NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2019
(Unaudited)
NOTE
1 – ORGANIZATION
Nature
of Operations
Greenway
Technologies, Inc., (“Greenway”, “GTI” or the “Company”) through its wholly owned subsidiary,
Greenway Innovative Energy, Inc., is primarily engaged in the research, development and commercialization of a proprietary Gas-to-Liquids
(GTL) syngas conversion system that can be economically scaled to meet individual natural gas field/resource requirements. The
Company’s proprietary and patented technology has now been realized in Greenway’s recently completed first generation
commercial-scale G-Reformer
TM
unit, a unique and critical component to the Company’s overall GTL technology solution.
Greenway’s objective is to become a material direct and licensed producer of renewable GTL synthesized diesel and jet fuels,
with a near term focus on U.S. market opportunities.
Greenway
was organized on March 13, 2002, under the laws of the State of Texas as Dynalyst Manufacturing Corporation. On August 18, 2009,
in connection with a merger with Universal Media Corporation, a privately held Nevada company, the Company changed its name to
Universal Media Corporation (“Universal Media”). The Company changed its name to UMED Holdings, Inc. on March 23,
2011, and to Greenway Technologies, Inc. on June 23, 2017.
Greenway’s
GTL Technology
In
August 2012, Greenway Technologies acquired 100% of Greenway Innovative Energy, Inc. (“GIE”) which owns patents and
trade secrets for a proprietary technology to convert natural gas into synthesis gas (“syngas”). Based on a new, breakthrough
process called Fractional Thermal Oxidation™ (“FTO”), the Company believes that GIE’s G-Reformer, combined
with conventional Fischer-Tropsch (“FT”) processes, offers an economical and scalable method to converting natural
gas to liquid fuel. On February 15, 2013, GIE filed for its first patent on its GTL technology. On November 4, 2013, GIE filed
for a second patent covering other unique aspects of the design. Subsequently, the Company received Patent Nos. 8,574,501 B1 and
8,795,597 B2 covering the mobile GTL conversion technology for the purpose of converting natural gas to clean synthetic fuels
The Company has identified several other areas in its technology to file for multiple patents and such efforts are ongoing.
On
June 26, 2017, Greenway, in conjunction with the University of Texas at Arlington (“UTA”), announced that they had
successfully demonstrated Greenway’s GTL technology at the Company sponsored Conrad Greer Laboratory at UTA, proving the
viability of the science behind the technology.
On
March 6, 2018, the Company announced the completion of its first commercial scale G-Reformer. The G-Reformer is the critical component
of the Company’s innovative Greer-Wright Gas-to-Liquids system. A team consisting of individuals from the Company, UTA and
the Company’s contracted fabricator worked together to test and calibrate the newly built G-Reformer unit. The testing substantiated
the units’ synthesis gas generation capability and demonstrated additional proficiencies within certain prior prescribed
testing metrics.
The
Company believes that its proprietary G-Reformer is a major innovation in gas reforming and GTL technology in general. Initial
tests have demonstrated that the Company’s solution is superior to legacy technologies which are costly, have a larger footprint
and cannot be easily deployed at field sites to process associated gas, stranded gas, coal-bed methane, vented gas, or flared
gas, all markets the Company seeks to service. The proprietary technology based around the G-Reformer is unique in that it also
allows for transportable GTL plants with a much smaller footprint when compared to legacy large-scale technologies. The Company
believes its technologies and processes will allow for GTL plants to be built with substantially lower up-front and ongoing costs
resulting in more profitable results for O&G operators. Greenway is now working to commercialize both its G-Reformer and its
GTL solutions and is in discussions with a number of oil and gas companies, smaller oil and gas operators and other interested
parties to license and obtain joint venture or other forms of capital funding to build its first complete gas-to-liquid plant.
Mining
Interest
In
December 2010, UMED acquired the rights to approximately 1,440 acres of placer mining claims located on Bureau of Land Management
(“BLM
”) land in Mohave County, Arizona for 5,066,000 shares of restricted Common A stock.
Early indications, from samples taken and processed, provided reason to believe that the potential recovery value of the metals
located on the 1,440 acres is significant, but only actual mining and processing will determine the ultimate value which may be
realized from this property holding. The Company is currently exploring strategic options to partner or sell its interest in this
acreage, while it focuses on its emerging GTL technology sales and marketing efforts.
NOTE
2 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 10-01
of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation
of the results of the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the
full year ending December 31, 2019. These unaudited consolidated financial statements should be read in conjunction with the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019.
Principles
of Consolidation
The
accompanying consolidated financial statements include the financial statements of Greenway and its wholly owned subsidiaries.
All significant inter-company accounts and transactions were eliminated in consolidation.
The
accompanying consolidated financial statements include the accounts of the following entities:
Name
of Entity
|
|
%
|
|
|
Entity
|
|
Incorporation
|
|
Relationship
|
Greenway Technologies, Inc.
|
|
|
|
|
|
Corporation
|
|
Texas
|
|
Parent
|
Universal Media Corporation
|
|
|
100
|
%
|
|
Corporation
|
|
Wyoming
|
|
Subsidiary
|
Greenway Innovative Energy, Inc.
|
|
|
100
|
%
|
|
Corporation
|
|
Nevada
|
|
Subsidiary
|
Logistix Technology Systems, Inc.
|
|
|
100
|
%
|
|
Corporation
|
|
Texas
|
|
Subsidiary
|
Going
Concern Uncertainties
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates realization of
assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial
statements, as of June 30, 2019, we have an accumulated deficit of $28,924,206. For the six-months ended June 30, 2019,
we had no revenue, generated a net loss of $2,105,622 and used cash of $735,119 for operating activities. The ability
of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations or on
the ability of the Company to continue to obtain necessary financing to fund ongoing operations. Management believes that its
current and future plans enable it to continue as a going concern for the next twelve months.
