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.
On
April 28, 2020, the Company was issued a new U.S. Patent 10,633,594 B1 for syngas generation for gas-to-liquid fuel conversion.
The Company has several other pending patent applications, both domestic and international, related to various components and
processes involving our proprietary GTL methods, which when granted, will further complement our existing portfolio of issued
patents and pending patent applications.
On
December 8, 2020, the Company announced an exclusive worldwide patent licensing agreement with the University of Texas at Arlington
(UTA) for all patent applications currently filed with the Patent and Trademark Office relating to GWTI’s natural gas reforming
technologies developed under its sponsored research agreement with UTA.
On
December 15, 2020, the Company announced additional information regarding valuable outputs produced by the company’s proprietary
G-Reformer™ catalyst reactor and Fischer-Tropsch (FT) technology which combine to form the “Greer-Wright”
GTL solution. Originally developed to convert natural gas into ultra-clean synthetic fuel, recent research and development activity
has shown that the technology can also allow the extraction of high-value chemicals and alcohols. The chemical outputs include
n-Hexane, n-Heptane, n-Octane, n-Decane, n-Dodecane, and n-Tridecane. Alcohols produced include ethanol and methanol. The company
has identified worldwide industrial demand for these outputs which will significantly improve the economic return on investment
(ROI) of GTL plants that are based on GWTI’s technology. GWTI is a development-stage company with plans to commercialize
its unique and patented technology.
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.
Our
Company has developed a revolutionary and unique process that converts natural gas of various origins and compositions into a
highly pure variety of chemicals, high cetane diesel fuel, industrial grade pure water and electrical energy. GTL technology has
existed as a traditional process going back generations. This process consists of two steps. First, natural gas is converted into
Synthesis Gas (Syngas) which is a non-naturally occurring blend of Hydrogen and Carbon Monoxide. The front-end part of the GTL
process is called “Gas Reformation”. The output of the Gas Reformer is compressed and fed through a secondary process,
called Fischer-Tropsch (FT). This secondary process is widely used in many forms in the chemical and oil industries. While FT
is a common process, Gas Reformation has been the most difficult step beyond an old and traditional process typically used in
refineries. The invention of our software-controlled GTL process fronted by our patented and revolutionary gas reformation unit,
the G-Reformer®, makes us the innovator in GTL technology. Our patents are based on scalability, transportability, flexibility
and self-sustainment based on a wide variety of input gasses and output mixtures.
The
Company’s process is made of small sized modularly scalable units which are portable and self-contained unlike other GTL
solutions based on Steam Methane reformation. While many companies have tried to scale Steam Methane Reformation down for use
in smaller, non-refinery based GTL plants, they have been largely unsuccessful. As a result, we can build self-sufficient GTL
plants at virtually any location capable of supplying wellhead or pipeline gas of sufficient ongoing volume. This gives us the
ability to eliminate flaring at the source while keeping remote oil fields in production without flaring. The conversion of flaring
gas to liquid allows trucks to easily move liquid chemicals, clean diesel fuel, highly clean water and the power grid to move
electricity from virtually any location.
Our
initial ROI studies of the market for high purity chemicals we produce can provide incredibly rapid payback of investments. It
should be noted the vast majority of these chemicals produced are made in China. Further, because they originate from a barrel
of oil at a refinery, they are much lower in purity.
Products
created by the GTL process include High Cetane Diesel, Naphtha, Technical Grade Water, and high value, high purity chemicals.
The chemicals produced in the GWTI GTL plant are vital to many industries including pharmaceutical, cosmetics, fragrances, adhesives,
and others. The vast majority of these chemicals are produced in China. Such dependency makes America captive to shortfalls whether
they are manufacturing related or intentional. By making these chemicals in the USA, we reduce that dependency and keep the product,
the jobs, and the profits in America.
According
to publicly available industry research from Shell Oil, MarketResearchFuture.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 $20.4 billion by 2025, growing at a compound
annual growth rate of 7.55% over that period.
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 flared gas 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 (3) 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 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, 2020, we have an accumulated deficit of $33,021,801. For the year ended December 31, 2020, we incurred
a net loss of $2,541,972 and used $686,032 in net cash for operating activities. The ability of the Company to continue as a going
concern is in doubt and dependent upon achieving a profitable level of operations or on the ability of the Company to 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.
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 will 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.
Although
the longevity of patents in the United States are limited in duration to 21 years, this should not affect the Company’s
long-term ability to successfully monetize the intellectual property it owns.
As
of December 31, 2020, 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. On April 28, 2020, the Company was issued a new U.S. Patent 10,633,594 B1 for syngas generation
for gas-to-liquid fuel conversion. The Company has several other pending patent applications, both domestic and international,
related to various components and processes involving our proprietary GTL methods, which when granted, will further complement
our existing portfolio of issued patents and pending patent applications.
In
February 2021, the Company was issued Patent 10,907,104, the fourth patent relating to the company’s proprietary G-Reformer™
technology which allows for the conversion of natural gas into synthesis gas. The newly issued patent extends the methods and
details of generating syngas using the apparatus described in a previously issued patent No. 10,633,594, the company’s third
patent. As described in the patent, methane, oxygen, and steam are continuously injected into the combustion section of the apparatus
to generate carbon monoxide along with unreacted methane and steam. The carbon monoxide, unreacted methane, and steam then enter
the catalyst chamber where these components react to generate syngas. The pressure inside the reaction vessel is controlled at
no higher than 5 psig.
The
term of each patent under U.S. law is 21 years. Accordingly, each of these patents will expire in the years 2034, 2035 and 2041
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 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”). 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.
