrant expiring on December 31, 2019.
|
Stock
and Warrant issues during the year ended December 31, 2017:
Stock
Issues:
|
|
●
|
we
issued 100,000 common shares in January for consulting services valued at $20,000.
|
|
|
●
|
we
issued 1,300,000 common shares in April to H. E. Capital, a related party, to settle $30,000 of their line of credit debt
and $100,000 of accrued interest due them.
|
|
|
●
|
we
issued 375,000 common shares in May for consulting services valued at $63,750.
|
|
|
●
|
we
issued 300,000 common shares in July valued at $27,000 as a commitment fee in connection with the equity purchase agreement
with Peak One. See Note 7.
|
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
|
|
●
|
we
issued 1,481,040 common shares in July to settle $100,000 of debt and $2,192 of accrued interest due them.
|
|
|
●
|
we
issued 3,000,000 common shares in September valued at $300,000 to Black Lion Oil Ltd in connection with the acquisition
of the minority interest in SFS.
|
|
|
●
|
we
issued 2,000,000 common shares in October to H. E. Capital, a related party, to settle $200,000 of their line of credit debt.
|
|
|
●
|
we
issued 1,500,000 common shares in November to convert $75,000 of debt.
|
|
|
●
|
we
issued 125,000 common shares in December for consulting services valued at $7,500.
|
|
|
●
|
In
December, despite our objection, 1,428,018 shares of common stock that were held as security against default were delivered
out of escrow to one of our lenders after the lender was paid in full. We have placed stop transfer instructions on those
shares with the transfer agent and requested the shares be returned.
|
Warrant
Issues:
|
|
●
|
we
issued 100,000 common stock warrants in May for services rendered valued at $14,608. These warrants were fully vested
and have an exercise price of $0.50 per share, and expire on May 25, 2020.
|
|
|
●
|
we
issued a total of 650,000 common stock warrants to the board of directors of SFS. A total of 600,000
warrants were issued in January and 50,000 in June. Chris Bowers, a related party and SFS chairman, received 200,000
warrants, Gary DeLaurentiis, a related party, received 150,000 warrants as well as the other two board members received 150,000
warrants each. These warrants were valued at $147,199 These warrants were fully vested and have an exercise price of $0.10
per share, and expire on December 31, 2020.
|
|
|
●
|
we
issued an aggregate of 4,650,000 common stock warrants in December in which 3,250,000 of these warrants were issued to Chris
Bowers, our CEO, for providing lines of credit and for services rendered as our CEO and board member; 300,000 warrants were
issued to Gary DeLaurentiis, our chairman; two other board members received 50,000 warrants each; four others received 250,000
warrants each for services rendered. The warrants issued were valued at $481,112. All of these warrants were fully vested
and have an exercise price of $0.10 per share, and expire on December 31, 2020.
|
|
|
●
|
We
approved on December 13, 2017 the extension of the expiration date of all common stock
warrants issued to employees. The new expiration date for these warrants and any new
issue of common stock warrants will now expire on December 31, 2020. The incremental
value as a result of the modification of the term of existing warrants amounting to $30,623
was charged to expense during the year ended December 31, 2017.
|
A
recap of our common shares issued during the year ended December 31, 2017; we issued 600,000 common shares for services rendered
valued at $91,250, we issued 6,281,040 common shares to convert $405,000 of debt and $102,192 of accrued interest. We issued 300,000
common shares valued at $27,000 as a commitment fee. We also issued 3,000,000 common shares valued at $300,000 as a result
of the acquisition of the minority interest in SFS.
Note
9 -
Related Party Transactions
On
August 1, 2016, we issued warrants valued at $148,952 to purchase 1,000,000 shares of the Company’s common stock to our
then CEO for his service as a director in 2016.
On
August 1, 2016, we issued warrants valued at $300,000 to purchase 2,000,000 shares of the Company’s common stock to Chris
Bowers our CEO for providing the credit line and services rendered as a financial consultant. Chris Bowers became our CEO and
board member on December 12, 2016.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
On
August 31, 2016, we issued warrants to purchase 600,000 shares of the Company’s common stock to Gary DeLaurentiis, our then
CEO for him converting $417,100 of his accrued salary. The warrants had a fair value of $59,266. The Company recorded the gain
on conversion of $357,734 as additional paid in capital.