The
accompanying consolidated financial statements do not include any adjustment to the recorded assets or liabilities that might
be necessary should the Company have to curtail operations or be unable to continue in existence.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of significant accounting policies applied in the presentation of the unaudited consolidated financial statements are
as follows:
Property
and Equipment
Property
and equipment is recorded at cost. Major additions and improvements are capitalized. The cost and related accumulated depreciation
of equipment retired or sold, are removed from the accounts and any differences between the undepreciated amount and the proceeds
from the sale or salvage value are recorded as a gain or loss on sale of equipment. Depreciation is computed using the straight-line
method over the estimated useful life of the assets.
Impairment
of Long-Lived Assets
The
Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable, in accordance with Accounting Standards Codification, ASC Topic 360,
Property, Plant and Equipment
.
An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset
or asset group is expected to generate. If an asset or asset group is considered impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds its fair value. If estimated fair value is less than
the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
Revenue
Recognition
The
FASB issued ASC 606 as guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015
and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures
regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance
permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative
effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method).
The company adopted the guidance on January 1, 2018 and applied the cumulative catch-up transition method. The transition adjustment
to be recorded to stockholders’ deficit upon adoption of the new standard did not have a material effect upon the consolidated
financial statements.
The
Company has not, to date, generated any revenues.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported
period. Actual results could differ materially from the estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three-months or less to be cash equivalents.
There were no cash equivalents at June 30, 2019, or December 31, 2018.
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires that the Company
recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the
tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred
income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance
is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The
Company has adopted the provisions of FASB ASC 740-10-05
Accounting for Uncertainty in Income Taxes
. The ASC clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC 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. The ASC provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. Open tax years, subject to IRS examination include 2014 – 2017.
Net
Loss Per Share, basic and diluted
Basic
loss per share has been computed by dividing net loss available to common shareholders by the weighted average number of common
shares outstanding for the period. Shares issuable upon the exercise of warrants (11,499,226) have been excluded as a common stock
equivalent in the diluted loss per share because their effect would be anti-dilutive.
Derivative
Instruments
The
Company accounts for derivative instruments in accordance with Accounting Standards Codification 815,
Derivatives and Hedging
(“ASC 815”),
which establishes accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If
certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing
of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
See
Note 6 below for the related discussion regarding the Company’s current convertible notes payable and warrants.
Fair
Value of Financial Instruments
Effective
January 1, 2008, fair value measurements are determined by the Company’s adoption of authoritative guidance issued by the
FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities, as permitted.
Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into
three levels as follows:
Level
1 – Valuation based on unadjusted quoted market prices in active markets for identical assets or liabilities.
Level
2 – Valuation based on, observable inputs (other than level one prices), quoted market prices for similar assets such as
at the measurement date; quoted prices in the market that are not active; or other inputs that are observable, either directly
or indirectly.
Level
3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s
best estimate of what market participants would use as fair value.
The
following table represents the Company’s assets and liabilities by level measured at fair value on a recurring basis at
June 30, 2019 and December 31, 2018:
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
June 30, 2019 Derivative
Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
86,400
|
|
December 31, 2018 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
103,476
|
|
The
following assets and liabilities are measured on the balance sheets at fair value on a recurring basis utilizing significant unobservable
inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances
of the liabilities:
All
gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair
value hierarchy are recognized in other interest income and expense in the accompanying consolidated financial statements.
The
change in the notes payable at fair value for the three-month period ended June 30, 2019, is as follows:
|
|
FairValue
|
|
|
Change in
|
|
|
New
Convertible
|
|
|
|
|
|
Fair Value
|
|
|
|
|
January
1, 2019
|
|
|
|
Fair
Value
|
|
|
|
Notes
|
|
|
|
Conversions
|
|
|
|
June
30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
(103,476
|
)
|
|
$
|
17,076
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
(86,400
|
)
|
Stock
Based Compensation
The
Company follows Accounting Standards Codification subtopic 718-10,
Compensation
(“ASC 718-10”) which requires
that all share-based payments to both employees and non-employees be recognized in the income statement based on their fair values.
At
June 30, 2019, the Company did not have any outstanding stock options.
Concentration
and Credit Risk
Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk consist primarily of cash.
The Company places its cash with high credit quality institutions. At times, such deposits may be in excess of the FDIC insurance
limit. There are no uninsured balances as of June 30, 2019.
Research
and Development
The
Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10,
Research
and Development
(“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense
as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development
costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the
applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed
in the period incurred. The Company incurred research and development expenses of $367,957 and $232,068 for the three months ended
June 30, 2019 and 2018, respectively, and for the six months ended June 30, 2019 and 2018, $611,777 and $541,283, respectively.
Issuance
of Common Stock
The
issuance of common stock for other than cash is recorded by the Company at market values based on the closing price of the stock
on the date of any such grant.
