Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following is management’s discussion and analysis of financial condition and results of operations and is provided as a
supplement to the accompanying unaudited financial statements and notes to help provide an understanding of our financial condition,
results of operations and cash flows during the periods included in the accompanying unaudited financial statements.
In
this Quarterly Report on Form 10-Q, “Company,” “the Company,” “we,” “us,” and
“our” refer to Green EnviroTech Holdings Corp., a Delaware corporation, unless the context requires otherwise.
We
intend the following discussion to assist in the understanding of our financial position and our results of operations for the
three months ended March 31, 2015 and March 31, 2014. You should refer to the Financial Statements and related Notes in conjunction
with this discussion.
Overview
of Our Business
Green
EnviroTech Holdings Corp. (the “Company”) is a pre revenue-stage technology company that has developed anoil conversion
process utilizing a mixture of plastic and tires. The “GETH Process” revolutionizes the disposal of plastic waste
and tires and cleans up our landfills. The Company will produce high grade oil from the tires and plastic. The Company has received
a contract for sale of oil to Conoco.
Corporate
History
The
Company, formerly known as Wolfe Creek Mining, Inc., was incorporated in the State of Delaware on June 26, 2007. On November 20,
2009, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Green EnviroTech Acquisition
Corp., a Nevada corporation, and Green EnviroTech Corp. (“Green EnviroTech”), a plastics recovery, separation, cleaning,
and recycling company. Green EnviroTech is a Nevada corporation formed on October 6, 2008 under the name EnviroPlastics Corporation.
On October 21, 2009, Enviroplastics Corporation changed its name to Green EnviroTech Corp. and on July 20, 2010, the Company changed
its name to Green EnviroTech Holdings Corp.
Pursuant
to the Merger Agreement, on November 20, 2009 (the “Closing Date”), Green EnviroTech Acquisition Corp. merged with
and into Green EnviroTech, resulting in Green EnviroTech becoming a wholly-owned subsidiary of the Company (the “Merger”).
As a result of the consummation of the Merger Agreement, the Company issued approximately 450,000 shares of its common stock to
the shareholders of Green EnviroTech, representing approximately 45% of the issued and outstanding common stock of the Company
following the closing of the Merger. Further, the outstanding shares of common stock of Green EnviroTech were cancelled. The acquisition
of Green EnviroTech is treated as a reverse acquisition, and the business of Green EnviroTech became the business of the Company.
Immediately prior to the reverse acquisition, Wolfe Creek was not engaged in any active business.
On
March 27, 2013, we completed a 1 for 100 reverse split of our common stock. Share amounts in this report and previous reports
subsequent to the reverse split have been retroactively adjusted where needed.
On
May 8, 2014, we signed a memorandum of understanding with Cenco Leasing LLC (“Cenco”), in which the memorandum calls
for a joint venture to be formed between us and Cenco for the purpose of funding a GETH facility in Stockton, CA with Cenco funding
the project. We will own 30% (thirty percent) of the joint venture and Cenco will own 70%. The memorandum also calls for Cenco
to provide two one year 8% loans to us with stock conversion rights. Cenco provided to us a loan in the amount of $50,000 on May
8, 2014 and Cenco provided a second loan in the amount of $40,000 on June 2, 2014. As of June 30, 2014, a formal joint venture
between us and Cenco had not been consummated. For further information concerning this transaction please refer to the Recent
Developments section.
On
June 9, 2014, we formed two Limited Liability Companies in Texas. As of September 30, 2014, there was no activity in either of
the two LLCs.
We
entered into two new note agreements with Cenco Leasing Company, Inc. during the second quarter of 2014. Both notes are for one
year at 8% interest. The first note was issued on May 5, 2014 for $50,000 and the second note was issued on June 2, 2014 for $40,000.
These two notes are discussed further in the Resent Developments and the Liquidity and Capital Resources Sections.
The
Company has estimated its capital needs will be $6.5 million to fully execute the two phases of its business model. Phase-One
involves the purchase and infrastructure of the building, working capital and the purchase and installation of one reactor with
one secondary distillation and filtration process. Phase-One will enable the Company to become operational with projected profits
for the plant. Phase-Two will start within three months after the completion of phase-one. Phase-Two involves the installation
of one reactor and one complete system which is comprised of two reactors and one secondary distillation and filtration process.
