ITEM 1. FINANCIAL STATEMENTS
KLEANGAS
ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
|
(A
Developmental Stage Company)
|
FINANCIAL
STATEMENTS
|
|
MARCH
31, 2014
|
KLEANGAS
ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
|
|
INDEX
|
|
PAGE
|
|
|
BALANCE
SHEETS
|
2
|
|
|
STATEMENTS
OF OPERATIONS
|
3
|
|
|
STATEMENTS
OF CASH FLOWS
|
4
|
|
|
NOTES
TO FINANCIAL STATEMENTS
|
5
- 12
|
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Balance Sheets
(unaudited)
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
17,554
|
|
|
$
|
406
|
|
Accounts receivable
|
|
|
19,550
|
|
|
|
—
|
|
Prepaid expenses
|
|
|
21,000
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
58,104
|
|
|
$
|
21,406
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,411,802
|
|
|
$
|
1,967,915
|
|
Other accrued expenses
|
|
|
17,801
|
|
|
|
17,801
|
|
Due to shareholder
|
|
|
7,260
|
|
|
|
7,260
|
|
Note payable (net of debt discount)
|
|
|
35,401
|
|
|
|
772
|
|
Accrued interest - note payable shareholder
|
|
|
1,207
|
|
|
|
394
|
|
Notes payable - related party
|
|
|
416,668
|
|
|
|
416,668
|
|
Payable to officer
|
|
|
200,000
|
|
|
|
200,000
|
|
Note payable
|
|
|
100,000
|
|
|
|
100,000
|
|
Total Liabilities
|
|
|
3,190,139
|
|
|
|
2,710,810
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
347,387
|
|
|
|
52,023
|
|
Total Liabilities
|
|
|
3,537,526
|
|
|
|
2,762,833
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred A, B, C, and D stock, par value $0.00001; 1,000 shares authorized,
none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Preferred E stock, par value $0.00001; 10,000,000 shares authorized, 10,000,000
issued and outstanding at March 31, 2014 and December 31, 2013
|
|
|
10
|
|
|
|
10
|
|
Common stock, par value $0.00001; 4,989,999,000 shares authorized, 3,047,561,098
shares issued and outstanding at March 31, 2014 and December 31, 2013
|
|
|
3,048
|
|
|
|
3,048
|
|
Additional paid in capital
|
|
|
24,960,514
|
|
|
|
24,914,513
|
|
Deficit accumulated during development stage
|
|
|
(4,070,703
|
)
|
|
|
(3,286,708
|
)
|
Accumulated deficit
|
|
|
(24,372,291
|
)
|
|
|
(24,372,290
|
)
|
Total Stockholders' Deficit
|
|
|
(3,479,422
|
)
|
|
|
(2,741,427
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
58,104
|
|
|
$
|
21,406
|
|
See Accountants’ Compilation Report
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Statements of Operations
For the three months ended March 31, 2014 and 2013
and the period June 24, 2010 (inception) through March 31, 2014
(unaudited)
|
|
For the three
|
|
For the period
|
|
|
months ended
|
|
June 24, 2010
|
|
|
March 31,
|
|
(Inception) to
|
|
|
2014
|
|
2013
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,550
|
|
|
$
|
—
|
|
|
$
|
19,550
|
|
Cost of revenues
|
|
|
24,818
|
|
|
|
—
|
|
|
|
24,818
|
|
Gross Profit
|
|
|
(5,268
|
)
|
|
|
—
|
|
|
|
(5,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
89,997
|
|
|
|
—
|
|
|
|
1,208,139
|
|
Consulting
|
|
|
195,708
|
|
|
|
132,000
|
|
|
|
833,328
|
|
Professional fees
|
|
|
43,230
|
|
|
|
—
|
|
|
|
111,980
|
|
Officer payroll
|
|
|
—
|
|
|
|
—
|
|
|
|
241,796
|
|
Total Operating Expenses
|
|
|
328,935
|
|
|
|
132,000
|
|
|
|
2,395,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(334,203
|
)
|
|
|
(132,000
|
)
|
|
|
(2,400,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain from change in derivative liabilities
|
|
|
728,250
|
|
|
|
—
|
|
|
|
726,459
|
|
Interest expense - amortization of debt discount
|
|
|
(1,175,479
|
)
|
|
|
—
|
|
|
|
(1,185,202
|
)
|
Interest expense - other
|
|
|
(2,563
|
)
|
|
|
—
|
|
|
|
(404,349
|
)
|
Total Other Expenses
|
|
|
(449,792
|
)
|
|
|
—
|
|
|
|
(863,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from continuing operations
|
|
|
(783,995
|
)
|
|
|
(132,000
|
)
|
|
|
(3,263,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(783,995
|
)
|
|
$
|
(132,000
|
)
|
|
$
|
(3,280,813
|
)
|
See Accountants’ Compilation Report
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Statements of Cash Flows
For the three months ended March 31, 2014 and 2013
and the period June 24, 2010 (inception) through March 31, 2014
(unaudited)
|
|
For the three
|
|
For the period
|
|
|
months ended
|
|
June 24, 2010
|
|
|
March 31,
|
|
(Inception) to
|
|
|
2014
|
|
2013
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(783,995
|
)
|
|
$
|
(132,000
|
)
|
|
$
|
(3,280,813
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
17,210
|
|
Interest expense
|
|
|
(1,140,601)
|
|
|
|
—
|
|
|
|
(1,130,878
|
)
|
Gain from change in derivative liabilities
|
|
|
728,250
|
|
|
|
—
|
|
|
|
730,041
|
|
Accrued expense reversal
|
|
|
—
|
|
|
|
—
|
|
|
|
60,298
|
|
Reverse Merger Agreement
|
|
|
520,694
|
|
|
|
|
|
|
|
520,694
|
|
Accrued interest - note payable shareholder
|
|
|
1,813
|
|
|
|
—
|
|
|
|
1,813
|
|
Issuance of stock for services
|
|
|
|
|
|
|
132,000
|
|
|
|
440,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,550
|
)
|
|
|
—
|
|
|
|
(19,550
|
)
|
Accounts payable and accrued expenses
|
|
|
443,887
|
|
|
|
—
|
|
|
|
2,195,205
|
|
Payables to officer
|
|
|
—
|
|
|
|
—
|
|
|
|
6,796
|
|
Interest payable
|
|
|
750
|
|
|
|
—
|
|
|
|
1,972
|
|
Total adjustments
|
|
|
535,243
|
|
|
|
132,000
|
|
|
|
2,823,601
|
|
Net cash used by operating activities
|
|
|
(248,752
|
)
|
|
|
—
|
|
|
|
(457,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from note payable
|
|
|
265,900
|
|
|
|
—
|
|
|
|
265,900
|
|
Proceeds from notes - related party
|
|
|
—
|
|
|
|
—
|
|
|
|
208,460
|
|
Net cash provided by financing activities
|
|
|
265,900
|
|
|
|
—
|
|
|
|
474,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH
|
|
|
17,148
|
|
|
|
—
|
|
|
|
17,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
406
|
|
|
|
40
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
17,554
|
|
|
$
|
40
|
|
|
$
|
17,554
|
|
See Accountants
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 1 – BUSINESS DESCRIPTION
Business
Kleangas Energy Technologies, Inc., a Delaware corporation and subsidiaries (the “Company”),