Impact
of New Accounting Standards
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
4 – PROPERTY, PLANT, AND EQUIPMENT
|
|
Range
of Lives in Years
|
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Equipment
|
|
|
5
|
|
|
$
|
2,032
|
|
|
$
|
2,032
|
|
Furniture and
fixtures
|
|
|
5
|
|
|
|
1,983
|
|
|
|
1,983
|
|
|
|
|
|
|
|
|
4,015
|
|
|
|
4,015
|
|
Less accumulated
depreciation
|
|
|
|
|
|
|
(4,015
|
)
|
|
|
(4,015
|
)
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Depreciation
expense was $0 for the six-months ended June 30, 2019 and 2018, respectively.
NOTE
5 – TERM NOTES PAYABLE AND NOTES PAYABLE RELATED PARTIES
Term
notes payable, including notes payable to related parties consisted of the following at June 30, 2019 and December 31, 2018 respectively:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Secured notes payable at
18% per annum related to the Mabert LLC as Agent Loan Agreement dated September 14, 2018 for up to $1,500,000, shown net of
debt discount of $90,118 and $90,619 (1)
|
|
$
|
1,188,751
|
|
|
$
|
638,250
|
|
Unsecured note payable at 10% per annum
dated November 13, 2017 to a corporation at $10,000 lump sum interest at maturity on February 28, 2018, with an amended due
date of March 1, 2020
|
|
|
75,000
|
|
|
|
100,000
|
|
Unsecured note payable at 4.5% per annum
dated December 28, 2017 to a corporation, payable in two parts on January 8, 2018 and 2019 (2)
|
|
|
166,667
|
|
|
|
166,667
|
|
Unsecured note
payable at 4.0% per annum dated January 16, 2018 to a trust, payable January 16, 2020 (3)
|
|
|
144,000
|
|
|
|
144,000
|
|
Total term notes
(net of discounts)
|
|
$
|
1,574,418
|
|
|
$
|
1,048,917
|
|
(1)
On September 14, 2018, the Company entered into a loan agreement, with Mabert LLC, an entity owned by a director and stockholder,
Kevin Jones, for the purpose of funding working capital and general corporate expenses up to $1,500,000, and as subsequently amended
for up to $5,000,000 for the Company. Mabert is acting as the agent for various private lenders to the Company and loaned $1,278,869
through June 30, 2019. The loan is secured and Mabert filed a UCC-1 with the State of Texas. The Loan Agreement, Security Agreement
and UCC-1filing are incorporated hereto as Exhibits 10.48–10.50. The Company agreed to issue warrants and/or stock for Class
A common stock valued at $0.01 per share on an initial one-time basis at 3.67:1 and subsequently on a 2:1 basis for each dollar
borrowed. For the period ended June 30, 2019, the Company issued an additional 1,100,000 shares of Class A common stock, as compared
to the Company having issued 1,624,404 warrants as of December 31, 2018. Of these, 766,667 warrants were converted to common stock
in January 2019, with 857,737 warrants remaining outstanding related to the 2018 issuance. Pursuant to ACS 470, the fair value
attributable to a discount on the debt is $90,118 for the period ended June 30, 2019, and $90,619 for the year ended 2018; this
amount is amortized to interest expense on a straight-line basis over the terms of the loans.
On April 30, 2019, the Company executed a Promissory Note with a shareholder for $25,000, at 18% interest
per annum, such note being incorporated by reference into and subject to the terms of that certain Mabert LLC as Agent Loan Agreement
entered into by the Company on September 14, 2018. Mabert LLC is a Texas Limited Liability Company owned by a Director and shareholder,
Kevin Jones and his wife Christine Early. As a cost of the note, the Company issued 50,000 shares of its Class A common stock at
a market price of $0.05 per share for a total debt discount of $2,500, subject to standard Rule 144 restrictions.
On April 30, 2019, the Company executed a Promissory Note with a financial institution for $225,000, at 18%
interest per annum, such note being incorporated by reference into and subject to the terms of that certain Mabert LLC as Agent
Loan Agreement entered into by the Company on September 14, 2018. Mabert LLC is a Texas Limited Liability Company owned by a Director
and shareholder, Kevin Jones and his wife Christine Early. As a cost of the note, the Company issued 450,000 shares of its Class
A common stock at a market price of $0.05 per share for a total debt discount of $22,500, subject to standard Rule 144 restrictions.
On
May 31, 2019, the Company executed a Promissory Note with a shareholder for $300,000, at 18% interest per annum, such note being
incorporated by reference into and subject to the terms of that certain Mabert LLC as Agent Loan Agreement entered into by the
Company on September 14, 2018. Mabert LLC is a Texas Limited Liability Company owned by a Director and shareholder, Kevin Jones
and his wife Christine Early. As a cost of the note, the Company issued 600,000 shares of its Class A common stock at a market
price of $0.05 per share for a total debt discount of $30,000, subject to standard Rule 144 restrictions.
(2)
On December 20, 2018, the Company issued a convertible promissory note for $166,667, payable by December 20, 2020. This loan is
in default for breach of payment. By its terms, the cash interest payable increased to 18% per annum on December 20, 2018 and
continues at such rate until the default is cured or is paid at term. See Note 6 below.