Recent
Developments
On
January 30, 2015, we entered into a license agreement with Cenco Leasing Company, Inc. (Cenco) wherein we have given exclusive
license rights to Cenco for the states of Oklahoma, Kansas, Arkansas, Nebraska, Missouri, Colorado, North Dakota, South Dakota,
Iowa, New Mexico, Nevada, Utah and the entire country of Mexico. The agreement gives exclusive rights to Cenco to utilize certain
technology of the Company to design, construct, own and operate pyrolysis and refining plants in the above defined territories.
The agreement calls for Cenco over certain periods of time as detailed in the agreement to construct plants in these territories.
The agreement also calls for Cenco to pay royalties from the revenues generated from these plants. Such royalties in some states
are calculated at a three percent (3%) rate and other states at a rate of five and one half percent (5.5%). It was also agreed
that the two notes to Cenco, agreed on May 8, 2014 totaling $90,000, with their accrued interest in the amount of $5,028 will
be returned to us. Cenco would also pay and did pay us an additional $25,000 as a license fee for another state. The total amount
of $120,028 was recorded in the statement of operations as a territorial license fee.
On
January 30, 2015, in conjunction with the execution of the agreement between us and Cenco, we entered into a mutual release agreement
with a former employee who claimed to have certain technology rights of the Company. It was agreed wherein the employee would
release to the company any claim to any and all rights to certain technology concerning the pyrolysis and refining of certain
materials into oil. Included in the agreement was a provision in which the former employee would forfeit all of their accrued
salary in the amount of $721,749.. We will recognize an equity adjustment from the write off of the accrued salary. In exchange
for the forfeiture of the accrued salary, Cenco had entered into a separate agreement with the former employee wherein the former
employee would receive certain territorial rights given to Cenco.
On
June 12, 2015, we agreed with Cenco Leasing Company, Inc. to allow an extension to the performance clause in the agreement between
us and Cenco dated January 30, 2015 by executing an amendment to that agreement. The original agreement called for Cenco to demonstrate
to us that it had obtained funding in the amount of $2,800,000 on or before June 30, 2015. The performance date was extended to
July 31, 2015 in the amendment. The amendment also provided the failure to demonstrate the benchmark dollar amount by the extended
due date, the territorial exclusivity rights in the original agreement would be lost. It was also agreed in the amendment for
Cenco to assign all of its rights and obligations in the license agreement to GEN2 WTE, LLC. (GEN2). Neither Cenco nor GEN2 performed
before the extension due date.
On
or about June 18, 2015, MicroCap Headlines (Plaintiff) moved for a judgment (MicroCap vs Green EnviroTech) alleging we defaulted
under the terms of the Settlement Agreement we entered into with them on September 30, 2014. The Plaintiff’s position was
that the Settlement Shares they received in the agreement were unsellable since we were delinquent in our periodic filings under
the Securities Exchange Act of 1934, as amended. On June 23, 2015, we filed an opposition to the Plaintiff’s pleadings.
On June 29, 2015 the Court entered a judgment in favor of the Plaintiff in the amount of $42,111. We have the right to appeal
the judgment for a period of one year from the date of judgment and we are reserving our right to appeal. To date, the judgment
remains unsatisfied. Please refer to Item 1. Legal Proceedings for more details.
On
July 1, 2015, we accepted a 98% interest in a California Limited Liability Company which will operate as a partnership. We previously
owned 1% of the LLC, but will now own 99%. The Company’s CEO previously owned 99%, but will now retain 1% ownership. The
purpose of the LLC is for future operational purposes. To date there are no operating activities in the LLC.
Critical
Accounting Policy and Estimates
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements,
which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation
of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates
inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets
and liabilities which are not readily apparent from other sources.
The
following discussion of our financial condition and results of operations should be read in conjunction with our audited financial
statements for the years ended December 31, 2014 and 2013, together with notes thereto as previously filed with our Annual Report
on Form 10-K. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in
the notes to the financial statements included in our Quarterly Reports on Form 10-Q for prior quarter filings.
Results
of Operations
Three
Months Ended March 31, 2015 compared to Three Months Ended March 31, 2014.
Revenues
and Cost of Revenues
The
Company is a pre revenue-stage technology company that has developed an oil conversion process utilizing a mixture of plastic
and tires. The Company will produce high grade oil from the tires and plastic. As a result, the Company had no operating revenues
or cost of revenues for the three months ended March 31, 2015 and 2014.
