PART
I
Overview
We
are engaged in the research and development of proprietary gas-to-liquids (“GTL”) synthesis gas (“Syngas”)
conversion systems and micro-plants that can be scaled to meet specific gas field production requirements. Our patented and proprietary
technologies have been realized in our first commercial G-ReformerTM unit (“G-Reformer”), a unique
component used to convert natural gas into Syngas, which when combined with a Fischer-Tropsch (“FT”) reactor
and catalyst, produces fuels including gasoline, diesel, jet fuel and methanol. G-Reformer units can be deployed to process a
variety of natural gas streams including pipeline gas, associated gas, flared gas, vented gas, coal-bed methane and/or biomass
gas. When derived from any of these natural gas sources, the liquid fuels created are incrementally cleaner than conventionally
produced oil-based fuels. Our Company’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. For more information about our Company,
please visit our website located at https://gwtechinc.com/.
Our
GTL Technology
In
August 2012, we acquired 100% of GIE, pursuant to that certain Purchase Agreement, by and between us and GIE, dated August 29,
2012, and filed as Exhibit 10.5 to this Form 10-K, and incorporated by reference herein (the “GIE Acquisition Agreement”).
GIE owns patents and trade secrets for a proprietary technology to convert natural gas into Syngas. Based on a new, breakthrough
process called Fractional Thermal Oxidation™ (“FTO”), we believe that the G-Reformer, combined with conventional
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 this GTL technology, resulting in the issue of U.S. Patent 8,574,501 B1 on November 5, 2013. On November
4, 2013, GIE filed for a second patent covering other unique aspects of the design and was issued U.S. Patent 8,795,597 B2 on
August 5, 2014. The Company has several other pending patent applications, both domestic and international, related to various
components and processes relating to our proprietary GTL methods, complementing our existing portfolio of issued patents and pending
patent applications.
On
June 26, 2017, we and the University of Texas at Arlington (“UTA”) announced that we had successfully demonstrated
our GTL technology at our sponsored Conrad Greer Laboratory at UTA, proving the viability of the science behind the technology.
On
March 6, 2018, we announced the completion of our first commercial scale G-Reformer, a critical component in what we call the
Greer-Wright GTL system. The G-Reformer is the critical component of the Company’s innovative GTL system. A team
consisting of individuals from our Company, UTA and our Company’s contracted G-Reformer manufacturer worked together to
test and calibrate the newly built G-Reformer unit. The testing substantiated the units’ Syngas generation capability and
demonstrated additional proficiencies within certain proprietary prior prescribed testing metrics.
On
July 23, 2019, we announced that Mabert LLC, a Texas limited liability company (“Mabert”), controlled by Kevin
Jones, one of our directors, acquired INFRA Technology Group’s U.S. GTL plant and technology located in Wharton, Texas (the
“Wharton Plant”). Mabert purchased the entire 5.2-acre site, plant and equipment, including INFRA’s proprietary
FT reactor system and operating license agreement.
On
August 29, 2019, to further facilitate the commercialization process, we announced that it entered into the joint venture, OPM
Green Energy, LLC, a Texas limited liability company (“OPMGE”), for an ownership interest in the Wharton Plant.
The other members of OPMGE are Mabert and Tom Phillips, Vice President of Operations for GIE. Our involvement in OPMGE is intended
to facilitate third-party certification of our G-Reformer and related equipment and technology. In addition, we anticipate that
OPMGE’s operations will demonstrate that the G-Reformer is a commercially viable technology for producing Syngas and marketable
fuel products. As the first operating GTL plant to use our proprietary reforming technology and equipment, the Wharton Plant is
initially expected to yield a minimum of 75 - 100 barrels per day of gasoline and diesel fuels from converted natural gas.
Ultimately,
we believe that our proprietary G-Reformer is a major innovation in gas reforming and GTL technology in general. Initial tests
have demonstrated that our Company’s solution appears to be superior to legacy technologies, which are more 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. In addition, the Wharton Plant is anticipated to prove out the economics for the Company’s technology
and GTL processes.
The
technology for the G-Reformer is unique, because it permits for transportable (mobile) GTL plants with much smaller footprints,
compared to legacy large-scale technologies. Thus, we believe that our technologies and processes will allow for multiple small-scale
GTL plants to be built with substantially lower up-front and ongoing costs, resulting in more profitable results for oil and gas
operators
GTL
Industry –Market
GTL
converts natural gas – the cleanest-burning fossil fuel – into high-quality liquid products that would otherwise be
made from crude oil. These products include transport fuels, motor oils, and the ingredients for everyday necessities like plastics,
detergents, and cosmetics. GTL products are colorless, odorless, and contain almost none of the impurities, (e.g., sulphur, aromatics,
and nitrogen) that are found in crude oil.
According
to publicly available industry research from Shell Oil, MarketResearcEngine.com, among others, the market for GTL products is
said to have accounted for approximately $11.9 billion in 2019 and is expected to reach $20.1billion by 2023, growing at a compound
annual growth rate of 11.03% over that period. Products created by the GTL process include GTL Diesel, GTL Naphtha, GTL Other
(e.g., lubricants), with GTL Diesel accounting for more than 68% of the product market. Market share of these products has not
changed significantly over the last four years. Increasing population across the globe have led to an increase in power consumption,
creating a high demand for clean natural gas liquids products (“NGL”). In the commercial sector, there has
been generally high demand for NGL products among petrochemical plants and refineries for blendstock, i.e., a blend of unfinished
oils that creates a refined product, as well as in the automotive and packaging industries, among others. Due to their relatively
clean burning nature, NGL products may be used as fuel in motor vehicles, in furnaces for heating and cooking and household energy
source. Our planned focus is in technology licensing for our GTL plant technology, and in some cases, the direct production and
sale of high cetane diesel and jet fuels, a multi-billion-dollar market segment.
Development
of stringent environmental regulations by numerous governments to control pollution and promote cleaner fuel sources is expected
to complement industry growth. For example, we believe that U.S. guidelines such as the Petroleum and Natural Gas Regulatory Board
Act, 2006, Oilfields (Regulation and Development) Act of 1948, and Oil Industry (Development) Act, 1974 are likely to continue
to encourage GTL applications in diverse end-use industries to conserve natural gas and other resources. Under the Clean Air Act
(CAA), the EPA sets limits on certain air pollutants, including setting limits on how much can be in the air anywhere in the United
States. The Clean Air Act also gives EPA the authority to limit emissions of air pollutants coming from sources like chemical
plants, refineries, utilities, and steel mills. Individual states or tribes may have stronger air pollution laws, but they may
not have weaker pollution limits than those set by EPA. Because our G-Reformer based GTL plants are not considered refineries,
they do not fall under any related current EPA air quality guidelines. More information can be found under the EPA’s New
Source Performance Standards which are published under 40 CFR 60.
Competition
Key
industry players include: Chevron Corporation; KBR Inc, PetroSA, Qatar Petroleum, Royal Dutch Shell; and Sasol Limited. In terms
of global production and consumption, Shell had the largest market share in 2019, with virtually all current production located
overseas. Our technology is not designed to compete with the large refinery-size GTL plants operated by such large industry operators.
Our plants are designed to be scaled to meet individual gas field production requirements on a distributed and mobile basis. According
to a report released in July 2019 by the Global Gas Flaring Reduction Partnership (“GGFRP”), there are currently only
5 small-scale GTL plant technologies that have been proven and are now available for gas flares monetization available in the
U.S., including: Greyrock (“Flare to Fuels”); Advantage Midstream (licensing Greyrock technology); EFT (“Flare
Buster”); Primus GE and GasTechno (“Methanol in a Box”). We were not a direct part of this study, as we had
not received 3rd party certification of our proprietary technology as of the date of this report.
However,
the GGFRP report mentioned us as follows, “Greenway Technologies announced on July 23 that Mabert LLC, a major investor
in Greenway, acquired the whole INFRA plant including an operating license agreement. The purpose of the acquisition is the incorporation
and commercial demonstration of Greenway’s ‘G-Reformer’ technology. We will see whether the new team will be
able to make the plant with the new reformer operational. (Globe Newswire, Fort Worth, Texas, Aug 31, 2019).”
Mining
Interests
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 (such property, the “Arizona Property”), in an Assignment
Agreement dated December 27, 2010, and filed as Exhibit 10.31 to this Form 10-K, between Melek Mining, Inc., 4HM Partners, Inc.
and the Company, in exchange for 5,066,000 shares of our common stock. Early indications from samples taken and processed by Melek
Mining provided reason to believe that the potential recovery value of the metals located on the Arizona Property could be significant,
but only actual mining and processing will determine the ultimate value that may be realized from this property holding. While
we are not currently conducting mining operations, we are exploring strategic options to partner or sell our interest in the Arizona
Property, while we focus on our emerging GTL technology sales and marketing efforts.
Company
History
We
were originally incorporated as Dynalyst Manufacturing Corporation (“Dynalyst”) under the laws of the State
of Texas on March 13, 2002. In connection with the merger with Universal Media Corporation (“UMC”), a Nevada
corporation, on August 17, 2009, we changed our name to UMC. The transaction was accounted for as a reverse merger, and UMC was
the acquiring company on the basis that UMC’s senior management became the entire senior management of the merged entity
and there was a change of control of Dynalyst. The transaction was accounted for as recapitalization of Dynalyst’s capital
structure. In connection with the merger, Dynalyst issued 57,500,000 restricted equity securities to the shareholders of UMC in
exchange for 100% of UMC.
On
March 23, 2011, Universal Media Corporation approved and filed with the Texas Secretary of State an amendment to our Certificate
to change our name to UMED Holdings, Inc.
On
June 22, 2017, in recognition of our primary operational activity, we approved an amendment to our Certificate to change our name
to “Greenway Technologies Inc.” We filed a certificate of amendment with the Texas Secretary of State to affect that
name change on June 23, 2017.