is a development stage company.
The Company is in the GREEN ENERGY business and currently is selling wood pellets made
from waste wood.
Green Day Agreement
The Board of Directors (the "Board")
of the "Company", approved the execution of a share exchange agreement dated November 15, 2013 (the "Share Exchange
Agreement") with Green Day Technologies Inc., a Florida corporation ("Green Day"). On December 18, 2013, the Company
and Green Day entered into and executed an amendment to the Share Exchange Agreement (the "Amendment"). In accordance
with the terms and provisions of the Amendment to Share Exchange Agreement: (i) the shareholders of Green Day (the "Green
Day Shareholders") shall tender their shares of common stock to the Company in exchange for the issuance by the Company of
its shares of restricted common stock on the basis of one share of common stock of Green Day for seventeen (17) shares of common
stock of the Company; and (ii) the Green Day Shareholders shall tender to the Company their shares of preferred stock of the Company
in exchange for the issuance by the Company of a corresponding share on a one to one basis of either its Series A, B, C or D Preferred
stock. Effective January 15, 2014, Green Day became a wholly owned subsidiary of the Company.
Upon consummation of the Share Exchange and the
Purchase Right, Greenday Management controls a majority of the issued and outstanding shares of common stock of the Company and
Bo Linton was appointed as Chairman of the Board and Chief Executive Officer of Kleangas.
For accounting purposes, this transaction is being
accounted for as a reverse merger. Kleangas is the legal acquirer and Greenday, the only operating subsidiary, is considered the
accounting acquirer. The Company did not recognize goodwill or any intangible assets in connection with the transaction.
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP") and are presented in U.S. dollars.
A Development Stage Company
The Company did not have any business since inception. Accordingly, the Company’s
activities have been accounted for as those of a Development Stage Enterprise. The Company’s financial statements are identified
as those of a development stage company, and the statements of operations, stockholders’ equity and cash flows disclose
activity since the date of the Company’s inception.
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with Generally Accepted Accounting
Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Earnings Per Share
FASB ASC 260, "Earnings per Share" provides for calculation of "basic"
and "diluted" earnings per share. Basic net earnings per common share are determined by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. Diluted net earnings per common share is computed by dividing
net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each
period.
Basic and diluted loss per share were the same, as there were no common stock equivalents
outstanding.
Income Taxes
We use the asset and liability method of accounting for income taxes in accordance with
ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable
or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have
been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if
based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred
tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
We have no material uncertain tax positions for any of the reporting periods presented.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements
and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring
fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents,
accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of
these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective
yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances
of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC 820 defines fair value 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. ASC 820 also establishes a fair value hierarchy, which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active
markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling
inputs based on assumptions)
The derivative liability in connection with the conversion feature of the convertible
debt, classified as a level 3 liability, is the only financial liability measured at fair value on a recurring basis.
Convertible Instruments
The Company evaluates and account for conversion options embedded in convertible instruments
in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances
in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related
to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings
as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative
instrument.
The Company accounts for convertible instruments (when we have determined that the embedded
conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated
date of redemption.
The Company accounts for the conversion of convertible debt when a conversion option
has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying
amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on
extinguishment of the two separate accounting liabilities.
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation
The Company recognizes compensation expense for stock-based compensation in accordance
with ASC Topic 718. For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes
method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the
service period for awards expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the
date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and
the pro rata compensation expense is adjusted accordingly until such time the non-employee award is fully vested, at which time
the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date,
which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will
ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such
amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating
expected forfeitures, including types of awards, employee class, and historical experience.