On
September 30, 2016, we were carrying in accounts payable $917 payable to our CEO for business expenses. The payable was paid in
full during the fourth quarter ended December 31, 2016.
For
the year ended December 31, 2016, we have issued 1,250,000 warrants to related parties for services valued at $187,500.
2,000,000 warrants were issued to our CEO for loans to the Company and for services as a financial consultant valued at $300,000.
We also issued 3,240,000 warrants to convert $1,737,032 in accrued salaries to former and current employees. The fair value was
$393,505, the Company recorded a gain on settlement of $1,351,502 the gain was recognized as additional paid in capital.
In
January and June 2017, we issued a total of 650,000 common stock warrants to the board of directors of SFS. Chris Bowers, our
CEO & SFS CEO and board member received 200,000 warrants, and Gary DeLaurentiis, our chairman and SFS board member, received
150,000 warrants. These warrants were valued at $76,607. These warrants were fully vested and have an exercise price of $0.10
per share, and expire on December 31, 2020.
On
April 3, 2017, we issued 1,300,000 common shares to H. E. Capital to settle $30,000 of their line of credit debt and $100,000
of accrued interest due them.
On
October 9, 2017, we issued 2,000,000 common shares to H. E. Capital to settle $200,000 of their line of credit debt.
On
December 13, 2017, we issued 3,600,000 common stock warrants as follows, 3,250,000 of these warrants were issued to Chris Bowers,
our CEO, for providing lines of credit and for services rendered as our CEO and board member; 300,000 warrants were issued to
Gary DeLaurentiis, our chairman; we also issued to Chris Smith 50,000 for services as a board member. These warrants were valued
at $372,473 and were fully vested and have an exercise price of $0.10 per share, and expire on December 31, 2020.
For
the year ended, December 31, 2017, the Company owed our CEO $25,720 in accounts payable.
The
Company’s offices are currently located at 14699 Holman Mtn Rd, Jamestown, CA 95327. The space is provided by the Chairman
of the Company at no cost.
Note
10 -
Asset Acquisition
On
September 28, 2016 we received 17,000,000 shares of common stock of Smart Fuel Solutions, Inc. (Smart Fuel Solutions), a Florida
Corporation formed on November 20, 2015. We received the shares in exchange for providing technology for use in the US and $53,710
decrease in Smart Fuel liability to us. Our affiliate, Black Lion Oil Limited, received 3,000,000 shares of Smart Fuel on the
same date for granting licenses to use the Green EnviroTech technology in countries outside the US. Smart Fuel Solutions also
issued on September 28, 2016, 600,000 shares to an individual for an equity injection of $200,000. Smart Fuel Solutions is a staffed
service corporation working with the Company to undertake operational responsibilities, research and development, engineering,
and development of operational facilities. Smart Fuel Solutions will provide the staffing, maintenance and management of the facilities.
Smart Fuel Solutions will also secure feedstock for, and sell the end products from, the Processing Plants and Finishing Plants.
On September 28, 2016 we received our shares from Smart Fuel Solutions which represents the majority of the outstanding shares
of Smart Fuel Solutions.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
The
Company valued each of the assets acquired (cash, accounts receivable, and property, plant and equipment) and liabilities assumed
(accounts payable and accruals and notes payable) at their cost as of the acquisition date. The acquisition was considered that
of assets under FASB ASC 805-50. Since Smart Fuel Solutions was not considered a business under ASC 805 at the date of acquisition.