On
June 26, 2019, we held our annual shareholders meeting in Arlington, Texas. There were seven proposals presented for vote by our
shareholders (the “Shareholders”), including to approve the Company’s slate of directors, to amend our
Certificate, to amend our bylaws, and to ratify our then current independent public accounting audit firm. We disclosed the results
of the vote of the Shareholders on our Current Report Form 8-K, filed with the SEC on July 2, 2019, which is incorporated herein
by reference. On August 1, 2019, we filed a Current Report on Form 8-K/A, noting that due to a potential tabulation error, we
were reviewing the results for Proposal 2, which was to amend our Company’s Certificate to increase the authorized shares
of capital stock of the Company and Proposal 3, which was to amend the Company’s Certificate to permit the vote of the holders
of the majority of shares entitled to vote on and represented in person or by proxy at a meeting of the Shareholders at which
a quorum is present, to be the action of the Shareholders, including for “fundamental actions,” as such term is defined
by the Texas Business Organizations Code (the “TBOC”) . To resolve any such potential errors, we called a special
meeting of the Shareholders to be held December 11, 2019, in Arlington, Texas.
On
December 11, 2019, we held a special meeting of the Shareholders to approve four proposals. In connection with these four proposals,
we filed a Certificate of Amendment to the Certificate with the Secretary of State of the State of Texas, which is attached as
Exhibit 3.1 to our Company’s Current Report on Form 8-K filed with the SEC on December 16, 2019, and incorporated herein
by reference. All four proposals passed overwhelmingly. For more information regarding these proposals, please see our Definitive
Proxy Statement on Schedule 14A filed with the SEC on November 19, 2019 and incorporated herein by reference.
Employees
As
of the filing date of this Form 10-K, we have five (5) full-time employees. Certain of these employees receive no compensation
or compensation is deferred on a periodic basis by mutual agreement. None of our employees are covered by collective bargaining
agreements. We consider our employee relations to be satisfactory.
Going
Concern
The
accompanying condensed consolidated financial statements to this Form 10-K (our “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 of December 31, 2019, we have an accumulated deficit of $30,479,829. For the year ended December 31, 2019,
we incurred a net loss of $3,661,245 and used $1,332,528 in net cash for operating activities. As a pre-revenue entity, these
factors raise substantial doubt about the Company’s ability to continue as a going concern. While we are attempting to commence
revenue generating operations and thereby generate sustainable revenues, our current cash position is not sufficient to support
our ongoing daily operations and requires us to raise addition capital through debt and/or equity sources.
Accordingly,
our ability to continue as a going concern is therefore in doubt and dependent upon achieving a profitable level of operations
or on our ability to obtain necessary financing to fund ongoing operations. Management intends to raise additional funds by way
of public or private offerings, or both. Management believes that the actions presently being taken to implement our business
plan to generate revenues will provide us the opportunity to continue as a going concern.
While
we are attempting to commence operations and generate revenues, our cash position may not be enough to support our daily operations.
Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently
being taken to further implement our business plan and generate revenues provide the opportunity for us to continue as a going
concern. While management believes in the viability of our strategy to generate revenues and in our ability to raise additional
funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to
further implement our business plan and generate revenues.
Risks
Related to our Business and Operations
We
may not be able to raise the additional capital necessary to execute our business strategy, which includes the production, sale
and/or licensing of our proprietary GTL technology solutions to oil and gas operators in the United States and elsewhere.
Our
ability to successfully execute the production, sale, or licensing of our GTL technology may depend on our ability to raise additional
debt or equity capital. Our ability to raise additional capital is uncertain and dependent upon numerous factors beyond our control
including, but not limited to, general economic conditions, regulatory factors, reduced retail sales, increased taxation, reductions
in consumer confidence, changes in levels of consumer spending, changes in preferences in how consumers pay for goods and services,
weak housing markets and availability or lack of availability of credit. If we are unable to obtain additional capital, or if
the terms thereof are too costly, we may be unable to successfully execute our business strategy.
Our
limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.
We
are a development-stage company and have a limited operating history upon which you can evaluate our business and prospects. We
have yet to develop sufficient experience regarding actual revenues to be received from our GTL technology. You must consider
the risks and uncertainties frequently encountered by early-stage companies in new and evolving markets. If we are unsuccessful
in addressing these risks and uncertainties, our business, results of operations, and financial condition will be materially and
adversely affected. The risks and difficulties we face include challenges in accurate financial planning as a result of limited
historical data and the uncertainties resulting from a relatively limited period in which to implement and evaluate our business
strategies as compared to older companies with longer operating histories.
We
have historically incurred losses.
We
are considered a pre-revenue or development stage company. We have incurred significant operating losses since inception. Due
to the inherent risk of commercializing new technology, there can be no assurance that we will earn net income in the future.
We may require additional capital in order to fund our operations, which it may not be able to source on acceptable terms.
Establishing
revenues and achieving profitability will depend on our ability to fully develop, certify and commercialize our GTL Technology,
including successfully marketing our GTL Technology to our customers and complying with possible regulations.
Much
of our ability to establish revenues, achieve profitability and create positive cash flows from operations will depend on the
completion of third-party engineering certification and subsequent successful introduction of our proprietary GTL technology.
Our prospective customers will not use our GTL technology unless they determine that the economic benefits provided by our GTL
solution is greater than those available from competing technologies and providers. Even if the advantages derived from our proprietary
GTL technology are well-established, prospective customers may elect not to use our GTL technology.
In
addition, as this is a new technology and GTL processing method, we may be required to undertake time-consuming and costly additional
development activities and seek regulatory clearance or approval for such new GTL technology. Such costs are not known by us as
of the date of this report.
Lastly,
the completion of the development and commercialization of our GTL technology remains subject to all the risks associated with
the commercialization of any new GTL processing system with production based on innovative technologies, including unanticipated
technical or other problems, manufacturing difficulties, and the possible insufficiency of the funds allocated for the completion
of such development.
We
may encounter substantial competition in our industry and a failure to compete effectively may adversely affect our ability to
generate revenue.
We
expect that we will be required to continue to invest in product development and efficiency improvements to compete effectively
in our markets. Our competitors could potentially develop a similar or more efficient GTL product or undertake more aggressive
and costly marketing campaigns than ours, which may adversely affect our sales and marketing strategies and could have a material
adverse effect on our business, results of operations, and financial condition. Important factors affecting our ability to compete
successfully include:
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current
and future direct sales and marketing efforts by small and large competitors;
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rapid and effective
development of new, unique GTL techniques; and
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new and aggressive
pricing methodologies
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If
substantial competitors enter our targeted markets, such as licensing of smaller independent oil and gas operators or the creation
of blendstock for existing large refinery operations, we may be unable to compete successfully against such competition. Our potential
competitors may have greater human and financial resources than we do at any given time, and there is significant competition
for experienced personnel and financial capital in the oil and gas industry. Therefore, it can be difficult for smaller companies
such as ours to attract the personnel and related investment for our various business activities needed to succeed. We cannot
give any assurances that we will be able to successfully compete for such personnel and capital funds. Without adequate financial
resources, our management cannot be certain that we will be able to compete successfully in our operations.
The
longevity of patents in the United Sates is limited in duration and may affect the Company’s long-term ability to successfully
monetize the intellectual property it owns.
As
of December 31, 2019, we own United States Patents Nos. 8,574,501 B1, originally issued November 5, 2013 and 8,795,597 B2, issued
August 5, 2014, covering our GTL conversion technology for the purpose of converting natural gas to clean synthetic fuels in a
small-plant and mobile application. The term of each patent under U.S. law is 21 years. Accordingly, each of these patents will
expire in the years 2034 and 2035 respectively, unless they are modified with “improvements to the current art” by
us, in which case their useful lives may be extended. There is no certainty that we will be able to make such improvements to
our currently held patents, and they therefore may expire at their respective terms. Alternatively, a patent’s term may
be shortened if a patent is terminally disclaimed (litigated) over a commonly owned patent or a patent naming a common inventor
has an earlier expiration date. There is no certainty that we will be able to successfully defend our patents if such claims are
made, and they may expire prior to their respective terms.
We
are currently dependent on one equipment fabricator, the loss of which could adversely impact our operations.
We
contract our manufacturing production with a heavy equipment fabricator in Texas that has worked with us for several years and
specializes in the type of base refractory equipment we use in our proprietary G-Reformer based GTL processes. Accordingly, they
have developed certain manufacturing expertise specifically related to our equipment which may be hard to replicate with a new
manufacturer if they go out-of-business or end manufacturing for us for any reason. While there are similar manufacturers elsewhere
in the United States and overseas, they will take an unknown additional amount of time to gain the expertise necessary to produce
our proprietary refractory equipment, or may not be able to gain such expertise at all, limiting our production and related revenue
capability.
We
are dependent on a limited number of key executives, consultants, the loss of any of which could negatively impact our business.
Our
business is led by an interim President, Kent Harer, and our Chief Financial Officer, Ransom Jones, both of whom are also members
of our board of directors (our “Board of Directors”). Our engineering efforts are led by Thomas Phillips, who
is also Vice President of Operations for GIE, but we use outside consultants to support and perform the majority of the engineering
and production work on our GTL technology. We have also contracted with consultants to provide financial reporting and governance
support.
If
one or more of these senior executives, officers, or consultants are unable or unwilling to continue in their present positions,
we may not be able to replace them easily or at all, and our business may be disrupted, along with our financial condition, such
that our results of operations may be materially and adversely affected. In addition, if the competition for senior management
and senior officers in our industry is intense, the pool of qualified candidates is limited, and we may not be able to retain
the services of our senior executives, key personnel, or consultants or attract and retain high-quality personnel in the future.
Such failure could materially and adversely affect our future growth and financial condition, and the loss of one or more of these
key personnel could negatively impact our business and operations.
If
our research and development agreements with UTA are terminated, we may lose access to certain of the scientists that were instrumental
in developing our technology.