NOTE 3 – GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern
basis, which contemplates the Company will continue to realize its assets and discharge its liabilities in the normal course of
business. The Company has not generated any revenues since inception, has incurred losses since inception, and its current cash
balances will not meet working capital needs. These factors, among others, raise substantial doubt regarding the Company’s
ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon, among other things,
the continued financial support from its shareholders or the attainment of profitable operations. There is no assurance that the
Company will be able to generate revenues in the future. These financial statements do not give any effect to any adjustments
that would be necessary should the Company be unable to continue as a going concern.
NOTE 4 – ACCRUED EXPENSES – RELATED PARTIES
Accrued expenses – related parties consists following:
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Accrued salary
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
Accrued rent
|
|
|
17,000
|
|
|
|
17,000
|
|
Accrued interest
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
207,000
|
|
|
$
|
207,000
|
|
On May 31, 2012, the company entered into one year employment agreements with its officers.
The salary for each officer is $60,000 per year. No cash has been paid to any officers. Salary from June 2012 to September 2013
has been accrued.
On May 30, 2012, the company entered into a six-month lease agreement with one of its
officers. The term of the lease is from August 1, 2012, to January 31, 2013. The lease then continues as a month-to-month tenancy
until terminated in accordance with the provisions of the agreement. No rent has been paid. Rental expense for August 2012 to
December 2013 has been accrued. Rent expense was $17,000 for the year ended December 31, 2013 and $5,000 for the period August
1, 2012 to December 31, 2012.
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 5 – NOTES PAYABLE
Notes Payable
The Company issued two $25,000 notes payable
to a shareholder and former officer. Note 1 bearing interest at 6% per annum was for the cancellation of 1,050,000,000 shares
of common stock held by the officer was issued November 7, 2013 and matures on May 7, 2014. Note 2 bearing interest at 7%
per annum was issued for consulting service. The note was issued November 15, 2013 and matured on April 14, 2014.
Note Payable – Related Party
Note payable – Related Party consists
of a note payable to Richard Astrom, the prior president and sole director of Windsor, bearing interest at 0.24% and due in August
15, 2013. This note is secured by a pledge of all of the shares of the Company’s operating subsidiary of the Company. On
October 1, 2013, the $275,000 debt was forgiven and the principal amount plus accrued interest was contributed to additional paid
in capital.
Note Payable
Note payable consisted of a promissory note
with an aggregate principal amount of $10,000 issued to an unrelated company on January 10, 2013. The note bore an interest at
the rate of 12% and was collateralized by the assets of the corporation. The note was not negotiable and could be repaid at any
time without penalty or premium at the sole option of the company. The company on August 7, 2013 issued 8,000,000 shares of Preferred
A shares of the company’s stock in exchange for the note.
Convertible Note Payable
During the Quarter ended March 31, 2014 the Company entered into a series of Loans whereby
it may borrow up to an aggregate amount of $895,000. The notes carry an original issue discount (the “OID”), for loan
expenses which varies per loan. . The Maturity Dates range from one to two years from the Effective Date of each borrowing. The
notes are convertible at varying conversion rates. Unless otherwise agreed in writing by both parties, at no time will the Lender
convert any amount of the Note into common stock that would result in the Lender owning up to 9.99% of the common stock outstanding
on the conversion date.
The Company may repay
the borrowing at any time on or before 90 days from the Effective Date, after which the Company may not make further payments
on this Note prior to the Maturity Date without written approval from Lender.
At March 31, 2014 the
Company borrowed $300,778 of principal and received net proceeds of $265.900 after deducting loan expenses of $34,878.
The Company has determined
that the conversion feature embedded in the note constitute a derivative and have been bifurcated from the note and recorded as
a derivative liability, with a corresponding discount recorded to the associated debt on the accompany balance sheet, and revalued
to fair market value at each reporting period.
During the first quarter of fiscal year 2014, we issued five (5) convertible notes for
potential aggregate funding up to $895,000 (collectively, the "Convertible Notes") as follows:
·
|
|
$275,000 convertible note due twelve months after its issue date representing maximum
funding up to $275,000. The initial consideration shall be $75,000 and the investor may pay additional consideration of up to
$175,000, which may be funded at any time prior to the maturity date at the investor's sole discretion. The convertible note shall
be interest free for ninety (90) days. In the event that the convertible note is not repaid within ninety days, the convertible
note will have a one-time interest charge of 10%. The convertible note shall be convertible into shares of our common stock, which
conversion price shall mean 50% multiplied by the lowest trade price in the twenty (2) trading days prior to the measurement date.
|
·
|
|
10% convertible promissory note in the total face value of $250,000 due January 8,
2015. The initial purchase price will be $27,500 of consideration upon execution of a note purchase agreement. Interest on any
outstanding principal balance shall accrue at a rate of 10% per annum. In the event of a default, interest will accrue at the
rate equal to the lower of twenty (20%) per annum or the highest rate permitted by law. The investor shall have the right, at
the investor's option, at any time to convert the outstanding principal amount and Interest under the note in whole or in part.