(3)
On January 16, 2018, the Company issued a convertible promissory note for $150,000, shown about net a $6,000 principal payment.
This loan was in default for breach of payment during the period ending June 30, 2019. By its terms, the interest payable increased
to 18% per annum on April 1, 2018. On July 24, 2019, the holder noticed the Company of its intent to convert. See: Note 6 and
Note 11 – Subsequent Events below.
NOTE
6 – 2018 CONVERTIBLE PROMISSORY NOTES
The
Company issued a $166,667 convertible promissory note bearing interest at 4.50% per annum to an accredited investor, payable in
equal installments of $6,000 commencing February 1, 2018 plus interest at rate of 4% per annum on December 20, 2018 and $80,000
plus accrued interest on December 20, 2019. The holder has the right to convert the note into common stock of the Company at a
conversion price of $0.08 per share for each one dollar of cash payment which may be due, (which would be 1,083,333 shares for
the $86,667 payment and 1,000,000 shares for the $80,000 payment). As of December 20, 2018, a material event of default occurred
for breach of payment. The holder has the right but has not noticed the Company of its intent to convert.
The
Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and
concluded that the Convertible Note did not result in a derivative. The Company evaluated the terms of the convertible note and
concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock
at a discount to the market value of the common stock. As of December 31, 2017, the discount related to the beneficial conversion
feature on the note was valued at $27,083 based on the $0.013 difference between the market price of $0.093 and the conversion
price of $0.08 times the 2,083,325 conversion shares. Due to the default, the full discount was expensed in 2018.
The
Company issued a $150,000 convertible promissory note in January 2018 bearing interest at 4.50% per annum to an accredited investor,
payable in equal installments of $6,000 plus accrued interest until the principal and accrued interest are paid in full. The holder
has the right to convert the note into common stock of the Company at a conversion price of equal to 70% of the prior twenty (20)
days average closing market price of the Company’s common stock. As of April 1, 2018, only one $6,000 payment had been made,
creating a material event of default. In the event of default, the default interest rate becomes 18% and the Company has accrued
such default interest since the default. On July 24, 2019, the holder noticed the Company of its intent to convert the principal
and accrued interest to common stock.
The
Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and
concluded that the Convertible Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded
that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount
to the market value of the common stock. The discount related to the beneficial conversion feature on the note was valued at $58,494
based on the difference between the fair value of the 1,578,947 convertible shares at the valuation date and the $150,000 note
value. The discount related to the beneficial conversion feature is being amortized over the term of the debt. The discount related
to the beneficial conversion feature on the note was valued at $150,000 based on the
Black-Scholes Model
. During the year
ended December 31, 2018, the remaining discount was fully amortized. The derivative liability for this note at June 30, 2019 and
December 31, 2018 was $86,400 and $103,479 respectively, calculated as described in Note 3 under the
Black-Scholes Model
parameters shown below.
|
|
June
30, 2019
|
|
|
Commitment
Date
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
264.43
|
%
|
|
|
261.71
|
%
|
Expected term: conversion feature
|
|
|
1
year
|
|
|
|
2
year
|
|
Risk free interest rate
|
|
|
1.92
|
%
|
|
|
1.76
|
%
|
NOTE
7 – ACCRUED EXPENSES
Accrued
expenses consisted of the following at for the periods ended:
|
|
30-Jun-19
|
|
|
31-Dec-18
|
|
|
|
|
|
|
|
|
Accrued consulting fees
|
|
|
392,018
|
|
|
|
328,157
|
|
Accrued consulting expense
|
|
|
309,500
|
|
|
|
356,078
|
|
Accrued GTL plant R&D
|
|
|
203,100
|
|
|
|
-
|
|
Accrued Legal and Settlement expenses
|
|
|
670,000
|
|
|
|
-
|
|
Accrued interest expense
|
|
|
145,663
|
|
|
|
50,598
|
|
Miscellaneous
expense
|
|
|
6,139
|
|
|
|
-
|
|
Total
accrued expenses
|
|
|
1,726,420
|
|
|
|
734,833
|
|
NOTE
8 – CAPITAL STRUCTURE
The
Company is currently authorized to issue 300,000,000 shares of Class A common stock with a par value of $.0001 per share and 20,000,000
shares of Class B stock with a par value of $.0001 per share. Each common stock share has one voting right and the right to dividends,
if and when declared by the Board of Directors.
Class
A Common Stock
At
June 30, 2019, there were 287,988,677 shares of class A common stock issued and outstanding.
During
the three-months ended June 30, 2019, the Company: issued 1,100,000 shares of restricted class A common stock to 2 individuals
as consideration for loan origination fees. The Company also updated and corrected its stockholder records generating a net decrease
in common stock outstanding of 581,905 shares.
During
the three-months ended March 31, 2019, the Company: issued 766,667 shares of restricted class A common stock to 3 individuals
holding warrants for 366,667, 200,000 and 200,000 shares respectively, priced at $0.01/converted share.
At
December 31, 2018, there were 286,703,915 shares of Class A commons stock outstanding.
Class
B Stock
At
June 30, 2019 and December 31, 2018 respectively, there were no shares of class B stock issued and outstanding.
Stock
options, warrants and other rights
At
June 30, 2019 and December 31, 2018, the Company has not adopted any employee stock option plans.
As
of June 30, 2019, the Company had total warrants issued and outstanding of 11,499,226, with current expiration periods of less
than one to fifteen years.