To
support our engineering efforts, we entered into a confidential Sponsored Research Agreement (“SRA”) with UTA starting
in October 2009 and continuing in various forms through today, adding confidential Scope of Work addendums over this period to
develop and enhance our patented GTL system with the goal of developing commercial GTL plants to convert natural gas into liquid
fuels. We use UTA as an external research and development arm for the Company. If we or UTA were to terminate our relationship,
we might lose access to the scientists most familiar with our unique technology. There is no assurance that we would be able to
continue to improve on the technology we have developed thus far, potentially slowing down our commercialization and financing
efforts.
Our
quarterly results may fluctuate substantially and if we fail to meet the expectations of our investors or analysts, our stock
price could decline substantially.
Our
quarterly operating results may fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors,
the trading price of our Common Stock could decline. Some of the important factors that could cause our revenue and operating
results to fluctuate from quarter to quarter include:
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our
limited operating history;
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the limited scope
of our sales and marketing efforts;
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our ability to attract
new customers, satisfy our customers’ requirements, and retain customers;
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general economic
conditions;
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changes in our pricing
capabilities;
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our ability to expand
our business and operations by staying current with the evolving requirements of our target market;
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the effectiveness
of our key personnel;
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our ability to protect
our proprietary GTL Technology;
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new
and enhanced products by us and our competitors;
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unanticipated delays
or cost increases with respect to research and development; and
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extraordinary expenses
such as litigation or other dispute-related settlement payments.
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We
may have difficulty in attracting and retaining outside independent directors to our Board of Directors as a result of their concerns
relating to potentially increased personal exposure to lawsuits and shareholder claims by virtue of holding those positions.
The
directors and management of companies are increasingly concerned with the extent of their personal exposure to lawsuits and shareholder
claims, as well as governmental and creditor claims that may be made against them, particularly in view of recent changes in securities
laws imposing additional duties, obligations, and liabilities on management and directors. Due to these perceived risks, directors
and management are also becoming increasingly concerned with the availability of directors’ and officers’ liability
insurance to timely pay the costs incurred in defending such claims. We currently carry directors’ and officers’ liability
insurance, but directors’ and officers’ liability insurance has recently become much more expensive and difficult
to obtain. If we are unable to continue or provide liability insurance at affordable rates or at all, it may become increasingly
more difficult to attract and retain qualified outside directors to serve on our board of directors.
We
may lose potential independent board members and management candidates to other companies that have greater directors’ and
officers’ liability insurance to insure them from liability or to companies that have revenues or have received greater
funding to date which can offer more lucrative compensation packages. The fees of directors are also rising in response to their
increased duties, obligations and liabilities as well as increased exposure to such risks. As a company with limited operating
history and resources, we will have a more difficult time attracting and retaining management and outside independent directors
than a more established company due to these enhanced duties, obligations and liabilities.
Our
future success relies upon our proprietary GTL Technology. We may not have the resources to enforce our proprietary rights through
litigation or otherwise. The loss of exclusive right to our GTL Technology could have a material adverse effect on our business,
financial condition and results of operations.
We
believe that our GTL technology does not infringe upon the valid intellectual property rights of others. Even so, third parties
may still assert infringement claims against us. If infringement claims are brought against us, we may not have the financial
resources to defend against such claims or prevent an adverse judgment against us. In the event of an unfavorable ruling on any
such claim, a license or similar agreement to utilize the intellectual property rights related to the GTL technology in question,
which we rely on in the conduct of our business, may not be available to us on reasonable terms, if terms are offered at all.
Our
ability to obtain field-related operating hazards insurance may be constrained by our limited operational history.
The
oil and natural gas business involves a variety of operating risks, including the risk of fire, explosions, blow-outs, pipe failure,
abnormally-pressured formations, and environmental hazards such as oil spills, natural gas leaks, ruptures or discharges of toxic
gases. If any of these events should occur at our joint venture plant location, or at any future customer sites (none exist today),
we could incur legal defense costs and could suffer substantial losses due to injury or loss of life, severe damage to or destruction
of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation
and penalties, and suspension of operations. Such inability to defend ourselves or suffer catastrophic financial losses could
cause us to cease operations and/or declare bankruptcy.
Our
JV partner, OPMGE carries General Liability and Premises insurance. In the event we should have operations on future customer
sites, we plan to carry comprehensive general liability insurance will further provide workers’ compensation insurance coverage
to employees in all states in which we will operate. While these policies are customary in the industry, they do not provide complete
coverage against all operating risks, and as a small operator, we may not be able to obtain sufficient coverage. In addition,
our insurance may not cover penalties or fines that may be assessed by a governmental authority. A loss not fully covered by insurance
could have a material adverse effect on our financial position, results of operations and cash flows, causing us to cease business
operations. Our insurance coverage may not be sufficient to cover every claim made against us or may not be commercially available
for purchase in the future.
Our
GTL Technology is subject to the changing of applicable U.S. laws and regulations.
Our
business is particularly subject to federal and state laws and regulations with respect to the oil and gas and mining industries.
Our success depends in part on our ability to anticipate, navigate and respond to any changes that might occur. Due to our currently
limited financial resources, we might not be able to respond to unanticipated changes, should they occur and impact our operations,
and therefore have to cease operations.
Acts
of terrorism, responses to acts of terrorism and acts of war may impact our business and our ability to raise capital.
Future
acts of war or terrorism, national or international responses to such acts, and measures taken to prevent such acts may harm our
ability to raise capital or our ability to operate, especially to the extent we depend upon activities conducted in foreign countries.
In addition, the threat of future terrorist acts or acts of war may have effects on the general economy or on our business that
are difficult to predict. We are not insured against damage or interruption of our business caused by terrorist acts or acts of
war, and thus, our financial operations may be materially impacted by such events.
The
massive and currently unknown short- and long-term economic impacts of COVID-19 may impact our business and ability to raise capital.
COVID-19
and its current extraordinary impact on the world economy has reduced oil consumption globally, decreasing crude oil prices, to
levels not seen since the early 1980’s. The economics of GTL conversion rely in part on the arbitrage between oil and natural
gas prices, with economic models for many producers, including our own models, using a range of $30-60/bbl (for WTI or Brent Crude
as listed daily on the Nymex and ICE commodities exchanges) to determine relative profitability of their GTL operations. While
COVID-19 may run its human course in the near term, we believe as many others in the U.S. government and media believe, that the
economic impacts will be long lasting and for all practical matters, remain largely unknown at this time.
We
may fail to establish and maintain strategic relationships.
We
believe that establishing strategic industry partnerships and natural gas producer customer relationships will greatly benefit
the growth of our business and the deployment of our GTL technology. To further such relationships, we have and will continue
to seek out and enter into strategic alliances, joint ventures, and similar production relationships, including similar to those
announced during the 2019 with INFRA Technologies, OPMGE and the ongoing relationship with UTA. We continue to seek out and have
discussions with potential gas producer on both a customer and financing basis. However, we may not be able to maintain our current
or enter into new strategic partnerships on commercially reasonable terms, or at all, and may not be able to create financial
or customer relationships with natural gas producers. Even if we enter new natural gas producer relationships, such financial
partners and/or customers may not have sufficient production of location based natural gas to provide profitable revenues or otherwise
prove advantageous to our business. Our inability to enter into such new relationships or strategic alliances could have a material
and adverse effect on our business.
Risks
Relating to Our Mining Properties
There
is very limited risk, financial or otherwise, related to our mining leases and interests at this time.
Risks
Relating to Our Common Stock
We
may need to raise additional capital. If we are unable to raise additional capital, our business may fail, or our operating results
and our share price may be materially adversely affected.
Because
we have no record of profitable operations, we need to secure adequate funding on an ongoing basis. If we are unable to obtain
adequate funding, we may not be able to successfully develop and market our GTL technology and our business will likely fail.
We have limited commitments for financing. To secure additional financing, we may need to borrow money or sell more securities,
which may reduce the value of our outstanding securities. We may be unable to secure additional financing on favorable terms,
or at all.
Selling
additional shares of Common Stock, either privately or publicly, would dilute the equity interests of our Shareholders. If we
borrow money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. If
we are unable to obtain adequate financing, we may have to curtail business operations, which would have a material negative effect
on operating results and most likely result in a lower price per share of Common Stock.
Issuance
of additional Common Stock in exchange for services or to repay debt would dilute Shareholders’ proportionate ownership
and voting rights and could have a negative impact on the market price of our Common Stock.
Our
Board of Directors has previously and may continue to issue shares of our Common Stock to pay for debt or services rendered, without
further approval by our Shareholders, based upon such factors as our Board of Directors may deem relevant in its sole discretion.
It is likely that that we will issue additional securities to pay for services and reduce debt in the future. Such issuances may
lower the market price of our stock and decrease our ability to raise additional equity funding for working or investment capital
as may be needed at a later time.
Even
though our shares of Common Stock are publicly traded, an investor’s shares may not be “free-trading” and investors
may be unable to sell their shares of Common Stock at or above their purchase price, which may result in substantial losses to
the investor.
Investors
should understand that their shares of our Common Stock are not “free-trading” merely because we are a publicly traded
company. Shares bought from the Company or received for services rendered or in conjunction with the issuance of debt require
different holding periods, thereby creating a potential lack of liquidity and inability to sell such shares timely for any investor.
In order for our shares of Common Stock to become “free-trading,” the offer and sale of shares of our Common Stock
must either be registered pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities
Act”), or be entitled to an exemption from registration under federal and state securities laws, after being held for
statutory mandated periods.
In
addition, an investor has no assurance that our stock price will rise after purchase or receipt in any manner, as our stock has
shown significant volatility over the life of the Company. The following factors may add to the volatility in the price of our
Common Stock in the future: (i) actual or anticipated variations in our quarterly or annual operating results; (ii) government
regulations; (iii) announcements of significant acquisitions, strategic partnerships or joint ventures; (iv) our capital commitments;
(v) additional dilutive stock issuances, and (vi) additions or departures of key personnel. Many of these factors are beyond our
control and may decrease the market price of our Common Stock, regardless of our operating performance. We cannot make any predictions
or projections as to what the prevailing market price for our Common Stock will be at any time, including as to whether our Common
Stock will sustain the current market price, or as to what effect the sale of shares of Common Stock or the availability of shares
of Common Stock for sale at any time will have on the prevailing market price.