Operating
Expenses
The
salaries and professional fees for the three months ended March 31, 2015 were $130,465 as compared to $349,382 for the three months
ended March 31, 2014. The salaries and professional fees for the three months ended March 31, 2015 included $55,465 in professional
fees and $75,000 in salaries.
The
general and administrative expenses for the three months ended March 31, 2015 were $81,910 as compared to $121,078 for the three
months ended March 31, 2014, a decrease of $39,168 representing 32% decrease. The decrease was the result of no stock being issued
for services for the three months ended March 31, 2015 compared to $42,700 for the three months ended March 31, 2014.
Non-Operating
Expenses
Non-operating
expenses for the three months ended March 31, 2015 were $56,601 as compared to $794,342 for the three months ended March 31, 2014,
a decrease of approximately 89%. The above decrease of $737,741 in non-operating expenses was the result of the decrease in the
loss on debt conversion when converting debt for stock. The interest expense on the outstanding notes was $21,019 for the three
months ended March 31, 2015 as compared to $27,426 in interest expense for the three months ended March 31, 2014. There was a
vendor judgment award, explained further in the legal section, in the amount of $42,111 expensed by us during the three months
ended March 31, 2015. There was no such loss for the three months ended March 31, 2014.
Other
Income
We
recorded under other income, territorial license fees in the amount of $120,028 on January 20, 2015 when we entered into the agreement
with Cenco, as previously described. We granted territorial licenses to Cenco in exchange for the two notes they were holding,
described earlier, in the amount of $90,000 with accrued interest in the amount of $5,028 and cash in the amount of $25,000.
Net
Loss
As
a result of the above, the Company had a net loss of $148,948 for the three months ended March 31, 2015 as compared to a loss
of $1,264,802 for the three months ended March 31, 2014.
Liquidity
and Capital Resources
On
March 31, 2015, we had a balance of cash in the bank in the amount of $737. we had no accounts receivable and no inventory on
March 31, 2015. We had other current assets in the amount of $6,426. We had accounts payable to vendors and accrued expenses in
the amount of $3,008,756.
We
had negative cash flows from operations for the three months ended March 31, 2015 of ($148,948) as compared to the same period
ended March 31, 2014 in the amount of ($1,264,802). We had no cash used in investing activities for the three months ended March
31, 2015 and for the same period ended March 31, 2014.
We
have an outstanding unsecured line of credit from H. E. Capital, S. A. This loan accrues interest at the rate of 8% per annum.
The maturity date of the line of credit has been extended to December 31, 2016. The balance of the advances at March 31, 2015
was $159,482 with accrued interest in the amount of $87,908. The use of proceeds from the H. E. Capital credit line is as follows:
H. E. Capital S.A. transactions for 2015
|
|
March 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
127,482
|
|
|
$
|
616,772
|
|
Proceeds
|
|
|
17,000
|
|
|
|
170,700
|
|
Vendors paid direct on behalf of the Company
|
|
|
-
|
|
|
|
19,510
|
|
Reclassification from accounts payable
|
|
|
-
|
|
|
|
53,000
|
|
Consulting fees
|
|
|
15,000
|
|
|
|
60,000
|
|
Assignments
|
|
|
-
|
|
|
|
(445,000
|
)
|
Non-cash conversions
|
|
|
-
|
|
|
|
(347,500
|
)
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
159,482
|
|
|
$
|
127,482
|
|
We
have a loan payable from an individual in the amount of $20,000 at 10% due on demand. We have made payments on this loan and repaid
$10,000 of this note on August 10, 2010 and $2,500 on April 11, 2011. As of March 31, 2015 the loan has an outstanding balance
of $7,500. The interest expense is now calculated at 12%. Accrued interest as of March 31, 2015 was $5,179.
On
January 24, 2011, we entered into a series of securities purchase agreements with accredited investors (the “Investors”),
pursuant to which we sold an aggregate of $380,000 in 12% secured debentures (the “Debentures”). Legend Securities,
Inc. a broker dealer which is a member of FINRA, received a commission of $45,600 and 1,900 warrants at an exercise price of $0.40
in connection with the sale of the Debentures. The Debentures were initially due at the earlier of 6 months from the date of issuance
or upon us receiving gross proceeds from subsequent financings in the aggregate amount of $1,000,000. We raised $380,000 from
the investors. We agreed to issue to the Investors five-year warrants to purchase an aggregate of 1,900 shares of common stock
at an exercise price of $0.40, which may be exercised on a cashless basis. 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 us and the Investors.