On
October 1, 2015, the Company issued 4,000,000 warrants for legal work. The warrants are exercisable at $0.20 per share for a period
of five years from the date of issue. The Company valued the warrants as of December 31, 2015, at $386,549 using the Black-Scholes
Model with expected dividend rate of 0%, expected volatility rate of 189%, expected conversion term of 4.75 years and risk-free
interest rate of 1.75%.
On
February 3, 2017, the Company issued 6,000,000 warrants (4,000,000 at $0.35 for two years and 2,000,000 at $0.45 for three years)
as part of a separation agreement with a co-founder and former president. The Company valued the warrants as of March 31, 2017,
at $639,284 using the Black-Scholes Model with expected dividend rate of 0%, expected volatility rate of 455%, expected conversion
term of two and three years and risk-free interest rate of 1.75%. Of these, 4,000,000 warrants were not exercised and have expired
by their terms.
On
November 30, 2017, the Company issued 1,000,000 warrants at $0.30 for three years as part of a settlement of a shareholder dispute
with MTG Holdings, Inc. The Company valued the warrants as of December 31, 2017, at $95,846 using the Black-Scholes Model with
expected dividend rate of 0%, expected volatility rate of 116%, expected conversion term of two and three years and risk-free
interest rate of 1.37%. These warrants were extinguished in the comprehensive settlement agreement reached in March 2019. See
Note 10 – Legal.
On
January 8, 2018, the Company issued 4,000,000 warrants at a purchase price of $0.15 per share to a director, Kent Harer, in exchange
for his return of 3,000,000 shares of Class A common stock he had been prior granted. The 3,000,000 shares issued were valued
and recorded for $490,000 during 2017. The value of $490,000 remained on the books as it reflects the event that occurred in 2017.
The warrants shall be void and of no effect and all rights thereunder shall cease at 5:00 pm, Fort Worth, Texas time on January
8, 2021.
In
conjunction with the Mabert LLC Loan Agreement described herein above, the Company issued a combined total of 1,624,404 warrants
at a purchase price of $0.01 per share for fifteen (15) years in the year ending December 31, 2018. In the third quarter ending
September 30, 2018, the Company issued 366,667 warrants. In the fourth quarter, the Company issued 1,257,737 warrants, including
1,057,737 warrants to Kevin Jones, a director, and his spouse for loans they each separately made totaling $428,868 and $100,000
respectively, and 200,000 warrants to a third-party lender. All such warrants, excluding Mr. Jones’, were converted to common
stock in January 2019.
NOTE
9 - RELATED PARTY TRANSACTIONS
Through
June 30, 2019, Kevin Jones, a director and greater than 5% shareholder, made advances to the Company in the amount of $530,299,
of which $329,671 was advanced in the three months ending June 30, 2019, and a former employee made an advance of $1,100.
After
approval during a properly called special meeting of the board of directors, on September 14, 2018 Mabert, LLC, a Texas Limited
Liability Company owned by a director and stockholder, Kevin Jones and his wife Christine Early, entered into a loan agreement
for the purpose of funding working capital and general corporate expenses for the Company of up to $1,500,000, subsequently amended
to provide up to $5,000,000. Mabert is acting as the agent for the lenders to the Company. The Company bylaws provide no bar from
transactions with Interested Directors, so long as the interested party does not vote on such transaction. Mr. Jones did not vote
on this transaction. Since the inception of the Loan Agreement through June 30, 2019, a total of $1,278,869 has been loaned to
the Company by four shareholder individuals, including Mr. Jones through Mabert, LLC. See Note 5.
Through
Mabert, Mr. Jones along with his wife and his company have loaned $753,869, and two other shareholders have loaned the balance.
These loans are secured by the assets of the Company. A financing statement and UCC-1 have been filed according to Texas statutes.
Should a default under the loan agreement occur, there could be a foreclosure or a bankruptcy proceeding filed by the Agent for
these Shareholders. The actions of the Company in case of default can only be determined by the Shareholders. A foreclosure sale
or distribution through bankruptcy could only result in the creditors receiving a pro rata payment based upon the terms of the
loan agreement. Mabert did not nor will it receive compensation for its efforts.
Through
June 30, 2019, other shareholders have made loans to the Company in the amount of $416,667, including Wildcat Consulting $75,000
(net of a $25,000 principal payment in the period ending June 30, 2019), Tunstall Canyon Group $166,667 and the Greer Family Trust
$144,000 (net of a $6,000 principal payment made in March 2018).
NOTE
10 – COMMITMENTS
Employment
Agreements
In
August 2012, the Company entered into an employment agreement with Ray Wright, president of Greenway Innovative Energy, Inc.,
now chairman of the board for a term of 5 years with compensation of $90,000 per year. In July 2014, the president’s employment
agreement was amended to increase his annual pay to $180,000. By its terms, the employment agreement automatically renewed on
August 12, 2018 for a successive one-year period.