If
we fail to remain current in our reporting requirements, we could be removed from the OTCQB marketplace, operated by the OTC Markets
Group, Inc. (the “OTCMG”), which would limit the ability of broker-dealers to sell our securities and the ability
of Shareholders to easily sell their securities in the secondary market.
Companies
trading on the OTCQB must: (i) be reporting issuers under Section 12 of the Exchange Act of 1934, as amended (the “Exchange
Act”); (ii) must be current in their reports under Section 13 of the Exchange Act; and must pay an annual fee to OTCQB,
to maintain electronic price quotation privileges on the OTCQB. If we fail to remain current in our Exchange Act reporting requirements,
we could be removed from the OTCQB and be forced to be traded on the Pink Sheets, which requires a more challenging stock purchase
process. The OTCQB is recognized by the SEC as an established public market. This platform enables companies to provide current
public information that investors use to analyze, value and trade a security. The OTC Pink Sheets is the lowest and most speculative
tier of the three marketplaces for the trading of over-the-counter stocks. Companies traded on OTC Pink are not held to any particular
disclosure requirements or financial standards, and due to the wide variety of companies listed on OTC Pink, including dark companies,
delinquent companies and worse, they recommend only sophisticated investors with a high risk tolerance should consider it.
Pink
Sheet shares generally trade thinly and infrequently making it hard to buy or sell when the investor wants to complete a transaction.
In addition, trading in OTC Pink Sheet companies requires more paperwork because due the speculative nature of such stocks, the
U.S. Congress prohibited broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of
Section 15(h) of the Exchange Act and the rules promulgated thereunder.
These
SEC rules provide, among other things, that a broker-dealer must: (i) approve the customer for the specific penny stock transaction
and receive from the customer a written agreement to the transaction; (ii) furnish the customer a disclosure document describing
the risks of investing in penny stocks; (iii) disclose to the customer the current market quotation, if any, for the penny stock;
and (iv) disclose to the customer the amount of compensation the firm and its broker will receive for the trade. In addition,
after executing the sale, a broker-dealer must send to its customer monthly account statements showing the market value of each
penny stock held in the customer’s account. With the added inconvenience and cost for brokers, various large brokerage firms,
including Merrill Lynch, Capital One, Fidelity, E-Trade and even the new Robinhood, among others, have simply stopped providing
brokerage services for Pink Sheet stocks for new customers. Accordingly, the market for our common stock would be significantly
diminished if we were forced to trade on the OTC Pink Sheets market exchange.
Volatility
in the share price for our Common Stock may subject us to securities litigation.
There
is a limited market for the sale of shares of our Common Stock. The market for our Common Stock is characterized by significant
price volatility when compared to seasoned issuers, and we expect that our Common Stock share prices will be more volatile than
a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against
a company following periods of volatility in the market price of its securities. In the future, we may be the target of similar
litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention
and resources away from our daily operations, negatively impacting our financial results.
We
do not intend to pay dividends on shares of our Common Stock.
We
have not paid any cash dividends on shares of our Common Stock since our inception and we do not anticipate that we will pay any
cash dividends in the foreseeable future. Earnings, if any, that we may realize will be retained in the business for further development
and expansion. Furthermore, our ability to pay dividends may be restricted under our debt agreements.
Our
substantial level of indebtedness could adversely affect our financial condition.
We
have a substantial amount of indebtedness, which requires significant interest payments. As of December 31, 2019, we had $4,653,532
of total accrued current liabilities and $2,139,843 of current debt (net of debt discounts totaling $107,880), bearing an average
cash interest of 17.8% per year when current and 18% default interest when any such loans are not current. As of the date of this
Form 10-K, we are in default of loans totaling $166,667 and have a total $2,139,843 of current debt bearing an average interest
rate of 17.8% per year. We also have additional long-term liabilities of $525,000, in the form of a 3-year interest-only note
payable, due in July 2022. For more details on our indebtedness, please see Notes 5 and 6 on pages F-11 and F-12 of our Financial
Statements.
Our
substantial level of indebtedness could have important consequences, including the following:
|
|
●
|
We must use a substantial
portion of our cash flow from operations to pay interest, which reduces funds available to use for other purposes, such as
working capital, capital expenditures, and other general corporate purposes;
|
|
|
●
|
Our ability to refinance such indebtedness or
to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes may
be impacted; and
|
|
|
●
|
Our leverage may
be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility
in responding to current and changing industry and financial market conditions.
|
Our
ability to meet expenses and to make future principal and interest payments in respect of our debt, depends on, among other things,
our future operating performance, competitive developments and financial market conditions. We are not able to control many of
these factors. If industry and economic conditions deteriorate, our ability to raise debt or equity capital and/or cash flow may
be insufficient to allow us to pay principal and interest on our debt and meet our other obligations, which could cause us to
default on these obligations. In particular, the Mabert loans maintain a UCC-1 security interest in all of the collateral of the
Company, including to our G-Reformer, technology and intellectual property (our patents, patents pending and licensed patents).
If Mabert exercises its rights and remedies due to defaults under our secured loan agreements, our business, financial condition,
and results of operations will be materially adversely affected.
The
market for penny stocks has suffered in recent years from patterns of fraud and abuse.
Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns
of fraud and abuse. Such patterns include:
|
|
●
|
Control
of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
|
|
|
|
|
|
|
●
|
Manipulation of
prices through prearranged matching of purchases and sales and false and misleading press releases;
|
|
|
|
|
|
|
●
|
Boiler room practices
involving high-pressure sales tactics and unrealistic price projections by inexperienced salespersons;
|
|
|
|
|
|
|
●
|
Excessive and undisclosed
bid-ask differential and markups by selling broker-dealers; and
|
|
|
|
|
|
|
●
|
The wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the
resulting inevitable collapse of those prices and with consequential investor losses.
|
Management
is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position
to dictate the behavior of the market or of broker-dealers who participate in the penny stock market, the Company’s management
will strive to prevent the described patterns from being established with respect to our securities, as the occurrence of these
patterns or practices could increase the volatility of the price per share of our Common Stock and/or diminish stockholders ability
to trade our Common Stock.
Failure
to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material
adverse effect on our business and stock price.
Section
404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal controls over financial reporting
as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over
financial reporting in our annual report. If we fail to maintain the adequacy of our internal controls, we may not be able to
ensure that we can conclude, on an ongoing basis, that we have effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act.
While
we continue to dedicate resources and management time to ensuring that we have effective controls over financial reporting, failure
to achieve and maintain an effective internal control environment could have a material adverse effect on the market’s perception
of our business and the price of our Common Stock.
|
Item
1B.
|
Unresolved Staff
Comments.
|
None.
Our
principal office is 1521 North Cooper St., Suite 205, Arlington, Texas 76011, leased at a rate of $957.00 per month, plus the
cost of utilities, which is generally less than $100.00 per month. We believe these facilities are adequate for at least the next
12 months. We expect that we could locate to other suitable facilities at comparable rates, should we need more or less space.
We
have unpatented mining claims for the Arizona Property. An unpatented mining claim is one that is still owned by the federal government,
but which the claimant has a right to possession to extracted minerals, provided the land is open to mineral entry. A description
of the Arizona Property is included in “Item 1. Business” and is incorporated herein by reference. We believe that
we have satisfactory title to the Arizona Property, subject to liens for taxes not yet payable, liens incident to minor encumbrances,
liens for credit arrangements and easements and restrictions that do not materially detract from the value of these properties,
our interests in these properties, or the use of these properties in a business. We believe that the Arizona Property is adequate
and suitable for the conduct of a mining business, should we decide to proceed with such operations in the future.
|
Item
3.
|
Legal Proceedings.
|
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, including accrued and accruing interest, held by
Southwest Capital Funding, Ltd. (“Southwest”). 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. On September
26, 2019, we entered into a Settlement Agreement with Southwest, providing 1,000,000 shares of Common Stock subject to standard
Rule 144 restrictions, and a three (3) year term Promissory Note for $525,000 to settle all claims (recorded in Long Term Liabilities).
Copies of the Settlement Agreement and Promissory Note were filed by the Company on Form 8-K on October 1, 2019, and a copy of
which is incorporated herein as Exhibit 10.54.
On
April 9, 2018, the Company and Tonaquint, Inc. (“Tonaquint”)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. Such issuance of stock was completed
in connection with a legal opinion pursuant to Rule 144. Copies of the Settlement Agreement was filed by the Company on Form 8-K
on April 9, 2018, and a copy of which is incorporated herein as Exhibit 10.38.
On
September 7, 2018, Wildcat Consulting Group, LLC (“Wildcat”), a company controlled by a shareholder, Marshall
Gleason (“Gleason”), filed suit against the Company, alleging claims arising from a prior 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 agreed to abate both cases until the earlier of a default of the performance of the Rule 11 Agreement or
October 30, 2019. The Rule 11 Agreement was drafted to allow the Parties time to draft and sign a Compromise Settlement and Mutual
Release Agreement (“Wildcat 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. The material terms of the Rule 11 Agreement
were as follows:
|
|
●
|
The Company agreed
to 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. The Company made the three payments due through December
2019, and made the final payment in March 2020, thereby extinguishing such Promissory Note.
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|
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|
●
|
The Company agreed
to 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 $40,000 has been paid through the period ending December
31, 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 agreed
to 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, all such payments having been made in the period ending December 31, 2019.
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|
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●
|
The Company agreed
to issue 1,500,000 restricted shares of its 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 Company issued such 1,500,000 restricted shares and the expense for such issuance was accrued
on the Company’s Balance Sheet on the effective date of the Rule 11 Agreement and increased by $45,000 based upon the
actual value of the shares on the date of issuance for the period ending December 31, 2019.
|
The
Rule 11 Agreement further provided that if the Company timely performed through October 15, 2019, the Parties would 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 by reference as Exhibit 10.52.