The
$380,000 in proceeds from the financing transaction was allocated to the debt features and the warrants based upon their fair
values. The value of the warrants ($123,120) was recorded as a debt discount on the secured debentures. This discount was amortized
over the nine-month term of the secured debentures. The estimated fair value of the 1,900 warrants to the investors at issuance
on January 24, 2011 was $141,362 and has been classified in Additional Paid in Capital on our consolidated balance sheet. The
estimated fair value of the warrants was determined using the Black-Scholes option-pricing model.
The
maturity date of these debentures expired on September 24, 2012. We are in contact with representatives of the debenture holders
who have given us verbal authority to proceed without written consent. We issued shares of common stock and warrants to the debenture
holders for prior extensions. We issued 10,000 shares of common stock with a value of $30,000 and 1,000 five year warrants exercisable
at $0.10 per share valued at $2,999. The remaining balance on the Debentures on March 31, 2015 was $305,000. Interest incurred
for the three months ended March 31, 2015 and 2014 was $9,150 and $9,150 respectively. Interest accrued through March 31, 2015
was $172,052.
On
March 19, 2013, we issued a promissory note in the amount of $150,000 at 8% to a private investor. The note had no accrued interest
for the first six months. The note has been extended to December 31, 2016. We used the proceeds from the note for working capital.
As of March 31, 2015 this loan had an outstanding balance of $150,000 and accrued interest in the amount of $23,055.
We
incurred two new unsecured notes with Cenco Leasing Company, Inc. during the second quarter 2014. Both notes are for one year
at 8% interest. The first note was issued on May 5, 2014 for $50,000 and the second note was issued on June 2, 2014 for $40,000.
These notes are collateralized by our assets and can be repaid by common stock of the Company when presented for payment. We used
the proceeds from these notes for working capital. On January 30, 2015, We entered into a license agreement with Cenco Leasing
Company, Inc. (Cenco) wherein we gave exclusive license rights to Cenco for the states of Oklahoma, Kansas, Arkansas, Nebraska,
Missouri, Colorado, North Dakota, South Dakota, Iowa, New Mexico, Nevada, Utah and the entire country of Mexico. The agreement
gives exclusive rights to Cenco to utilize certain technology of the Company to design, construct, own and operate pyrolysis and
refining plants in the above defined territories. The agreement calls for Cenco over certain periods of time as detailed in the
agreement to construct plants in these territories. The agreement also calls for Cenco to pay royalties from the revenues generated
from these plants. Such royalties in some states are calculated at a three percent (3%) rate and other states at a five and one
half percent (5.5%). It was also agreed that the two notes Cenco is holding in the amount of $90,000 drawn against us will be
returned to us as part of the transaction. Cenco would also pay us an additional $25,000 as a license fee for another state.
We
received no cash from financing activities for the three months ended March 31, 2015 as compared to the same period ended March
31, 2014 when we received the amount of $145,000.
We
will seek to raise additional funds to meet our working capital needs principally through the additional sales of our securities.
However, we cannot guaranty that we will be able to obtain sufficient additional funds when needed, or that such funds, if available,
will be obtainable on terms satisfactory to us.
We
had cash of $737 as of March 31, 2015. In the opinion of management, our available funds will not satisfy our working capital
requirements for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support
our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. We will need
to raise additional capital to expand our operations to the point at which we are able to generate revenues and operate profitably.
At present, we have no operations to generate revenue. As outlined above under “Overview of Our Business,” the we
need to complete raising $4,000,000 in equity in order to complete the balance of $16,000,000 in financial resources to start
construction of our first plant. We expect increases in the legal and accounting costs and costs to obtain funding.
We
intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officers, directors
and principal shareholders. We cannot guaranty that additional funding will be available on favorable terms, if at all. If adequate
funds are not available, then our ability to expand our operations may be significantly hindered. If adequate funds are not available,
we believe that our officers, directors and principal shareholders will contribute funds to pay for our expenses to achieve our
objectives over the next twelve months. However, our officers, directors and principal shareholders are not committed to contribute
funds to pay for our expenses.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.