Effective
May 10, 2018, the Company entered into employment agreements with John Olynick, as President, and Ransom Jones, as Chief Financial
Officer, respectively. The terms and conditions of their employment agreements were identical. John Olynick elected not to renew
his employment agreement and resigned as President on July 19, 2019. Ransom Jones, as Chief Financial Officer, earns a salary
of $120,000 per year. Mr. Jones also serves as the Company’s Secretary and Treasurer. During each year that Mr. Jones agreement
is in effect, he is entitled to receive a bonus (“Bonus”) equal to at least Thirty-Five Thousand Dollars ($35,000)
per year. He is also entitled to certain additional stock grants based on the performance of the Company during the term of their
employment. Both Mr. Olynick and Mr. Jones received a grant of common stock (the “Stock Grant”) at the start of their
employment equal to 250,000 shares each of the Company’s Common Stock, par value $.0001 per share (the “Common Stock”),
such shares vesting immediately. Mr. Jones is also entitled to participate in the Company’s benefit plans when such plans
become available. The foregoing summary of the Mr. Jones employment agreements is qualified in its entirety by reference to the
actual true and correct Employment Agreement, a copy of which is incorporated hereto as Exhibit 10.40.
Effective
January 1, 2019, the Company entered into an employment agreement with Thomas Phillips, Vice President of Operations, reporting
to the President of Greenway Innovative Energy, Inc., for a term of fifteen (15) months with compensation of $120,000 per year.
Phillips is entitled to a no-cost grant of common stock on the effective date equal to 5,000,000 shares of the Company’s
Rule 144 restricted Class A common stock, par value $.0001 per share, such shares to be issued at such time as the Company has
the ability to issue such number of shares. Mr. Phillips has elected to waive such share issuance for an indefinite period. Mr.
Phillips is also entitled to participate in the Company’s benefit plans, when such become available. The foregoing summary
of the Phillips’ Employment Agreement is qualified in its entirety by reference to the actual true and correct employment
agreement, a copy of which is incorporated hereto as Exhibit 10.53.
In
the August 2012 acquisition agreement with Greenway Innovative Energy, Inc. (“GIE”), the Company agreed to: (i) issue
an additional 7,500,000 shares of restricted common stock when the first portable GTL unit is built and becomes operational, and,
is capable of producing 2,000 barrels of diesel or jet fuel per day, and (ii) pay a 2% royalty on all gross production sales on
each unit placed in production. In connection with a settlement agreement with the Greer Family Trust (‘Trust”), the
successor owner of one of the two founders and prior owners of GIE on February 6, 2018, the Company exchanged Greer’s half
of the 7,500,000 shares (3,750,000 shares) to be issued in the future, Greer’s half of the 2% royalty, a termination of
Greer’s then current Employment Agreement and the Trust’s waiver of any future claims against the Company for any
reason, for the issuance and delivery to the Trust of three million (3,000,000) restricted shares of the Company’s common
stock, and a convertible Promissory Note for $150,000, the balance of which the Trust has notified the Company of its intention
to convert. As a result, the remaining 3,750,000 shares are committed to be later issued under the original 2012 acquisition
agreement at the point the technology has been deemed of commercial readiness to satisfy the terms of the acquisition agreement.
A copy of the Settlement Agreement and Promissory Note is incorporated hereto as Exhibit 10.36.
Consulting
Agreements
On
July 10, 2017, the Company entered into a one-year consulting agreement with an individual, Ryan Turner, to provide business development
services, including but not limited to enhanced digital marketing, assistance with shareholder communications and help in establishing
industry relationships. Terms included monthly payments of $5,000 per month, plus approved expenses. After the first twelve-month
initial term, the agreement was automatically renewable for successive twelve-month terms, unless otherwise terminated with written
notice by the parties, and was subsequently renewed for an additional term. Mr. Turner continues to provide services to the Company
under the current agreement.
On
November 28, 2017, the Company entered into a three-year consulting agreement with Chisos Equity Consultants, LLC for public relations,
consulting and corporate communications services. The initial payment was 1,800,000 shares of the Company’s restricted common
stock. Additional payments upon the Company’s common stock reaching certain price points as follows:
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500,000
shares at the time the Company’s common stock reaches $0.25 per share during the first year
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500,000
shares at the time the Company’s common stock reaches $0.45 per share during the first year
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1,000,000
shares at the time the Company’s common stock reaches $0.90 per share during the first or second year
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2,000,000
shares at the time the Company’s common stock reaches $1.50 per share during the first or second year
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3,000,000
shares at the time the Company’s common stock reaches $2.00 per share during the term of the agreement
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1,000000
shares at the time the Company’s common stock reaches $10.00 per share during the term of the agreement
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Due
to a breach of the Agreement by Chisos, on June 22, 2018, the Board of Directors of the Company voted to terminate the Agreement.
Based on the termination, all warrants to purchase the Company’s common stock were cancelled. The Company is currently in
litigation over such termination action. See “Legal” matters description below in this Note 10.
Leases
In
October 2015, the Company entered into a two-year lease for approximately 1,800 square feet a base rate of $2,417 per month. The
Company terminated the lease effective August 31, 2018 and has no further financial obligations under the lease.
Greenway
rents approximately 600 square feet of office space at 1521 North Cooper St., Suite 205, Arlington, Texas 76011, at a rate of
$957 per month, under a one-year lease agreement, renewable annually.
Each
September, the Company pays $11,600 in annual maintenance fees on its Arizona BLM mining leases, in addition to 10% royalties
based on production, if any. There has been no production to date.