The
Company performed in all regards under the Rule 11 Agreement, however Gleason refused to sign the Wildcat Settlement Agreement
at the point of the Company’s having performed its obligations. The parties’ respective counsels then mutually agreed
to extend the original October 15, 2019 settlement date until at least the end of the year while the parties waited for Gleason’s
signature. Gleason signed the Compromise Settlement and Release Agreement on February 4, 2020, and all litigation was dismissed
by the Court on February 25, 2020. A copy of the Dismissal is incorporated by reference as Exhibit 10.59. See also See Note
12 – Subsequent Events on page F-21 to our Financial Statements.
On
March 13, 2019, Chisos Equity Consultants, LLC (“Chisos”), a company controlled by a dissident shareholder,
Richard Halden (“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; subsequently, the lawsuit was dismissed without prejudice on November
19, 2019. A copy of the Dismissal is incorporated by reference as Exhibit 10.60.
On
March 13, 2019, Halden, 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; subsequently, the lawsuit was dismissed
without prejudice on November 19, 2019. A copy of the Dismissal is incorporated by reference as Exhibit 10.61.
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 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 continued until the trial date of December 10, 2019; no
trial was held and the lawsuit was dismissed with prejudice on November 26, 2019. A copy of the Dismissal is incorporated by reference
as Exhibit 10.62.
On
October 19, 2019 the Company was served with a lawsuit by Norman Reynolds (“Reynolds”), a previously engaged
counsel by the Company. The suit was filed in Harris County District Court, Houston, Texas, asserting claims for unpaid fees of
$90,377.50. While fully reserved, the Company vigorously disputed the total amount claimed and has asserted counterclaims based
upon Reynolds’ alleged conflicts of interest, breaches of fiduciary duty and violations of the Texas Deceptive Trade Practices
Act. We are confident in the Company’s defenses and counterclaims and intend to continue to vigorously defend the Company’s
interests and prosecute its claims.
|
Item
4.
|
Mine Safety
Disclosures.
|
Not
applicable.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2019 and 2018
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-ReformerTM refractory 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 gasoline, diesel
and jet fuels, with a near term focus on U.S. market opportunities.
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 its breakthrough
process called Fractional Thermal Oxidation™ (“FTO”), the Company believes that the G-Reformer, combined with
conventional Fischer-Tropsch (“FT”) processes, offers an economical and scalable method to converting natural gas
to liquid fuel.
To
facilitate the commercialization process, Greenway announced in August 2019 that it had entered into an agreement to partially
own and operate an existing GTL plant located in Wharton, Texas. Originally acquired by Mabert, a company controlled by director,
Kevin Jones, members include OPMGE (a company formed to facilitate the joint venture), Mabert and Tom Phillips, an employee of
the Company. The Company’s involvement in the venture is intended to facilitate third-party certification of the Company’s
G-Reformer technology, related equipment and technology. In addition, the Company anticipates that OPMGE’s operations will
demonstrate that the G-Reformer is a commercially viable technology for producing syngas and marketable fuel products. As the
first operating GTL plant to use Greenway’s proprietary reforming technology and equipment, the Wharton joint venture facility
is initially expected to yield a minimum of 75 - 100 barrels per day of gasoline and diesel fuels from converted natural gas.
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 appears to be superior to legacy technologies which are more 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 new plant is anticipated to prove out the economics for
the Company’s technology and GTL processes.
NOTE
2 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the financial statements of Greenway and its wholly owned subsidiaries.
There are no assets, liabilities or operations in the Universal Media Corporation and Logistix Technology Systems subsidiaries
identified below. All intercompany transactions and balances have been 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 to this Annual Report on Form 10-K 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 of December
31, 2019, we have an accumulated deficit of $30,479,829. For the year ended December 31, 2019, we incurred a net loss of $3,661,245
and used $1,332,528 in net cash for operating activities. In addition, we had a working capital deficiency of $6,364,485 as of
December 31, 2019. 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 obtain necessary financing to fund ongoing operations. While the Company
is attempting to commence revenue generating operations and thereby generate sustainable revenues, the Company’s current
cash position is not sufficient to support its ongoing daily operations and requires the Company to raise addition capital through
debt and/or equity sources. Management believes that its current and future plans will enable it to continue as a going concern
for the next twelve months from the date of this report.
The
accompanying consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might
be necessary should the Company have to curtail operations or be unable to continue in existence.
Reclassification
Certain
amounts for the current year ending December 2019 have been reclassified and are now shown in their own line descriptions on the
balance sheet as compared to the prior year, to properly reflect the balances in each category. This includes the reclassification
of certain Accrued management fees in 2018 reclassified to Accrued expenses-related parties, Accounts payable and Accrued interest
payable for 2019.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of significant accounting policies applied in the presentation of the 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. There were no long-lived
assets or impairment charges for the year ended December 31, 2019.
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 Company
adopted the guidance on January 1, 2018, its effective date. The Company has not, to date, generated any revenues.
Equity
Method Investment
On
August 29, 2019, the Company entered into a Material Definitive Agreement related to the formation of OPM Green Energy, LLC (OPMGE).
The Company contributed a limited license to use its proprietary and patented GTL technology for no actual cost basis in exchange
for 42.86% (300 of 700 currently owned member units) revenue interest in OPMGE, expected to be later reduced to a 30% interest
upon the completion of certain expected third-party investments for the remining 300 of 1,000 member units available. The Company
evaluated its interest in OPMGE and determined that the Company does not control OPMGE. The Company accounts for its interest
in OPMGE via the equity method of accounting. At December 31, 2019, there was no change in the investment cost of $0. At December
31, 2019, OPMGE had no material activity as of such date. As described in Note 9, the Company maintains a Related Party
receivable with OPMGE for $387,847 related to our advancing capital for certain of its capital expenditures. The Company expects
to fully recover the receivable once OPMGE operations ramp up in 2020.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. 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 date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Such estimates include allowance for collectible receivables, derivative liability valuations
and deferred tax valuation allowances. Actual results could differ from such 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.
Unless otherwise indicated, all references to “dollars” in this Form 10-K are to U.S. dollars. There were no cash
equivalents at December 31, 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 – 2019.
Net
Loss Per Share, basic and diluted
For
the year ended December 2019, the basic loss per share was computed by dividing net loss available to common shareholders by the
weighted average number of common shares issued and outstanding. Shares issuable upon the exercise of warrants (10,857,737), shares
convertible for debt (2,083,333) and shares outstanding but not yet issued (13,000,986) have been excluded as a common stock equivalent
in the diluted loss per share because their effect would be anti-dilutive.
For
the year ended December 2018, 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 (17,265,893)
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. The
Company did not have any derivative liabilities as of December 31, 2019. See Note 6 – Other Notes Payable on page F-13
to our Financial Statements herein below for discussion regarding 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
December 31, 2019 and 2018:
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2019 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
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 year ended December 31, 2019, is as follows:
|
|
|
Fair Value
|
|
|
Change in
|
|
|
Gain
|
|
|
|
|
|
Fair Value
|
|
|
|
|
January 1,
2019
|
|
|
Fair
Value
|
|
|
on
Settlement
|
|
|
Conversions
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
(103,476
|
)
|
|
$
|
(64,899
|
)
|
|
$
|
39,220
|
|
|
$
|
129,155
|
|
|
$
|
-
|
|
The
change in the notes payable at fair value for the year ended December 31, 2018, is as follows:
|
|
|
Fair Value
|
|
|
Change in
|
|
|
New
|
|
|
|
|
|
Fair Value
|
|
|
|
|
January 1,
2018
|
|
|
Fair
Value
|
|
|
Convertible
Notes
|
|
|
Conversions
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
(105,643
|
)
|
|
$
|
(2,167
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
103,476
|
|
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 December 31, 2019 and 2018, 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 of $250,000. The Company did not have cash on deposit in excess of such limit on December 31, 2019 and 2018.
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 $441,320 and $630,518 during the years ended
December 31, 2019 and 2018, 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
Property,
plant and equipment, their estimated useful lives, and related accumulated depreciation at December 31, 2019 and 2018, respectively,
are summarized as follows:
|
|
|
Range of
|
|
|
|
|
|
|
|
|
|
|
Lives in Years
|
|
|
2019
|
|
|
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 for the year ended December 31, 2019 and 2018.
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
NOTE
5 – TERM NOTES PAYABLE AND NOTES PAYABLE RELATED PARTIES
Term
notes payable consisted of the following at December 31, 2019 and 2018;
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Secured notes payable at 18% per annum related to the Mabert LLC as Agent Loan Agreement dated September 14, 2018 for up to $5,000,000, shown net of debt discount of $107,880 and $90,619 (1)
|
|
$
|
1,923,176
|
|
|
$
|
638,250
|
|
|
Unsecured note payable at 10% per annum dated November 13, 2017 to a corporation, with an amended due date of March 1, 2020 (2)
|
|
|
50,000
|
|
|
|
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 (3)
|
|
|
166,667
|
|
|
|
166,667
|
|
|
Unsecured convertible note payable at 4.0% per annum dated January 16, 2018 to a trust, payable January 16, 2020 (4)
|
|
|
0
|
|
|
|
144,000
|
|
|
Total term notes (net of discounts)
|
|
$
|
1,940,627
|
|
|
$
|
1,048,917
|
|
(1)
On September 14, 2018, the Company entered into a loan agreement with a private company, Mabert LLC, acting as Agent for various
private lenders (the “Loan Agreement”) for the purpose of funding working capital and general corporate expenses up
to $1,500,000, subsequently amended to a maximum of $5,000,000. Mabert LLC is a Texas limited liability company, owned by Director
and stockholder, Kevin Jones, and his wife Christine Early (for each and all references herein forward, “Mabert”).