The conversion price shall be equal to the lower of $.0027 or sixty percent (60%) of the lowest trading price of our common stock
during the twenty five (25) consecutive trading days prior to the date on which the investor elects to convert all or part of
the note. If we are placed on “chilled” status with the Depository Trust Company, the discount will be increased by
ten percent (10%) until such chill is remedied.
|
·
|
|
$60,000 convertible note due twelve months after its issue date. The principal and
accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing
bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against
delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000
in value of assets.
|
·
|
|
$60,000 convertible note due twelve months after its issue date. The principal and
accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing
bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against
delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000
in value of assets.
|
·
|
|
$300,000 promissory note due two years after its issue date. The principal and accrued
interest under the note will be convertible into shares of our common stock at the lesser of $0.0018 or 60% of the lowest trade
price in the 25 trading days previous to the conversion. The note shall be interest free for the first three months and if we
do not repay within the three months, a one time interest charge of 12% shall be applied to the principal sum.
|
On December 11, 2013, we issued a convertible
note in the principal amount of $300,000 plus accrued and unpaid interest and any other fees. The consideration is $270,000 payable
by wire (there exists a $30,000 original issue discount (the “OID”)). The lender shall pay $25,000 of consideration
upon closing of this Note. The lender may pay additional consideration to us in such amounts and at such dates as lender may choose
in its sole discretion.
KLEANGAS ENERGY TECHNOLOGIES, INC. AND
SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 6 – DUE TO SHAREHOLDER
Due to shareholder consists advances from
a shareholder. The amount is non-interest bearing and due on demand.
NOTE 7– INCOME TAXES
The reconciliation of income tax benefit at
the U.S. statutory rate of 34% for the period ended December 31, 2013 to the Company’s effective tax rate is as follows:
U.S. federal statutory rate
|
|
|
(34.0
|
)%
|
State income tax, net of federal benefit
|
|
|
(6.0
|
)%
|
Increase in valuation allowance
|
|
|
40.0
|
%
|
Income tax provision (benefit)
|
|
|
0.0
|
%
|
The benefit for income tax is summarized as follows:
Federal:
|
|
|
|
|
Current
|
|
$
|
—
|
|
Deferred
|
|
|
83,300
|
|
State and local:
|
|
|
|
|
Current
|
|
|
—
|
|
Deferred
|
|
|
7,350
|
|
Change in valuation allowance
|
|
|
(90,650
|
)
|
Income tax provision (benefit)
|
|
$
|
—
|
|
As of December 31, 2013 the Company had approximately $245,000 of federal and state
net operating loss carryovers (“NOLs”) which begin to expire in 2032. Utilization of the NOLs may be subject to limitation
under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.
In assessing the realization of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all
of the deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset
will not be realized.
KLEANGAS ENERGY TECHNOLOGIES, INC. AND
SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 8– PREFERRED STOCK
There are five classes of Preferred Stock Series
“A”
“B” “C” “D” AND “E”
Number:
That the number of Shares of Series “A” shall be 200
shares
That the number of Shares of Series “B” shall be 100
shares
That the number of Shares of Series “C” shall be 300
shares
That the number of Shares of Series “D” shall be 400
shares
That the number of Shares of Series “E” shall be 10,000,000
shares
Voting Rights:
That the Shares of Series “A” shall
have no voting rights.
That the Shares of Series “B” shall have no voting
rights
That the Shares of Series “C” shall have no voting
rights
That the Shares of Series “D” shall have voting rights
as follows,
One share of Series of “D” will be equivalent to voting
1,000,000 shares of common stock.
That the Shares of Series “E” shall have voting rights
as follows,
One share of Series of “E” will be equivalent to voting
10,000,000 shares of common stock
Preferred Series A Stock Par Value $.000001
Each share of Series “A” Convertible
Preferred Stock shall be convertible, at the option of the Holder into 10,000 shares of fully paid and non-assessable shares of
the Company’s Common Stock; provided, however that such conversion would not violate any applicable federal, state, or local
law, regulation, or any judgment, writ, decree or order binding upon the Corporation or the Holder; or any provision of the Corporation’s
or Holder’s if applicable, amended Articles of Incorporation or Bylaws, nor conflict with or contravene the provisions of
any agreement to which the Corporation and the Holder are parties or which they are bound. The foregoing conversion shall be hereinafter
referred to as the “Conversion Ratio” Said Conversion Ratio shall be subject to equitable adjustment a the reasonable
discretion of the Board of Directors of the Corporation in the event of the occurrence of capital events which make such adjustments
appropriate, such as a dividend payable to shares of common stock, combinations of common stock, a merger or consolidation, or
the like. (See Limitations on Conversion)
Preferred Series B Stock Par Value $.000001
Each share of Series “B” Convertible Preferred Stock shall be convertible,
at the option of the Holder into 10,000,000 shares of fully paid and non-assessable shares of the Company’s Common Stock;
provided, however that such conversion would not violate any applicable federal, state, or local law, regulation, or any judgment,
writ, decree or order binding upon the Corporation or the Holder; or any provision of the Corporation’s or Holder’s
if applicable, amended Articles of Incorporation or Bylaws, nor conflict with or contravene the provisions of any agreement to
which the Corporation and the Holder are parties or which they are bound. The foregoing conversion shall be hereinafter referred
to as the “Conversion Ratio” Said Conversion Ratio shall be subject to equitable adjustment a the reasonable discretion
of the Board of Directors of the Corporation in the event of the occurrence of capital events which make such adjustments appropriate,
such as a dividend payable to shares of common stock, combinations of common stock, a merger or consolidation, or the like. (See
Limitations on Conversion)
KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Financial Statements
March 31, 2014
NOTE 8– PREFERRED STOCK (continued)
Preferred Series C Stock Par Value $0.000001
Each share of Series “C” Convertible Preferred Stock shall be convertible,
at the option of the Holder into Ten Thousand ($10,000) worth shares of fully paid and non-assessable shares of the Company’s
Common Stock based upon the most recent 10 day average closing price effective the date of receipt of the conversion request;
provided, however that such conversion would not violate any applicable federal, state, or local law, regulation, or any judgment,
writ, decree or order binding upon the Corporation or the Holder; or any provision of the Corporation’s or Holder’s
if applicable, amended Articles of Incorporation or Bylaws, nor conflict with or contravene the provisions of any agreement to
which the Corporation and the Holder are parties or which they are bound. The foregoing conversion shall be hereinafter referred
to as the “Conversion Ratio” Said Conversion Ratio shall be subject to equitable adjustment a the reasonable discretion
of the Board of Directors of the Corporation in the event of the occurrence of capital events which make such adjustments appropriate,
such as a dividend payable to shares of common stock, combinations of common stock, a merger or consolidation, or the like. (See
Limitations on Conversion)
Limitations on Conversion
No Conversion of any issued shares of Preferred
Series “A, B &C” into common stock shall exceed 4.9% of the then issued and outstanding shares of common stock
as reported by the Company’s transfer agent, unless such conversion is submitted to and approved by the board of directors
of the Company. The Company may request information from the holder of any preferred shares submitted for conversion as to that
shareholders current ownership of common stock or other security of the Company.