The Company acquired the following assets and assumed the following liabilities in the acquisition of Smart Fuel Solutions, Inc.:
|
Cash
|
|
$
|
40,671
|
|
|
Deposits
|
|
|
5,000
|
|
|
Other
assets-carbon equipment
|
|
|
459,935
|
|
|
Accounts
payable and accrued expenses
|
|
|
(40,761
|
)
|
|
Due
to related party: Green EnviroTech Holdings Corp.
|
|
|
(265,761
|
)
|
|
Note
Payable
|
|
|
(134,000
|
)
|
|
|
|
|
|
|
|
Total
Net Assets (Liabilities) before non-controlling interest
|
|
$
|
65,084
|
|
|
|
|
|
|
|
|
Less:
non-controlling interest
|
|
$
|
11,374
|
|
|
|
|
|
|
|
|
Decrease
of Smart Fuel’s liability to Green EnviroTech
|
|
$
|
53,710
|
|
As
on September 28, 2016, the date of the Company’s acquisition of its interest in Smart Fuel Solutions, Inc. (Smart Fuel),
it was determined the acquisition of the Smart Fuel met the criteria for the acquisition of assets under FASB ASC 805-50. Therefore,
we recorded the acquisition as the purchase of equipment.
Note
11 -
Acquisition of Minority Interest in Smart Fuel Solutions, Inc.
Effective
June 30, 2017, we merged Smart Fuel Solutions, Inc. into the Company by acquiring the remaining 17.5% minority interest of 3,600,000
shares in exchange for a similar number of the Company’s common shares. The minority interest was valued at $360,000 based
on the closing price of the Company’s stock at June 30, 2017 of $0.10 per share. We issued 3,000,000 shares valued at $300,000
to a minority shareholder of Smart Fuel as of September 30, 2017 and the remaining 600,000 shares to be issued, remain as a liability
on our consolidated balance sheet. The difference in the fair value of the consideration and the carrying amount of the non-controlling
interest of $466,128 was charged to additional paid in capital. As a result of the acquisition, Smart Fuel became a wholly-owned
subsidiary of the Company. As of December 31, 2017, the Company has issued 3,000,000 of the 3,600,000 shares exchanged. The fair
value of the remaining 600,000 shares is $60,000 and is carried on the consolidated balance sheet as stock payable. The Company
also recognize Smart Fuel’s 3,143,000 outstanding warrants as if they had been issued by the Company.
NOTE
12 -
Provision for income taxes
Deferred
income taxes are determined using the liability method for the temporary differences between the financial reporting basis and
income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected
to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts
of assets and liabilities and their respective tax bases. Availability of loss usage is subject to change of ownership limitations
under Internal Revenue Code 382. Availability of loss usage is also subject to audit by the Internal Revenue Service (IRS). The
IRS, when they do audits, normally go back three years, but this can be extended three more years if it can be proven income was
understated by 25% or more. Years from 2010 through 2017 remain subject to review by the IRS.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
The
2017 Act reduces the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. For net operating losses
(NOLs) arising after December 31, 2017, the 2017 Act limits a taxpayer’s ability to utilize NOL carryforwards to 80% of
taxable income. In addition, NOLs arising after 2017 can be carried forward indefinitely, but carryback is generally prohibited.
NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation. The 2017 Act
would generally eliminate the carryback of all NOLs arising in a tax year ending after 2017 and instead would permit all such
NOLs to be carried forward indefinitely.
The
cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows as
of December 31, 2017 and 2016:
|
Deferred
Tax Assets:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
NOL
Carryover Tax Advantage
|
|
$
|
2,600,452
|
|
|
$
|
3,792,000
|
|
|
Valuation
allowance
|
|
|
(2,600,452
|
)
|
|
|
(3,792,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2017, the Company had a net operating loss carry forward in the amount of approximately $12,383,000 available
to offset future taxable income through 2037. The Company established valuation allowances equal to the full amount of the deferred
tax assets due to the uncertainty of the utilization of the operating losses in future periods.
NOTE
13-
COMMITMENTS
On
March 29, 2017, we entered into a lease and working capital credit facility with Caliber Capital & Leasing LLC and its assignee,
Real Estate Acquisition Development Sales, LLC (“READS”). Under the agreements, READS is providing an initial commitment
of up to $2.5 million for the construction of our first processing line in our centralized Carbon Finishing Plant in Ohio. The
loan is dated for April 4, 2017 and to date we have drawn $493,000 from READS which has been used in part to refurbish used
equipment. The remaining draw is in doubt and GETH is in final negotiations with other funding institutions to fill the gap in
funding.