Under the Loan Agreement, Mabert has loaned gross loan proceeds of $2,031,056 (excluding debt discount of $107,880, for a net
$1,923,176 debt) through December 31, 2019. Mr. Jones, and his wife have loaned $1,426,056 from inception through December 31,
2019, including $897,188 in the current year ended December 2019. The loan is fully secured, Mabert having filed a UCC-1 with
the State of Texas. For each Promissory Note loan made under the Loan Agreement, as a cost to each note, the Company agreed to
issue warrants and/or stock for 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 year ended December 31, 2019, the Company issued an additional 1,784,376 shares
of Common Stock, as compared to the Company having issued 1,624,404 warrants as of December 31, 2018. Pursuant to ACS 470, the
fair value attributable to a discount on the debt is $107,880 for the period ended December 31, 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 under the Loan Agreement with a shareholder for $25,000, at 18% interest
per annum. 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 under the Loan Agreement with a financial institution for $225,000, at
18% interest per annum, advanced and guaranteed by Kevin Jones, a Director and shareholder. 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 under the Loan Agreement with a shareholder for $300,000, at 18% interest
per annum. 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.
On
June 10, 2019, the Company executed a Promissory Note under the Loan Agreement with a shareholder for $50,000, at 12.5% interest
per annum. As a cost of the note, the Company issued 100,000 shares of its Class A common stock at a market price of $0.055 per
share for a total debt discount of $5,666, subject to standard Rule 144 restrictions.
On
August 4, 2019, the Company executed a Promissory Note under the Loan Agreement with a shareholder for $30,000, at 10% interest
per annum. As a cost of the note, the Company issued 60,000 shares of its Class A common stock at a market price of $0.093 per
share for a total debt discount of $5,578, subject to standard Rule 144 restrictions.
On
September 30, 2019, the Company executed a Promissory Note under the Loan Agreement with Kevin Jones, a Director and shareholder
for $505,130, at 18% interest per annum. As a cost of the note, the Company issued 1,010,260 shares of its Class A common stock
at a market price of $0.076 per share for a total debt discount of $77,054, subject to standard Rule 144 restrictions.
On
December 31, 2019, the Company executed a Promissory Note under the Loan Agreement with Kevin Jones, a Director and shareholder
for $167,058, at 18% interest per annum. As a cost of the note, the Company issued 334,116 shares of its Common Stock at a market
price of $0.076 per share for a total debt discount of $25,483, subject to standard Rule 144 restrictions.
Each
of the individual Promissory Notes have one-year terms, automatically renewable, unless an individual lender notifies Mabert within
60 days of the term that they would like payment of the principal and accrued interest upon the end of such promissory note term.
No lenders requested payment for such individual promissory notes during the year ended December 2019.
(2)
On November 13, 2017, the Company executed a Promissory Note with Wildcat for a lump sum payment of $100,000, plus an additional
$10,000 interest, due on February 2018. The Company defaulted on the note and Wildcat subsequently sued for breach of contract.
The parties subsequently settled the dispute and the parties executed a new Promissory Note replacing 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. The Company
made the two payments due through December 2019, and made the final payments in March 2020, thereby extinguishing such Promissory
Note. The balance reflected in this Note 5 is the balance remaining as of year ending December 2019. See Note 11 – Legal.
(3)
On December 20, 2017, 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.
(4)
On January 16, 2018, the Company issued a convertible promissory note for $150,000, prior shown net a $6,000 principal payment
at $144,000. This loan was in default for breach of payment through 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
and the note was converted to 3,906,610 shares of Class A common stock.
NOTE
6 – OTHER NOTES PAYABLE
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 to convert and has indicated that it might convert under settlement discussions
unrelated to the note. See also Note 11 – Legal Matters and Note 12 – Subsequent Events on page F-19 and F-21 to
our Financial Statements.
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 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 $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. As a result of the event of default, the discount related to the beneficial conversion
feature has been extinguished for the balance of 2018, and until the event of default is cured or the note is converted to common
shares.
The
Company issued a $150,000 convertible promissory note January 16, 2018 bearing interest at 4.50% per annum to an accredited investor,
the Greer Family Trust (“Trust”), payable in equal installments of $6,000 plus accrued interest until the principal
and accrued interest are paid in full. The note provided the Trust a right to convert the note into common stock of the Company
at a conversion price of equal to seventy percent (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. At which time,
the default interest rate became 18%. The Company accrued such default interest since the default.
On
July 25, 2019, a Trustee for the Trust sent notice to the Company of their election to convert all unpaid principal and accrued
interest of $183,220 due under the note. The conversion price as calculated according to the note’s terms is $0.0469 per
share, resulting in a conversion of the Note and accrued interest into 3,906,610 shares of the Company’s common stock. These
shares were issued in the first quarter of 2020.
The
Company evaluated the terms of the original 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 discount related to the beneficial conversion feature on
the note was valued at $58,495 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 was being amortized over
the term of the debt. The discount related to the beneficial conversion feature on the note was valued using the Black-Scholes
Model. During the year ended December 31, 2018, the remaining discount was fully amortized. The derivative liability for this
note at July 25, 2019 and December 31, 2018 was $168,375 and $103,476 respectively, calculated as described in Note 3 under the
Black-Scholes Model parameters shown below.
|
|
|
July 25,
2019
|
|
|
Commitment Date
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
253.27
|
%
|
|
|
261.71
|
%
|
|
Expected term: conversion feature
|
|
|
1 year
|
|
|
|
1 year
|
|
|
Risk free interest rate
|
|
|
2.08
|
%
|
|
|
1.76
|
%
|
Due
to the conversion of the convertible note on July 25, 2019, the Company wrote off the total $168,375 derivative liability as of
the conversion date, recording a $64,899 loss in the fair value of a derivative for the year ended December 31, 2019.
On
September 26, 2019, we entered into a Settlement Agreement with Southwest Capital Funding Ltd. (“Southwest”) to resolve
all conflicts related to a lawsuit in Hawaii, cause no. 16-1-0342, in the Circuit Court of the Third Circuit, State of Hawaii,
styled Southwest Capital Funding, Ltd. v. Mamaki Tea, Inc., et. al., whereby the Company had provided loan guarantees for
Mamaki of Hawaii, Inc., Hawaiian Beverages, Inc., Curtis Borman, and Lee Jenison. As part of the consideration for an agreed stipulated
judgement, we agreed to provide Southwest a Promissory Note in the amount of $525,000, providing for a three-year term, at 7.7%
simple interest-only payable semi-annually, with interest due calculated on a 365-day year, default interest at 18%, with the
principal amount due at maturity. A first semi-annual interest payment of $15,727 is due February 15, 2020. We accrued $10,549
through the end of December 2019 and made such semi-annual interest payment in February 2020.
In
addition, we agreed to issue and deliver to Southwest 1,000,000 shares of Rule 144 restricted Class A common stock valued at $0.05
per share, at $50,000 expense to the Company, such shares being issued in the 3rd-quarter 2019 and fully expensed in the period
ended December 2019. Provided there is no default on the Promissory Note, Southwest agreed to not sell any stock for at least
one year from the date of the Settlement Agreement.
NOTE
7 – ACCRUED EXPENSES
Accrued
expenses, after certain reclassifications in 2019, consisted of the following at December 31, 2019 and 2018:
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Accrued consulting fees
|
|
$
|
392,018
|
|
|
$
|
479,194
|
|
|
Accrued consulting expense
|
|
|
249,500
|
|
|
|
249,500
|
|
|
Miscellaneous accruals
|
|
|
-
|
|
|
|
6,139
|
|
|
Total accrued expenses
|
|
$
|
641,518
|
|
|
$
|
734,833
|
|
NOTE
8 – CAPITAL STRUCTURE
At
the Company’s Special Shareholders Meeting, all four proposals presented to the Company’s shareholders were passed
with overwhelming support. The approvals for Proposals 1 – 3 are relevant to the Company’s current capital structure.
Specifically, Proposal 1 received shareholder approval to increase the number of authorized shares of Class A Shares of the Company,
par value $0.0001 per share (“Class A Shares”), from 300,000,000 to 500,000,000, (such amendment, “Amendment
No. 1”); Proposal 2 received shareholder approval to change the name of the Company’s Class A Shares from “Class
A” to “common stock” (“Common Stock”), which now has the same par value $0.0001 per share, designations,
powers, privileges, rights, qualifications, limitations, and restrictions as the former Class A Shares, and Proposal 3 received
shareholder approval to eliminate Class B Shares as a class of capital stock of the Company. All references to Common Stock described
herein below include by definition any former Class A common stock.
Accordingly,
the Company is authorized to issue 500,000,000 shares of Common Stock with a par value of $.0001 per share, with each share having
one voting right.
Common
Stock
At
December 31, 2019, there were 296,648,677 shares of Common Stock issued and outstanding.
During
the three-months ended December 31, 2019, the Company: issued 5,534,116 shares of Rule 144 restricted Common Stock, including
4,000,000 and 1,200,000 shares issued in a private placement to two (2) accredited investors, each at $0.05 per share, and, 334,116
shares for $25,483 in loan origination fees.
During
the three-months ended September 30, 2019, the Company: issued a net new 8,826,870 shares of restricted Common Stock, including
3,906,610 shares for a loan conversion at $0.047 per share (see Note 5 herein above), and to: three (3) individuals at a total
1,170,260 shares for $88,298 in loan origination fees; one (1) individual in a private placement of 1,250,000 shares at $0.08
per share and 2,500,000 shares valued at $200,000 to two (2) business entities related to legal settlements.
During
the three-months ended June 30, 2019, the Company: issued 1,100,000 shares of restricted Common Stock to two (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 Common Stock to three (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 Common Stock outstanding.
During the year ended December 31, 2018, the
Company: issued 5,655,253 shares of Common Stock to twenty-two (22) individuals through private placements for cash of $602,500
at an average of approximately $0.106 per share.
|
|
●
|
issued
500,000 shares of restricted common stock for related to fulfilling the obligations of the Employment Agreements for our then
president, John Olynick, and our CFO, Ransom Jones, for stock grants totaling $50,000 at $.010 per share.
|
|
|
●
|
issued 3,000,000
of restricted common stock to one shareholder in settlement of a shareholder obligation for a total value of $330,000 at an
average of $0.11 per share.
|
|
|
●
|
Issued 1,600,000
of restricted common stock to one shareholder in settlement of a debt that had warrants attached. The total was a value of
$208,000 at an average of $0.13 per share.
|
|
|
●
|
canceled 11,733,164
of treasury shares.
|
Class
B Stock
At
December 31, 2019, there are no longer any Class B shares. For the period ending December 31, 2018, there were no shares of Class
B stock issued and outstanding.