Legal
The
Company was named as a co-defendant in an action brought against the Company and Mamaki Tea, Inc., alleging, among other things,
that the Company was named as a co-guarantor on an $850,000 foreclosed note. On April 22, 2016, Greenway Technologies filed suit
under Cause No. DC-16-004718, in the 193rd District Court, Dallas County, Texas against Mamaki of Hawaii, Inc. (“Mamaki”),
Hawaiian Beverages, Inc.(“HBI”), Curtis Borman and Lee Jenison for breach of a Stock Purchase Agreement dated October
29, 2015, wherein the Company sold its shares in Mamaki to HBI for $700,000 (along with the assumption of certain debt). The Company
maintained its guaranty on the original loan as a component of the sale transaction. The Defendants failed to make payments of
$150,000 each on November 30, 2015, December 28, 2015 and January 27, 2016. On January 13, 2017, the parties executed a Settlement
and Mutual Release Agreement (Agreement). However, the Defendants again defaulted in their payment obligations under this new
Agreement. Curtis Borman and Lee Jennison were co-guarantors of the obligations of Mamaki and HBI. To secure their guaranties,
each of Curtis Borman and Lee Jennsion posted 1,241,500 and 1,000,000 shares, respectively, of the Company. Under the Agreement,
the shares were valued at $.20. Due to the default under the Agreement, these shares were returned to the Company’s treasury
shares. Curtis Borman subsequently filed for bankruptcy and the property was liquidated for $600,000, applied against the prior
loan amount, leaving a remaining guaranteed loan payment balance of approximately $700,000, including accrued interest and legal
fees. The Company has been in negotiations with the note holders and having negotiated a tentative resolution, the terms
of which are being drafted into a confidential settlement and release agreement between the parties, has accrued for the estimated
expenses on the Company’s Balance Sheet as of June 30, 2019.
On
April 9, 2018, the Company and Tonaquint, Inc. agreed to settle on Tonaquint’s exercise of a warrant option with a one-time
issuance from Greenway Technologies of 1,600,000 shares of our common stock subject to a weekly leak out restriction equal to
the greater of $10,000.00 and 8% of the weekly trading volume. Further, the issuance of stock was completed in connection with
a legal opinion pursuant to Rule 144.
On
September 7, 2018, Wildcat Consulting Group, LLC (“Wildcat”), a company controlled by a shareholder, filed suit against
the Company alleging claims arising from a Consulting Agreement between the Parties, seeking to recover monetary damages, interest,
court costs, and attorney’s fees. On September 27, 2018, Wildcat filed a second suit against the Company alleging claims
arising from a Promissory Note between the Parties, seeking to recover monetary damages, interest, court costs, and attorney’s
fees. On February 13, 2019, the Parties attended mediation which resulted in settlement discussions which resulted in a Rule 11
Agreement settling both disputes. Pursuant to the Rule 11 Agreement, the Parties have agreed to abate this case until the earlier
of a default of the performance of the Rule 11 Agreement or October 30, 2019. The Rule 11 Agreement causes and allows the Parties
time to draft and sign a Compromise Settlement and Mutual Release Agreement (“Settlement Agreement”), to make payments
due on or before October 15, 2019, and to allow for the transfer of stock to effectuate the terms of the Rule 11 Agreement. As
of the date of this report, the Company is in compliance with the Rule 11 Agreement, and the Parties have exchanged drafts of
the Settlement Agreement to be completed before the abatement period ends. The material terms of the Rule 11 Agreement are as
follows:
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The
Company will execute a new Promissory Note to replace the original Promissory Note, effective November 13, 2017, the effective
date of the original note. The new Promissory Note has a maturity date of March 1, 2020 and provides for four equal payments
of principal through such date, and accrued interest at 10% upon maturity.
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The
Company shall pay $300,000 in settlement of the prior Consulting Agreement in 60 installments of $5,000 each month, until
paid in full. The $300,000 payable was accrued as of December 31, 2018, of which $20,000 has been paid through the period
ending June 30, 2019.
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The
Parties agreed to amend the existing Overriding Royalty Agreement (“ORRI”) between the Company’s wholly
owned subsidiary, Greenway Innovative Energy, Inc. (“GIE”), increasing Wildcat’s royalties from .25% (1/4
of 1%) to .375% (3/8 of 1%).
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The
Company shall pay Wildcat’s legal fees related to these matters, capped at $60,000, in three installments of $20,000
on June 1, August 1, and October 1, 2019, of which $40,000 has been accrued for the period ending June 30,
2019.
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The
Company shall issue 1,500,000 restricted shares of its Class A common stock on or before October 15, 2019, in consideration
of the Promissory Note, in exchange for extinguishment of all prior granted warrants and to complete the grant of 1,000,000
shares not received from a prior transaction. The expense for such share issuance has been accrued on the Company’s
Balance Sheet for the period ending June 30, 2019.
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Provided
the Company timely performs through October 15, 2019, the Parties will file a Joint Motion for Dismissal and present Agreed Orders
of Dismissal with prejudice for both lawsuits. A copy of the Rule 11 Agreement is incorporated hereto as Exhibit 10.52.
On
March 13, 2019, Chisos Equity Consultants, LLC (“Chisos”), a company controlled by a dissident shareholder, Richard
Halden, filed suit against the Company alleging claims arising from a consulting agreement between the parties, seeking to recover
monetary damages, interest, court costs, and attorney’s fees. The Company answered the lawsuit and asserted a number of
affirmative defenses. Greenway is confident in its defenses and intends to vigorously defend its interests.