Preferred Series D Stock Par Value $.000001
Each share of Series “D” Preferred
Stock is not convertible into Common stock. Preferred Stock “D” has voting rights as follows. One share of Series
of “D” will be equivalent to voting 1,000,000 shares of common stock.
Preferred Series E Stock Par Value $.000001
These shares are the former Series A shares
of Kleangas Technologies Inc. Each share of Series “E” Preferred Stock is not convertible into Common stock. Preferred
Stock “E” has voting rights as follows. One share of Series of “E” will be equivalent to voting 10,000,000
shares of common stock.
Reissue of Preferred Stock
Shares of Preferred Stock acquired by the
corporation by reason of redemption, purchase, conversion or otherwise can be reissued, as determined by the corporation and approved
by the Board of Directors.
Mandatory Redemption
There shall be no mandatory redemption.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
We were incorporated in Delaware on January
8, 2008, for the purpose of being the vehicle whereby Redmond Capital Corp., a Florida corporation (“Redmond”) would
change its corporate domicile to Delaware. Redmond was incorporated effective September 12, 1996, in the State of Florida under
the corporate name Minex Minerals, Inc. On February 3, 1999, it changed its corporate name to Redmond Capital Corp. Redmond’s
sole business, which terminated prior to the end of 2004, was the production of an animated television series.
On June 14, 2007, the Circuit Court of the
Eleventh Circuit in and for Miami-Dade County, Florida, appointed a receiver over the business of Redmond (Case No. 06-21128 CA
10) and on August 28, 2007, that court issued an order releasing the receiver, closing the case and approving certain actions specified
in the receiver’s report, including the issuance of 32,000,000 shares of the common stock of Redmond to Mark Renschler to
compensate him for services theretofore rendered to Redmond. Shortly thereafter, he was elected as Redmond’s president, secretary
and sole director.
On January 8, 2008, Redmond changed its corporate
domicile from Florida to Delaware through a process known as “conversion” as permitted by Florida and Delaware law.
In the conversion, we were incorporated in Delaware and we effected the conversion with Redmond by filing certificates of conversion
in Delaware and Florida, respectively.
Immediately prior to the merger described below
and since our inception in January 2008, we were, and from at least October 2004 until our acquisition by conversion in January
2008, a shell company, with nominal assets and no operations.
KNGS Merger
On August 15, 2012, we entered into a Plan
and Agreement of Merger by and among KNGS Acquisition, Inc., a Florida corporation and our wholly owned subsidiary (“Acquisition”),
and Kleangas Energy Technologies, Inc., a private Florida corporation ("KET") under which Acquisition was merged with
and into KET with KET being the surviving corporation (the "Merger"). As a result of the Merger, we are no longer considered
a shell company.
On December 3, 2013, our Board of Directors
authorized the return to treasury of 1,052,000,000 shares of our restricted common stock. As a result of the Merger, we had issued
2,100,000,000 shares of our common stock to the holders of the common stock of KET. As a result of the Merger, William B. Wylie
and Dennis J. Klein became our controlling shareholders. Of the 2,100,000,000 shares, 1,052,000,000 shares of common stock were
previously returned to treasury.
Green Day Share Exchange Agreement
Our Board of Directors approved the execution
of a share exchange agreement dated November 15, 2013 (the "Share Exchange Agreement") with Green Day Technologies Inc.,
a Florida corporation ("Green Day"). On December 18, 2013, we entered into and executed an amendment to the Share Exchange
Agreement with Green Day (the "Amendment"). In accordance with the terms and provisions of the Amendment to Share Exchange
Agreement: (i) the shareholders of Green Day (the "Green Day Shareholders") tendered tender their shares of common stock
to us in exchange for the issuance by us of shares of our restricted common stock on the basis of one share of common stock of
Green Day for seventeen (17) shares of our common stock; and (ii) the Green Day Shareholders tendered to us their shares of preferred
stock in exchange for the issuance by us of a corresponding share on a one to one basis of either its Series A, B, C or D preferred
stock. Thus, Green Day became a wholly-owned subsidiary.
Effective January 22, 2014, the Board of Directors
approved the issuance of the shares of common stock and preferred stock to the Green Day Shareholders in accordance with the terms
and provisions of the Share Exchange Agreement. See "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities".