On
March 29, 2017, we also signed the Master Equipment and Building Related Lease Agreement for $100 Million. The lease covers land,
buildings and equipment. The equipment will have an initial term of seven years; after which we will have the option to purchase
the facility from READS or renew the lease under the same terms. The commencement date was scheduled for April 4, 2017 and
to date we have drawn $493,000 from READS which has been used in part to refurbish used equipment. The remaining draw is in doubt
and GETH is in final negotiations with other funding institutions to fill the gap in funding.
On
April 11, 2017, our wholly owned subsidiary GETH CFP, Inc. signed a 10-year lease with the Lawrence Economic Development Corporation
of Lawrence County, Ohio for the lease of 11,200 sq. ft. of manufacturing space for our carbon finishing plant in Ohio. The lease
had a start date of June 1, 2017, which has been extended to the opening of the Carbon Plant and runs to June 1, 2027. The lease
has three, five year extensions. The lease is $4.00 per sq. ft. with initial payments in the amount of $3,733 per month. The first
extension is at $4.50 per sq. ft. with payments in the amount of $4,200 per month.
During
2013, the Company entered into an agreement with Black Lion Oil Limited (Black Lion) whose primary focus is on emerging energy
technology with broad applications. Under the agreement, the Company granted to Black Lion exclusive rights to the “waste
to oil” process in specific territories outside of the United States. In return Black Lion paid $100,000 in cash to the
Company as a fee. The original agreement provided for us to receive a 10% royalty which was later amended to receive 5% on
gross revenues with any plant associated with Black Lion. The Company used the fee for working capital. As of December 31,
2017, Black Lion has not opened its first plant.
The
Company on September 30, 2014 settled a claim in New York courts from a vendor for unpaid fees, MicroCap vs Green EnviroTech,
by agreeing to deliver 25,000 shares a month for six months to the plaintiff. All the shares were delivered. On or about June
18, 2015, Microcap asked the court for a judgment alleging a default of the stipulation of settlement. Microcap’s position
was that what was delivered was unsellable as the Company had not made timely filings of its Securities and Exchange Commission
filings. Presently, the Company is current with all of its filings with the SEC. The Company filed a Statement in opposition on
June 23, 2015. On June 29, 2015, the Court entered a judgment in the amount of $42,111 in favor of Microcap.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
The
Company recorded the judgment as a liability as of December 31, 2016. This judgement was settled in full during the year ended
December 31, 2017.
On
July 14, 2016, we received the Process Certification for our GEN 1 End of Life Tire Processing Solution from BHP Engineering &
Construction, L.P.
Note
14 –
Fair value of Financial Instruments and Derivative Liabilities
The
carrying value of cash, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term
nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from
these financial instruments. The carrying amount of the Company’s long-term debt approximates fair value based upon
its determined derivative discounts. The notes totaled $200,000 with net discounts in the amount of $126,155.
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use
of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable.
|
●
|
Level
1 -
|
Quoted
prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions
in active exchange markets involving identical assets.
|
|
●
|
Level
2 -
|
Quoted
prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities
that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable
in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.
|
|
●
|
Level
3 -
|
Unobservable
inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s
own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best
information available in the circumstances.
|
The
following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded
at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of
December 31, 2017:
|
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Embedded
conversion derivative liability
|
|
$
|
378,221
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
378,221
|
|
|
Warrant
derivative liabilities
|
|
$
|
133,016
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
133,016
|
|
|
Total
|
|
$
|
511,237
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
511,237
|
|
The
embedded conversion feature in the convertible debt instruments that the Company issued (See Notes 5 & 7), that became convertible
during the third quarter, qualified them as a derivative instrument since the number of shares issuable under the note is indeterminate
based on guidance in FASB ASC 815, Derivatives and Hedging. This convertible note tainted all other equity linked instruments
including outstanding warrants and fixed rate convertible debt on the date that the instrument became convertible.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
The
valuation of the derivative liability of the warrants was determined through the use of a Multinomial Lattice model that values
the liability of the warrants based on a risk-neutral valuation where the price of the option is its discounted expected value.