On
March 13, 2019, Richard Halden (“Halden”), a dissident shareholder in his capacity as an individual, filed suit against
the Company alleging claims arising from a confidential severance and release agreement between the parties, seeking to recover
monetary damages, interest, court costs, and attorney’s fees. The Company answered the lawsuit and asserted a number of
affirmative defenses. Greenway is confident in its defenses and intends to vigorously defend its interests.
On
March 26, 2019, the Company filed a verified petition for Declaratory Judgement, Ex Parte Application for a Temporary Restraining
Order and Application for Injunctive Relief against the members of a dissident shareholders group (including Richard Halden) named
the “Greenway Shareholders Committee” in Dallas County. A Temporary Restraining Order was issued by the court enjoining
the Defendants (and their officers, agents, servants, employees and attorneys) and those persons in active concert or participation
from; holding the special shareholders meeting on April 4, 2019 or calling such meeting to order; attending or participating in
the Special Meeting; voting the shares of Plaintiff owned by any Defendant at the Special Meeting, either directly or by granting
a proxy to allow a non-defendant to vote said shares; voting any shares of Plaintiff owned by non-defendants with or by proxy
at the Special Meeting; and serving as chairman at the Special Meeting. On April 8, 2019, the court issued such Temporary Injunction
against the dissident shareholders who received notice. The Injunction will continue until the trial date of December 10, 2019.
NOTE
11-SUBSEQUENT EVENTS
On
July 19, 2019, the Company’s President, John Olynick sent the Board a letter of resignation, after notifying the Company
in March 2019 that he was terminating his agreement by its terms, i.e, he stated that he cancelled the annual automatic extension
provision, and was seeking to amend or enter into a new agreement under different terms and conditions. After the parties mutually
agreed to extend his employment after the agreement’s end in May, the Company and Mr. Olynick were not able to agree on
Mr. Olynick’s proposed changes and accepted his resignation. Mr. Olynick subsequently sent the Company notice for payment
of deferred compensation due, requesting payment within 60-days after the end of his employment. While the Company doesn’t
dispute the amount of deferred employment compensation owed to Mr. Olynick, the Company disputes Mr. Olynick’s interpretation
of his employment agreement that such payment is due within 90-days of his voluntary resignation from the Company. The parties
are in discussions to reach a mutually satisfactory resolution to this dispute. Subsequent to Mr. Olynick’s departure,
the board of directors appointed Kent Harer, a current director of the Company, as acting President, while the Company undergoes
a search for a new chief executive. Mr. Harer is taking no compensation for his executive duties.
On
July 23, 2019, the Company announced that Mabert LLC, a company controlled by Greenway Director, Kevin Jones, which also acts
as agent for the Company’s lenders, acquired INFRA Technology Group’s U.S. GTL plant and technology located in Wharton,
Texas. Mabert purchased the entire 5.2-acre site, plant and equipment, including INFRA’s proprietary Fischer-Tropsch (“FT”)
reactor system and operating license agreement. Greenway and Mabert have agreed in principal to enter into a joint venture whereby
GWTI, Mabert and a third-party investment group will jointly fund and participate in plant operations going forward. The Company’s
Board of Directors voted on July 19, 2019, to adopt the resolution affirming GWTI’s partnership in the new joint venture.
The resolution’s vote was passed with approval from five of the six GWTI Directors, with Kevin Jones abstaining from the
vote. The parties are currently working to complete the final joint venture structure and related operating participation agreements.
As consideration for its interest in the joint venture, the Company is expected to provide a license to its patent-pending G-Reformer™
natural gas reforming technology and a G-Reformer unit. As the first GTL operating plant using Greenway’s proprietary technology
and equipment, this facility is initially expected to yield a minimum of 75 barrels per day of gasoline and diesel fuels from
converted natural gas. Greenway is also expected to contribute engineering and operations personnel to the joint venture, who
will be responsible for integrating Greenway’s G-Reformer technology with the existing INFRA FT system.
On
July 25, 2019, the Trustee for the Greer Family Trust (“Trust”) sent notice to the Company of their election to convert
all unpaid principal and accrued interest due under that certain Promissory Note dated January 16, 2018 (the “Note”).
Under the terms of the Note, the amount due is convertible by the Trust in its sole discretion into that number of shares of the
Company’s common stock as is determined by dividing the total of such principal amount and accrued interest by seventy percent
(70%) of the prior twenty (20) day average closing market price for the Company common stuck The principal amount of the Note
at the date of conversion was $144,000, with accrued interest of $39,220. The conversion price as calculated according to the
Note terms is $0.0469 per share, resulting in a conversion of the Note into 3,906,610 shares of the Company’s common stock.
Instructions to the transfer agent for the issuance of such shares will be issued as soon as practicable by the Company.
On
July 10, 2019, the Company executed a Promissory Note with a shareholder for $50,000, at 12-1/2% interest per annum, such note
being incorporated by reference into and subject to the terms of that certain Mabert LLC as Agent Loan Agreement entered into
by the Company on September 14, 2018. Mabert LLC is a Texas Limited Liability Company owned by a Director and shareholder, Kevin
Jones and his wife Christine Early. As a cost of the note, the Company issued 100,000 shares of its Class A common stock at a
market price of $0.06 per share for a total debt discount of $6,000, subject to standard Rule 144 restrictions.