Stock
options, warrants and other rights
At
December 31, 2019 and 2018 respectively, the Company has not adopted any employee stock option plans.
At
December 31, 2019 and 2018 respectively, the Company had 10,857,737 and 17,265,893 warrants outstanding.
|
Name of Warrant Holder
|
|
Warrants
Issue Date
|
|
Total
Warrants Issued
|
|
|
Term
(Yrs)
|
|
|
Expiration
Date
|
|
Activity in
2018
|
|
|
Balance
2018
|
|
|
Activity
in
2019
|
|
|
Balance
2019
|
|
|
Norman Reynolds
|
|
Oct-15
|
|
|
4,000,000
|
|
|
|
5
|
|
|
Oct-00
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
-
|
|
|
|
4,000,000
|
|
|
Various Shareholders
|
|
Jan-16
|
|
|
1,169,136
|
|
|
|
2
|
|
|
Jan-18
|
|
|
(1,169,136
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Various Shareholders
|
|
Jan-17
|
|
|
641,489
|
|
|
|
3
|
|
|
Dec-19
|
|
|
-
|
|
|
|
641,489
|
|
|
|
(641,489
|
)
|
|
|
-
|
|
|
Richard Halden
|
|
Feb-17
|
|
|
4,000,000
|
|
|
|
2
|
|
|
Feb-19
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
(4,000,000
|
)
|
|
|
-
|
|
|
Richard Halden
|
|
Feb-17
|
|
|
2,000,000
|
|
|
|
3
|
|
|
Feb-20
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
MTG Holdings LTD
|
|
Nov-17
|
|
|
1,000,000
|
|
|
|
3
|
|
|
Nov-20
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
(1,000,000
|
)
|
|
|
-
|
|
|
Kent Harer
|
|
Jan-18
|
|
|
4,000,000
|
|
|
|
3
|
|
|
Jan-21
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
4,000,000
|
|
|
Mabert LLC
|
|
Dec-18
|
|
|
1,624,404
|
|
|
|
15
|
|
|
Dec-33
|
|
|
1,624,404
|
|
|
|
1,624,404
|
|
|
|
(766,667
|
)
|
|
|
857,737
|
|
|
Total:
|
|
|
|
|
18,435,029
|
|
|
|
|
|
|
|
|
|
4,455,268
|
|
|
|
17,265,893
|
|
|
|
(6,408,156
|
)
|
|
|
10,857,737
|
|
For
the year ended December 2019, the Company had 10,857,737 warrants outstanding, of which 2,000,000 have expired and 857,737 have
been converted as of the date of this report on Form 10-K. Of the remaining 8,000,000 warrants, the 4,000,000 warrants in the
favor of Reynolds expire in October 2020, and the 4,000,000 warrants in favor of Harer expire in January 2021. The weighted average
exercise price of these remaining warrants is $.175, with remaining terms of less than a year.
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%. These warrants were not exercised before December 31, 2019 and will expire by their terms on October 1,
2020.
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%. The initial 4,000,000 warrants were not exercised within the
period provided and expired by their terms on February 3, 2019.
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 11 – Legal Matters on page F-19 to our Financial Statements.
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 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 Central 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 two quarters 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’ 857,737
warrants, were converted to common stock in January 2019.
There
were 641,489 warrants issued to various individual shareholders prior to 2017 that had an average range of two to three-year expiration
terms, all expiring at various times in 2019. The Company has adjusted its outstanding warrants accordingly for the year ending
December 31, 2019.
There
were 1,169,136 warrants issued to various individual shareholders prior to 2015 that had an average range of two to three-year
expiration terms, all expiring at various times in 2018. The Company has adjusted its outstanding warrants accordingly for the
year ending December 31, 2018.
NOTE
9 - RELATED PARTY TRANSACTIONS
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, as an Agent for various private
lenders including themselves, entered into a loan agreement (“Loan Agreement”) for the purpose of funding working
capital and general corporate expenses for the Company of up to $1,500,000, which was subsequently amended to provide up to $5,000,000.
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 as an Interested Director did not vote on this transaction. Since the inception of the Loan Agreement
through December 31, 2019, a total of $2,031,056 (excluding debt discount of $107,880) has been loaned to the Company by six shareholders,
including Mr. Jones. See also Note 5 - Term Notes Payable and Notes Payable Related Parties herein on page F-11.
Through
Mabert, Mr. Jones along with his wife and his company have loaned $1,426,056, and four other shareholders have loaned the balance
of the Mabert Loans. 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 work as an agent for the lenders.
For
the year ended December 31, 2019, the Company accrued expenses for related parties of $1,369,389 to account for the total deferred
compensation expenses among three current executives, one former executive and one current employee. Each of the current executives
and employees have agreed to defer their compensation until such time as sufficient cash is available to make such payments, the
Company’s Chief Financial Officer having the express authority to determine what constitutes cash sufficiency from time-to-time.
In
the year ended December 31, 2019, we received $51,019 in advances from three of our directors, Ransom Jones, Kent Harer and Kevin
Jones, in the amounts of $25,000, $25,000 and $1,019 respectively, which have been accrued as Advances - related parties for the
period.
During
the year ended December 31, 2019, the Company advanced $387,847 to OPMGE, an affiliate that, as reported on Form 8-K on August
29, 2019, Entry into a Material Definitive Agreement, the Company now owns a non-consolidating 42.86% interest, for expenses related
to operating the OPMGE GTL plant located in Wharton, Texas. The amount advanced was booked as a related party receivable by the
Company which expects to fully recover the receivable from OPMGE as it ramps up its operations in 2020.
NOTE
10 – INCOME TAXES
The
Company has not filed its corporate tax returns since fiscal 2016.
Due
to recurring losses, the Company’s tax provision for the years ended December 31, 2019 and 2018 was $0.
The
difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
|
State tax, net of federal benefit
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
Permanent differences and other including surtax exemption
|
|
|
0.0
|
|
|
|
0.0
|
|
|
Valuation allowance
|
|
|
(21.0
|
)
|
|
|
(21.0
|
)
|
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
At
December 31, 2019 and 2018 the Company’s deferred tax assets were as follows:
|
|
|
2019
|
|
|
2018
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
22,840,100
|
|
|
$
|
19,598,855
|
|
|
Deferred compensation / management fees
|
|
|
3,569,833
|
|
|
|
1,342,000
|
|
|
Total deferred tax assets
|
|
|
26,409,933
|
|
|
|
20,940,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(26,409,933
|
)
|
|
|
(20,940,855
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31, 2019, the Company had unused net operating loss carry forwards of approximately $30.1 million available to reduce
future federal taxable income. Net operating loss carryforwards of $23.6 million expire through fiscal years ending 2037, and
6.5 million may be carried forward indefinitely. Internal Revenue Code Section 382 places a limitation on the amount of taxable
income that can be offset by carryforwards after a change in control (generally a greater than 50% change in ownership).
The
Company’s ability to offset future taxable income, if any, with tax net operating loss carryforwards may be limited due
to the non-filing of tax returns and the impact of the statute of limitations on the Company’s ability to claim such benefits.
Furthermore, changes in ownership may result in limitations under Internal Revenue Code Section 382. Due to these limitations,
and other considerations, management has established full valuation allowances on deferred tax assets relating to net operating
loss carryforward, as the realization of any future benefits from these assets is uncertain. The change in the valuation allowance
was $5,469,078 and $233,037 for the years ended December 31, 2019 and 2018, respectively.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Employment
Agreements
In
August 2012, the Company entered into an employment agreement with Ray Wright, as president of Greenway Innovative Energy, Inc.,
and who is now chairman of the board of Greenway Technologies, Inc., for a term of five years with compensation of $90,000 per
year. In September 2014, the president’s employment agreement was amended to increase such annual pay to $180,000. By its
terms, the employment agreement automatically renewed on August 12, 2018 for a successive one-year period. During the twelve-months
ended December 31, 2019, the Company paid and/or accrued a total of $180,000 for this fiscal year under the terms of the agreement.
Effective
May 10, 2018, the Company entered into identical 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, such amount having been accrued for the year ended December 2019. 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 exist.
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 equal to 4,500,000 shares of the Company’s Rule 144 restricted common
stock, par value $.0001 per share, valued at $.06 per share, or $270,000, which we expensed at time of grant. Such shares were
physically issued in February 2020. Phillips is also entitled to certain additional stock grants based on the performance of the
Company during the term of his employment and is entitled to participate in the Company’s benefit plans, if and when such
become available.
Effective
April 1, 2019, the Company entered into an employment agreement with Ryan Turner for a term of twelve (12) months with compensation
of $80,000 per year, to manage the Company’s Business Development and Investor Relations functions. Turner reports to the
President of Greenway Technologies and is entitled to a no-cost grant of common stock equal to 2,500,000 shares of the Company’s
Rule 144 restricted common stock, par value $.0001 per share, valued at $.06 per share, or $150,000, which we expensed at time
of grant. Such shares were physically issued in February 2020. Turner is also entitled to certain additional stock grants based
on the performance of the Company during the term of his employment. Turner is also entitled to participate in the Company’s
benefit plans, if and when such become available.
Other
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. As a result, only 3,750,000 common shares are committed to be later issued
under the original 2012 acquisition agreement.
The
Company has accrued management fees of $1,301,964 related to separation agreements and settlement expenses for two prior executives
of the Company, Richard Halden and Randy Moseley, who both resigned from their respective management positions in 2016, with Halden
then further resigning as a director from our Board of Directors in Feb 2017. Although we have not maintained currency with respect
to the contractual payment obligations therein, both former employees are greater than five percent shareholders and had agreed
to defer payments until such time as we have sufficient available liquidity to begin making payments on a regular basis. In March
of this year, Halden filed suit against the Company alleging claims arising from his 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; subsequently, the lawsuit was dismissed without prejudice on November 19, 2019.