The technique applied generates a large number of possible (but random) price paths for the underlying common stock via simulation,
and then calculates the associated exercise value (i.e. “payoff”) of the option for each path. These payoffs are then
averaged and discounted to a current valuation date resulting in the fair value of the option.
The
Company recorded debt discounts of $228,962. This was due to the derivative liabilities recognition in relation with its convertible
notes with variable conversion formulas. These notes qualified for conversion in the third quarter. There was no such derivative
recognition for the year ended December 31, 2016. The Company recorded amortization of these discounts of $120,057 for the year
ended December 31, 2017. The valuation of the derivative liability attached to the convertible debt was arrived at through the
use of a Multinomial Lattice model that values the derivative liability within the notes. The technique applied generates a large
number of possible (but random) price paths for the underlying (or underlyings) via simulation, and then calculates the associated
payment value (cash, stock, or warrants) of the derivative features. The price of the underlying common stock is modeled such
that it follows a geometric Brownian motion with constant drift, and elastic volatility (increasing as stock price decreases).
The stock price is determined by a random sampling from a normal distribution. Since the underlying random process is the same,
for enough price paths, the value of the derivative is derived from path dependent scenarios and outcomes. The features in the
notes that were analyzed and incorporated into the model included the conversion features with the reset provisions, the call/redemption/prepayment
options, and the default provisions. Based on these features, there are six primary events that can occur; payments are made in
cash; payments are made with stock; the note holder converts upon receiving a redemption notice; the note holder converts the
note; the issuer redeems the note; or the Company defaults on the note. The model simulates the underlying economic factors that
influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at
the time (i.e. stock price, conversion price, etc.). Probabilities were assigned to each variable such as redemption likelihood,
default likelihood, and timing and pricing of reset events over the remaining term of the notes based on management projections.
This led to a cash flow simulation over the life of the note. A discounted cash flow for each simulation was completed, and it
was compared to the discounted cash flow of the note without the embedded features, thus determining a value for the derivative
liability.
Key
inputs and assumptions used to value the convertible notes and warrants upon issuance or tainting and also as of December 31,
2017.
|
●
|
The
stock price of $
0.0721
to
$0.1100
in these periods (variable conversion price; reset provisions; and upon redemption
or default penalties) would fluctuate with the Company projected volatility;
|
|
|
|
|
●
|
An
event of default adjusting the interest rate would occur
0%
of the time for all notes except the Peak 1 Note which
increases
0.50%
per month to a maximum of
5%
with the corresponding penalty;
|
|
|
|
|
●
|
The
projected volatility curve from an annualized analysis for each valuation period was based on the historical volatility of
comparable companies and the term remaining for each note was from
170
% through
287
% at issuance, conversion,
and quarters ends;
|
|
|
|
|
●
|
The
company would redeem the notes (with the corresponding penalty) projected initially at
0%
of the time for all notes
except the EMA and Auctus Notes which increase monthly by
1.0%
to a maximum of
5.0%
(from alternative financing
being available for a redemption event to occur); and
|
|
|
|
|
●
|
For
the variable rate (some notes include conversion rate ceilings – the lessor of variable rates and a fixed rate) and
fixed rate Notes, the Holder would convert (after 0days) at maturity based on ownership and trading volume limits; and
|
|
|
|
|
●
|
The
Holder would automatically convert the note or exercise early at a multiple of the conversion/exercise or the stock price
if the registration was effective (after 0 days) and the Company was not in default.