We commenced operations in May 2012 and are
a development-stage company. Our common stock is quoted on and traded over OTCQB under the symbol “KGET.
Increase in Authorized Capital
Effective February 11, 2014, our Board of Directors
and the majority shareholders approved an amendment to the articles of incorporation to authorize an increase in authorized capital
from 3,000,000,000 shares of common stock, par value $0.001, to 5,000,000,000 shares of common stock, par value $0.001 (the “Amendment”).
The Amendment was filed with the Secretary of State of Delaware on February 18, 2014 reflecting the authorized common stock shall
be an aggregate 5,000,000,000 shares consisting of 5,000,000,000 shares of common stock, par value $0.000001, and 10,001,000 shares
of preferred stock, par value $0.000001. The Amendment will not affect the number of our issued and outstanding common shares.
CURRENT BUSINESS OPERATIONS
We are a research and development company dedicated
to producing alternative clean technologies that promote energy efficiency throughout a wide range of applications. We design,
develop and market various technologies, including Oxy-Hydrogen on-demand generators, reverse fuel cells, solar to hydrogen fuel
cells and other products to deliver a clean gas that provides energy savings, emissions reductions of diesel fuel and other natural
gas applications. We believe that all of our products are designed to assist companies in reducing operational costs, providing
a competitive advantage and increasing our customers' profitability.
Our subsidiary, Green Day, has licensed patented
waste heat to electric power generation technology which works as a co-generator when installed on a primary electrical generator
unit. We believe it is also powerful enough to serve as a primary energy source. Green Day has pending contracts to sell refuse
and biomass derived pellets, which are alternatives to producing electricity instead of the traditional method of burning coal.
OXY-HYDROGEN SYSTEMS
In accordance with the terms and provisions
of the Acquisition, we are the parent of KET. Through KET, we will design, manufacture and sell Oxy-Hydrogen Systems. We are developing
an electrolyzer unit, which is a component of Oxy-Hydrogen Systems, that produces hydrogen and oxygen for these systems. This unit
offers the advantage of producing adequate quantities of these gases with lower power requirements, lower weight and smaller size.
Initially and until we obtain the financing necessary to develop our own products, all of these systems will be manufactured by
a third party. The purpose of these systems is to promote fuel economy and engine life and to reduce harmful emissions by reducing
the amount of fuel required to be used to operate an engine and by reducing the temperatures as which engines operate. These systems
function by creating oxygen and hydrogen from distilled water through electrolysis and injecting these gases into the mixture of
fuel and air used in gasoline and diesel internal combustion engines. Electrolysis is performed by passing electric current generated
by a vehicle’s electrical system through distilled water. The gases thus generated are moved through valves and tubing into
the fuel mixture, and is burned in the engine, together with the fuel. Hydrogen is an explosive gas. In order to reduce the possibility
of an explosion, the systems that we sell will not store hydrogen, but create it on an “on demand” basis.
REFUSE AND BIOMAS DERIVED PELLETS
Our wholly-owned subsidiary, Green Day, through
its wholly owned subsidiary, G-PEL, is a pellet brokerage firm created to market and sell excess manufactured RDF pellets. Through
our subsidiary, we will also sell sourced RDF pellets from multiple manufacturers and markets to prospective RDF
pellet buyers.
Fuel burning customers are typically municipal
utilities, industrial plants or major public facilities such as university campuses. What they all have in common, is a need for
a cost-effective, cleaner-burning, renewable fuel supplement to coal or a high-energy blend with biomass.
The cost and administrative overhead of adopting
fuel pellet technology is minimal. In most cases coal-burning boilers can burn pellets without capital expense or facility
modification. Fuel pellets are readily mixed and stored with coal or woody biomass which allows a smooth transition in the
percentage of pellets being burned over time.
Additional raw materials that can be utilized
include: plastic films containing polyethylene, polypropylene, PET, etc., non-recyclable fiber-based waste, and materials containing
laminates of plastics, adhesives and fiber. If raw materials end up in landfills, they produce methane and decompose. Fuel pellet
technology is proof that universities, municipal utilities, major manufacturers and paper mills can become more carbon-neutral
in energy production by eliminating coal and using alternative fuel pellets made from a range of industrial waste materials. This
will lower greenhouse gas emissions, improve the environmental footprint of corporations and reduce the bottom-line costs of doing
business.
On March 3, 2014, we received a shipment of
hemp at our testing plant. The industrial hemp is being dried and converted into pellets similar to wood and RDF pellets. Hemp
farming is completely sustainable when rotated with other crops producing four times as much fiber per acre as pine trees. Management
believes that this can be an ideal source of biomass for fuel which will be used as an alternative to coal and other fossil fuels.
We will convert the hemp into pellets and run clinical test through a certified lab to verify the hemp pellets to be as good or
even better than wood pellets as an alternative clean energy to fossil fuels. We believe the hemp product is very attractive because
it can be converted into a usable product alternative to the wood pellets at a production cost of 30% to 40% less. With the growth
of hemp dramatically increasing for medical and other purposes, the stalks are a perfect source of biomass for fuel.
Purchase Order Contract
On January 28, 2014, Green Day received that
certain purchase order dated January 28, 2014 (the “Purchase Order”) for the purchase of 5,000 metric tons monthly
of wood pellets at a price of $850,000. The Purchase Order is for a one year period and represents the binding commitment
to purchase an aggregate 60,000 metric tons for an aggregate purchase price of $10,200,000 for delivery to South Korea.