Other than an increase in our legal expenses related to defending against Halden’s lawsuit, and given the subsequent dismissal
of the same, we expect no further material financial impacts from such accrued fees until any such regular payments are able to
begin, or another form of settlement is reached.
Consulting
Agreements
On
November 28, 2017, the Company entered into a three-year consulting agreement with Chisos 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 were to be made upon the Company’s common stock reaching certain price points over an extended period. 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. Chisos sued the Company for breach
of contract. The Company vigorously defended itself and the litigation was dismissed without prejudice on November 19, 2019. See
Note 11 – Legal Matters on page F-19 to our Financial Statements.
On
September 7, 2018, Wildcat Consulting, a company controlled by a shareholder, Marshall Gleason (“Gleason”), filed
suit against the Company alleging claims arising from a prior Consulting Agreement between the parties, seeking to recover monetary
damages, interest, court costs, and attorney’s fees. On March 6, 2019, the parties entered into a Rule 11 Agreement settling
both disputes. The Company performed in all regards under the Rule 11 Agreement and the parties executed the Settlement Agreement.
Gleason signed the Compromise Settlement and Release Agreement on February 4, 2020, and both cases were dismissed by the Court
on February 25, 2020. See also Note 11 – Legal Matters and Note 12 – Subsequent Events on page F-19 and F-21 to
our Financial Statements.
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated
guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated
guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance
in ASC 606. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company
adopted this guidance effective January 1, 2019 and noted that the leases discussed below did meet the requirements for recording
a right of use asset or liability under ASC-842 given that they were short term 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 for successive one-year terms in the Company’s sole discretion.
Each
September, the Company pays $11,600 in annual maintenance fees on its Arizona BLM mining leases, under one-year lease agreements,
renewable for successive one-year terms in the Company’s sole discretion in addition. These leases provide for 10% royalties
based on production, if any. There has been no production to date.
Legal
Matters
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, including accrued and accruing interest held by Southwest
Capital Funding, Ltd. (“Southwest”). 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. On September 26, 2019, we entered into
a Settlement Agreement with Southwest, providing 1,000,000 shares of Common Stock subject to standard Rule 144 restrictions, and
a three (3) year term Promissory Note for $525,000 to settle all claims (recorded in Long Term Liabilities).
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 and 8% of the weekly trading volume. Such issuance of stock was completed in connection with a legal opinion
pursuant to Rule 144.
On
September 7, 2018, Wildcat, a company controlled by a shareholder Gleason, filed suit against the Company, alleging claims arising
from a prior 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 agreed to abate both cases until the earlier of a default of the performance of
the Rule 11 Agreement or October 30, 2019. The Rule 11 Agreement was drafted to allow the Parties time to draft and sign the Wildcat
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. The material terms of the Rule 11 Agreement were as follows:
|
|
●
|
The Company agreed
to 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. The Company made the three payments due through December
2019, and made the final payment in March 2020, thereby extinguishing such Promissory Note.
|
|
|
|
|
|
|
●
|
The Company agreed
to 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 $40,000 has been paid through the period ending December
31, 2019.
|
|
|
|
|
|
|
●
|
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%).
|
|
|
|
|
|
|
●
|
The Company agreed
to 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, all such payments having been made in the period ending December 31, 2019.
|
|
|
|
|
|
|
●
|
The Company agreed
to issue 1,500,000 restricted shares of its 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 Company issued such 1,500,000 restricted shares and the expense for such issuance was accrued
on the Company’s Balance Sheet on the effective date of the Rule 11 Agreement and increased by $45,000 based upon the
actual value of the shares on the date of issuance for the period ending December 31, 2019.
|
The
Rule 11 Agreement further provided that if the Company timely performed through October 15, 2019, the Parties would file a Joint
Motion for Dismissal and present Agreed Orders of Dismissal with prejudice for both lawsuits.
The
Company performed in all regards under the Rule 11 Agreement, however Gleason refused to sign the Wildcat Settlement Agreement
at the point of the Company’s having performed its obligations. The parties’ respective counsels then mutually agreed
to extend the original October 15, 2019 settlement date until at least the end of the year while the parties waited for Gleason’s
signature. Gleason signed the Compromise Settlement and Release Agreement on February 4, 2020, and all litigation was dismissed
by the Court on February 25, 2020.
On
March 13, 2019, Chisos, a company controlled by dissident shareholder 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; subsequently, the lawsuit was dismissed
without prejudice on November 19, 2019.
On
March 13, 2019, dissident shareholder Halden 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; subsequently,
the lawsuit was dismissed without prejudice on November 19, 2019.
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 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 continued until the trial date of December 10, 2019; no
trial was held and the lawsuit was dismissed with prejudice on November 26, 2019.
On
October 19, 2019 the Company was served with a lawsuit by Norman Reynolds, a previously engaged counsel by the Company. The suit
was filed in Harris County District Court, Houston, Texas, asserting claims for unpaid fees of $90,378. While fully reserved,
Greenway vigorously disputes the total amount claimed. Greenway has asserted counterclaims based upon alleged conflicts of interest,
breaches of fiduciary duty and violations of the Texas Deceptive Trade Practices Act (“DTPA”). Greenway is confident
in its defenses and counterclaims and intends to vigorously defend its interests and prosecute its claims.
NOTE
12 - SUBSEQUENT EVENTS
In
March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by
the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in each of
the areas in which the Company operates. The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions,
including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental
regulations, reduced business and consumer spending due to both job losses, reduced investing activity and M&A transactions,
among many other effects attributable to the COVID-19 (coronavirus), and there continue to be many unknowns. While to date the
Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the
like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19
(coronavirus) outbreak will impact our operations, ability to obtain financing or future financial results is uncertain.
On
September 7, 2018, pursuant to the Rule 11 Agreement executed by the parties on March 6, 2019 and the Company having performed
in all regards under such agreement through its term of October 30, 2019, Wildcat and the Company signed the final Wildcat Settlement
Agreement on February 4, 2020, and the Parties filed a Joint Motion for Dismissal and Agreed Orders of Dismissal with prejudice
for both lawsuits, such Motion and Order accepted by the Court on February 25, 2020. See Note 11 – Legal Matters herein
above.
On
February 11, 2020, we sold 600,000 shares of
our Rule 144 Common Stock, par value $.0001 per share for $60,000 to an accredited investor in a private sale.
On
February 16, 2020, we issued 7,000,000 shares of our Rule 144 Common Stock, par value $.0001 per share, to two employees, Ryan
Turner and Thomas Phillips for 2,500,000 and 4,500,000 shares respectively, pursuant to identical voluntary stock issue deferment
provisions in each of their employment agreements, valued on the date of grant at $.10 per share, such share issuance expense
to be accounted for in our first quarter 2020.
On
February 19, 2020, Kevin Jones, a Director converted 857,737 warrants issued in conjunction with the Mabert LLC Loan Agreement
described herein above, for 857,737 shares of the Company’s Common Stock.
On
February 19, 2020, Kevin Jones, a Director was issued 1,460,260 shares of our Rule 144 restricted Common Stock as consideration
for loan origination fees, for two promissory notes issued during the year ended December 2019. See Note 5 – Term Notes
Payable and Notes Payable Related Parties on page F-11 to our Financial Statements.
On
March 3, 2020, we issued 3,906,610 shares of our Rule 144 restricted Common Stock related to the conversion of a loan in favor
of the Greer Family Trust. See Note 11 – Legal Matters on page F-19 to our Financial Statements.
On
January 24, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), by and between
the Company and PowerUp Lending Group, Ltd., a Virginia corporation (“PowerUp”), whereby PowerUp purchased, and the
Company sold, a Convertible Promissory Note, dated January 24, 2020, by and between the Company and PowerUp (the “Note”),
in exchange for a cash purchase price of $118,000.
PowerUp
has agreed to provide up to $1,000,000 to the Company under the same and substantially similar terms (term dates change with each
agreement) over a twelve-month period, subject to period determined stock price and trading attributes. The Purchase Agreement
contains customary representations and warranties, covenants, and conditions to closing.
Material
terms of the Note include the following provisions:
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The
unpaid principal balance of the Note shall bear interest at the rate of 10% per year;
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Any amount of principal
or interest due under the Note that is not paid when due shall bear interest at the rate of 22% per year from the date it
was due until such outstanding amount is paid;
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The Note matures
on January 24, 2021;
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PowerUp may elect
to convert all or any part of the outstanding and unpaid amount of the Note into shares of common stock, par value $0.0001
per share, of the Company (the “Common Stock”) from time to time, during the period that is 180 days following
the issue date of the Note;
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The Company must
reserve up to five times the number of shares of Common Stock that would be issuable upon full conversion of the Note, and
instruct the Company’s transfer agent, Transfer Online, Inc., to that effect;
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The Company may
prepay the Note, but must pay a prepayment percentage to PowerUp depending on the time that the Note is prepaid;
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So long as the Note
remains outstanding, the Company may not sell, lease, or otherwise dispose of any significant portion of its assets outside
the ordinary course of business without PowerUp’s written consent; and
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Certain events qualify
as events of default under the Note including, but not limited to: (a) the Company’s breach of a material term of the
Note or the Purchase Agreement; (b) the Company’s failure to pay the amount of principal or interest due to PowerUp
under the Note by the Company, (c) the Company’s failure to comply with its reporting obligations under the Securities
Exchange Act of 1934, as amended, and (d) the Company’s assignment for the benefit of creditors.
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On
February 22, 2020, the Company executed a second sequential Securities Purchase Agreement and Convertible Promissory Note for
an additional $53,000, under the same and substantially similar terms, i.e., incorporating the new issue date for a one-year term
maturing on February 12, 2021.
The
foregoing descriptions of the Purchase Agreement and the Notes do not purport to be complete and are qualified in their entirety
by reference to the full text of the Purchase Agreement and the Notes.