|
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
Using
the results from the model, the Company recorded a derivative liability of $127,660 for newly granted warrants and a derivative
liability of $473,356 for the fair value of the convertible feature included in the Company’s convertible debt instruments
with a corresponding charge to debt discount of $220,498 and additional paid in capital of $380,518. The derivative liability
recorded for the convertible feature created a debt discount of $220,498 which is being amortized over the remaining term of the
note using the effective interest rate method, and is classified as convertible debt on the balance sheet. Interest expense related
to the amortization of this debt discount for the year ended December 31, 2017, was $126,496. The remaining unamortized debt discount
related to the derivative liability was $106,502 as of December 31, 2017. The Company recorded the change in the fair value of
the derivative liability as a loss of $722 to reflect the value of the derivative liability for warrants and convertible notes
as $511,236 as of December 31, 2017. The Company also recorded a reclassification from derivative liability to equity of $27,582
for the conversions of a portion of the Company’s convertible notes and $62,919 for the payoff of two of the Company’s
convertible notes.
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial
instruments, measured at fair value on a recurring basis using significant unobservable inputs:
|
Balance
at December 31, 2016
|
|
$
|
-
|
|
|
Fair
value of derivative liability at issuance charged to debt discount
|
|
|
220,498
|
|
|
Fair
value of derivative liability at issuance reclassified from additional paid in capital
|
|
|
380,518
|
|
|
Settlement
of derivative liability due to debt paid
|
|
|
(62,919)
|
|
|
Settlement
of derivative liability due to conversion
|
|
|
(27,582)
|
|
|
Unrealized
derivative loss included in other expense
|
|
|
722
|
|
|
Balance
at December 31, 2017
|
|
$
|
511,237
|
|
NOTE
15
-
SUBSEQUENT EVENTS
On
January 29, 2018, we hired Mr. Hernan Rizo, former CFO for READS, as our Interim Chief Financial Officer as a consultant.
Compensation is $15,000 monthly.
On
February 16, 2018, Peak One exercised its right to convert $15,000 of its $75,000 debenture for 488,281 shares of the Company’s
common stock leaving a balance owed of $60,000. See Note 7
On
March 6, 2018, Peak One exercised its right to convert $15,000 of the remaining balance of $60,000 of its debenture for 531,914
shares of the Company’s common stock leaving a balance of $45,000. See Note 7
On
March 8, 2018, we filed with the state of Delaware, Division of Corporations, a Certificate of Designations of Preferences, Rights
and Limitations for 300,000 shares of a Series B Convertible Preferred Stock. The Certificate of Designations was approved by
Division of Corporations. These Series B Convertible Preferred shares are senior to Common Shareholders in reference to liquidation
dividends and is junior to the Series A Convertible Preferred shares. The Series B Convertible Preferred Shares have an annual
12% dividend and have no voting rights. The redemption options for these shares are 105% for the first 30 days, 110% for the first
60 days, 115% for the first 90 days, 120% for the first 120 days, 125% for the first 150 days and 130% for the first 180 days,
then after no redemption rights. Twelve months from the issue date, the Company has a “mandatory redemption date”
to redeem the outstanding shares not converted. The shares have conversion rights to convert at 75% of the average of the two
lowest common stock prices ten days before the date of conversion.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
On
March 13, 2018, we received $78,000 from Geneva Roth Remark Holdings in return for 85,800 shares of our new Series B Convertible
Preferred Stock. We paid $3,000 in fees.
On
March 20, 2018, we issued 250,000 shares of common stock to settle $5,000 of vendor debt.
On
March 23, 2018, Peak One exercised its right to convert $15,000 of the remaining balance of $45,000 of its debenture for 806,451
shares of the Company’s common stock leaving a balance of $30,000. See Note 7
On
March 27, 2018, our CEO, Secretary and Treasurer and four managers, agreed to waive payment of their accrued salaries that were
outstanding as of December 31, 2017.
During
the first quarter of 2018, we received from our CEO $75,100 from a line of credit and we paid back $29,000 of the line
of credit.
On
April 9, 2018, we signed a Financing and Development agreement with National Standard Environmental LLC (NAT-Enviro), an affiliate
company of National Standard Finance. This agreement provides the foundation for financing and building processing plants in the
US and abroad. The GETH team and NAT-Enviro will work together over the next 90 days to confirm the financing structure for our
first three projects in the US.