On February 5, 2014, Green Day received that
certain letter of intent purchase order dated February 4, 2014 (the “Order”) for the purchase of 5,000 metric tons
monthly of wood pellets at a price of $825,000. The Order is for a one year period and represents the binding commitment
to purchase an aggregate 60,000 metric tons for an aggregate purchase price of $9,900,000 for delivery to South Korea. As of the
date of this Annual Report, we have delivered 120 tons of pellets to Busan Korea and invoiced $19,800 in March 2014. We were paid
$19,550 in the first week of April. 2014.
RESULTS OF OPERATIONS
The following discussion should be read in
conjunction with our unaudited financial statements and the related notes that appear elsewhere in this Quarterly Report. The following
discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially
from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but
are not limited to those discussed below and elsewhere in this Quarterly Report. Our reviewed financial statements are stated in
United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
We are a development stage company and have
not generated any revenue. We have incurred recurring losses since inception. Our financial statements have been prepared assuming
that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization
of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We believe we will require additional capital
to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity
or debt securities.
Three Month Period Ended March 31,
2014 Compared to Three Month Period Ended March 31, 2013
Our net loss for the three month period
ended March 31, 2014 was ($783,995) compared to a net loss of ($132,000) during the three month period ended March 31, 2013, an
increase of $651,995. During the three month periods ended March 31, 20124 and March 31, 2013, we did not generate any revenue.
During the
three month period ended March 31, 2014, we incurred operating expenses of $328,935 compared to $132,000 incurred during the three
month period ended March 31, 2013, an increase of $196,935. Operating expenses generally consisted of: (i) selling, general and
administrative of $89,997 (2013: $-0-); (ii) consulting of $195,7-8 (2013: $132,000); and (iii) professional fees of $43,230 (2013:
$-0-). The increase in operating expenses was primarily attributable to the increase in consulting fees and general and administrative
based on the increased scale and scope of our business operations. General and administrative expenses also generally include corporate
overhead, financial and administrative contracted services, marketing, and consulting costs.
Thus, our operating loss for the three
month period ended March 31, 2014 was ($334,203) compared to an operating loss for the three month period ended March 31, 2013
of ($132,000).
During the three month period ended
March 31, 2014, we incurred other expense in the form of unrealized gain from change in derivative liabilities of $728,250 (2013:
$-0-), which was offset by a gain realized on interest expense-amortization of debt discount of $1,175,479 and gain on interest
expense-other of $2,563. T
hus, this
resulted in total other expenses for the three month period
ended March 31, 2014 of $449,792 (2013: $-0-). See " --Material Commitments" below.
Therefore, our net loss and loss per share
during the three month period ended March 31, 2014 was ($783,995) or $0.00 per share compared to a net loss and loss per share
of ($132,000) or $0.00 per share during the three month period ended March 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
Three Month Period Ended March 31,
2014
As of March 31, 2014, our current assets
were $58,104 and our current liabilities were $3,190,139, which resulted in a working capital deficit of $3,132,035. As of March
31, 2014, current assets were comprised of: (i) $17,554 in cash; (ii) $19,550 in accounts receivable; and (iii) $21,000 in prepaid
expenses. As of March 31, 2014, current liabilities were comprised of: (i) $2,411,802 in accounts payable and accrued expenses;
(ii) $17,801 in other accrued expenses; (iii) $7,260 due to shareholder; (iv) $35,401 in note payable (net of debt discount); (v)
$1,207 in accrued interest - note payable shareholder; (vi) $416,668 in notes payable - related party; (vii) $200,000 payable to
officer; and (viii) $100,000 in note payable.
As of March 31, 2014, our total assets were
$58,104 comprised entirely of current assets. The increase in total assets during the three month period ended March 31, 2014 from
fiscal year ended December 31, 2013 was due to the increase in accounts receivable of $19,550.
As of March 31, 2014, our total liabilities
were $3,537,526 comprised of $3,190,139 in current liabilities and $347,387 in derivative liability. The increase in liabilities
during the three month period ended March 31, 2014 from fiscal year ended December 31, 2013 was primarily due to the increase in
accounts payable and accrued expenses of $443,887.
Stockholders’ deficit increased from
($2,741,427) for fiscal year ended December 31, 2013 to ($3,479,422) for the three month period ended March 31, 2014.
Cash Flows from Operating Activities
We have not generated positive
cash flows from operating activities. For the three month period ended March 31, 2014, net cash flows used by operating
activities was $17,148 compared to $-0- for the three month period ended March 31, 2013. Net cash flows used in operating
activities consisted primarily of a net loss of $783,995 (2013: $132,000), which was partially adjusted by: (i) an increase
of $728,250 (2013: $-0-) for gain from change in derivative liabilities; (ii) an increase of $1,813 (2013: $-0-) in accrued
interest-note payable to shareholder; (iii) an increase of $89,880 (2013: $-0-) for issuance of stock for services; (iv) a
decrease of ($1,140,601) in interest expense; and (v) $-0- (2013: $132,000) in issuance of stock for services. Net cash
flows used in operating activities was further changed by: (i) a decrease of $19,550 (2013: $-0-) in accounts payable and
accrued expenses; and (ii) an increase of $750 (2012: $-0-) in interest payable; and (iii) an increase of $443,887 in
accounts payable and accrued expenses.
Cash Flows from Investing Activities
For the three month periods ended March
31, 2014 and March 31, 2013, net cash flows used in investing activities was $0.
Cash Flows from Financing Activities
We have financed our operations primarily
from debt or the issuance of equity instruments. For the three month period ended March 31, 2014, net cash
flows from financing activities was $265,900 (2013: $-0-) consisting of $265,900 in proceeds from notes payable.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements
will continue to be funded through a combination of our existing funds and generation of revenues. Our working capital requirements
are expected to increase in line with the growth of our business.
Our principal demands for liquidity are to
increase capacity, inventory purchase, sales distribution of our pellets, and general corporate purposes. We intend to meet our
liquidity requirements, including capital expenditures related to the purchase of equipment and/or inventory, and the expansion
of our business, through cash flow provided by operations and funds raised through proceeds from the issuance of debt or equity.
Existing working capital, further advances
and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We
have no lines of credit or other bank financing arrangements. We may finance expenses with further issuances of securities and
debt issuances. Any additional issuances of equity or convertible debt securities will result in dilution to our current shareholders.
Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not
be available upon acceptable terms, or at all.
MATERIAL COMMITMENTS
Notes Payable
On November 7, 2013, we issued a note in the
principal amount of $25,000 as consideration for the cancellation of the 1,050,000,000 shares of common stock held by one of our
prior officers. The note matures May 7, 2014 and bears interest at the rate of 6% per annum.
On November 15, 2013, we issued a note in the
principal amount of $25,000 for consulting services rendered. The note matures April 14, 2014 and bears interest at the rate of7%
per annum.
Convertible Notes
During the quarter ended
March 31, 2014 we entered into a series of loans whereby we may borrow up to an aggregate amount of $895,000. The notes carry an
original issue discount (the “OID”), for loan expenses which varies per loan. The maturity dates range from one to
two years from the effective date of each borrowing. The notes are convertible at varying conversion rates. Unless otherwise agreed
in writing by both parties, at no time will the lender convert any amount of the note into common stock that would result in the
lender owning up to 9.99% of the common stock outstanding on the conversion date.
We may repay the borrowing
at any time on or before 90 days from the effective date, after which we may not make further payments on this note prior to the
maturity date without written approval from the lender.
At March 31, 2014 we
borrowed $300,778 of principal and received net proceeds of $265.900 after deducting loan expenses of $34,878.
We have determined that
the conversion feature embedded in the note constitute a derivative and has been bifurcated from the note and recorded as a derivative
liability with a corresponding discount recorded to the associated debt on the accompany balance sheet, and revalued to fair market
value at each reporting period.
During the three month period ended March 31,
2014, we issued five (5) convertible notes for potential aggregate funding up to $895,000 (collectively, the "Convertible
Notes") as follows:
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$275,000 convertible note due twelve months after its issue date representing maximum funding up to $275,000. The initial consideration shall be $75,000 and the investor may pay additional consideration of up to $175,000, which may be funded at any time prior to the maturity date at the investor's sole discretion. The convertible note shall be interest free for ninety (90) days. In the event that the convertible note is not repaid within ninety days, the convertible note will have a one-time interest charge of 10%. The convertible note shall be convertible into shares of our common stock, which conversion price shall mean 50% multiplied by the lowest trade price in the twenty (2) trading days prior to the measurement date.
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10% convertible promissory note in the total face value of $250,000 due January 8, 2015. The initial purchase price will be $27,500 of consideration upon execution of a note purchase agreement. Interest on any outstanding principal balance shall accrue at a rate of 10% per annum. In the event of a default, interest will accrue at the rate equal to the lower of twenty (20%) per annum or the highest rate permitted by law. The investor shall have the right, at the investor's option, at any time to convert the outstanding principal amount and Interest under the note in whole or in part. The conversion price shall be equal to the lower of $.0027 or sixty percent (60%) of the lowest trading price of our common stock during the twenty five (25) consecutive trading days prior to the date on which the investor elects to convert all or part of the note. If we are placed on “chilled” status with the Depository Trust Company, the discount will be increased by ten percent (10%) until such chill is remedied.
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$60,000 convertible note due twelve months after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000 in value of assets
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$60,000 convertible note due twelve months after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000 in value of assets.
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$300,000 promissory note due two years after
its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at the
lesser of $0.0018 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note shall be
interest free for the first three months and if we do not repay within the three months, a one time interest charge of 12%
shall be applied to the principal sum
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On December 11, 2013, we issued a convertible
note in the principal amount of $300,000 plus accrued and unpaid interest and any other fees. The consideration is $270,000 payable
by wire (there exists a $30,000 original issue discount (the “OID”)). The lender shall pay $25,000 of consideration
upon closing of this Note. The lender may pay additional consideration to us in such amounts and at such dates as lender may choose
in its sole discretion.
PURCHASE OF SIGNIFICANT EQUIPMENT
W
e
do not intend to purchase any significant equipment during the next twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Annual Report,
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 are material to investors.
GOING CONCERN
The independent auditors' report accompanying
our December 31, 2013 and December 31, 2012 financial statements contains an explanatory paragraph expressing substantial doubt
about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue
as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the
ordinary course of business. We have suffered recurring losses from operations, have a working capital deficit and are currently
in default of the payment terms of certain note agreements. These factors raise substantial doubt about our ability to continue
as a going concern.
RECENTLY ISSUED ACCOUNTING STANDARDS
There were no recently issued applicable accounting
standards that would have a material effect on the accompanying consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS.
We have no off-balance sheet arrangements.