In
order to safe guard against this possibility, on December 8, 2020, the Company announced an exclusive worldwide patent licensing
agreement with the University of Texas at Arlington (UTA) for all patent applications currently filed with the Patent and Trademark
Office relating to GWTI’s natural gas reforming technologies developed under its sponsored research agreement with UTA.
To
support our engineering efforts, we also continued our ongoing confidential Sponsored Research Agreement (“SRA”) with
UTA which began in October 2009 and has continued 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 for some extenuating circumstances, 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 future 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
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 outbreak closely. The extent to which the COVID-19 outbreak
will impact our operations, the operations of OPMGE and/or ability to obtain financing or future financial results is uncertain.
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, 2020, we had $5,558,801
of total accrued current liabilities and $3,298,272 of current debt (net of debt discounts totaling $13,153), 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 $691,667, of which $525,000, is 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 of our Financial Statements.
Our
substantial level of indebtedness could have important consequences, including the following:
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●
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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;
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●
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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
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●
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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:
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Control
of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation
of prices through prearranged matching of purchases and sales and false and misleading press releases;
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●
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Boiler
room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced salespersons;
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Excessive
and undisclosed bid-ask differential and markups by selling broker-dealers; and
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●
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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.
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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.
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Item
1B.
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Unresolved
Staff Comments.
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None.
Our
principal office is 1521 North Cooper St., Suite 205, Arlington, Texas 76011, leased at a rate of $949 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.
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Item
3.
|
Legal
Proceedings.
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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. Through a mediated settlement,
the Company’s agreed to a Rule 11 Agreement, providing the Company execute a new promissory note to replace the prior Promissory
Note with new payment provisions, among other requirements, and further stipulating that the parties would enter into a form of
mutually settlement agreement. The Company performed in all regards under the Rule 11 Agreement, Wildcat (Gleason) signed the
mutually agreed Compromise Settlement and Release Agreement on February 4, 2020, and all litigation among the parties was dismissed
by the Court on February 25, 2020.
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.
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Item
4.
|
Mine
Safety Disclosures.
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Not
applicable.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020 and 2019
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.
To date, the Company has not raised sufficient funding to achieve the aforementioned objectives but continues to work toward that
end.
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
consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and the
satisfaction of liabilities in the normal course of business. As of December 31, 2020, we have an accumulated deficit of $33,021,801.
For the year ended December 31, 2020, we incurred a net loss of $2,541,972 and used $686,032 in net cash for operating activities.
In addition, we had a working capital deficiency of $8,844,210 as of December 31, 2020. 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
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, the operations of OPMGE and/or ability to obtain financing or future financial results is uncertain.
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
In
the current year, the Company reclassified settlement amounts previously presented in the Balance Sheets as “Accounts payable”
to “Notes payable and convertible notes payable” and cash payments made related to the settlement as a change in accrued
expenses in net cash used in operating activities to payments on other notes payable in net cash provided by financing activities.
For comparative purposes, the amounts in the prior year have been reclassified to conform to current year presentations.
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, 2020.
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
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, 2020, there was no change in the investment cost of $0. At December
31, 2020, OPMGE had no material business activity as of such date. As described in Note 9, the Company maintains a Related Party
receivable with OPMGE for $412,885 related to our advancing capital for certain of OPMGE’s capital expenditures that we
believe are in the Company’s best interests. Due to the uncertainty of the collectability of the OPMGE receivable, the Company
has fully reserved the full amount of this equity method receivable with OPMGE as of December 31, 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,
valuation of share-based costs, 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.
There were no cash equivalents at December 31, 2020 or December 31, 2019.
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 2016 – 2020, with no corporate tax returns
filed for the years ending 2016 to 2020.
Net
Loss Per Share, basic and diluted
For
the year ended December 31, 2020, 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. For the year ended December 31, 2020, shares issuable
upon the exercise of warrants (7,000,000), no shares convertible for debt and shares outstanding but not yet issued (537,762)
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 2019, 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.
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, 2020. During the year ended December 31, 2020, the Company
entered into two convertible notes creating derivative liabilities which were converted into shares and settled during the year.
See Note 6 – Notes Payable and Convertible Notes Payable.
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, 2020 and 2019:
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2020 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
2019 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
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 convertible notes payable derivative liabilities at fair value for the year ended December 31, 2020, is as follows:
|
|
|
FairValue
|
|
|
Change
|
|
|
New
|
|
|
(Gain)/loss
|
|
|
|
|
|
Fair Value
|
|
|
|
|
January 1,
|
|
|
in Fair
|
|
|
Convertible
|
|
|
on
|
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
Value
|
|
|
Notes
|
|
|
Settlement
|
|
|
Conversions
|
|
|
2020
|
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
$
|
(62,645
|
)
|
|
$
|
204,978
|
|
|
$
|
(50,336
|
)
|
|
$
|
(91,997
|
)
|
|
$
|
-
|
|
The
change in the convertible notes payable derivative liabilities 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
|
)
|
|
$
|
-
|
|
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, 2020 and 2019, the Company did not have any outstanding stock options.
Concentration
and Credit Risk
Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk consist primarily of cash.
The Company places its cash with high credit quality institutions. At times, such deposits may be in excess of the FDIC insurance
limit of $250,000. The Company did not have cash on deposit in excess of such limit on December 31, 2020 and 2019.
Research
and Development
The
Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research
and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense
as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development
costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the
applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed
in the period incurred. The Company incurred research and development expenses of $30,000 and $441,320 during the years ended
December 31, 2020 and 2019, 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, 2020 and 2019, respectively,
are summarized as follows:
|
|
|
Range of Lives
in Years
|
|
|
2020
|
|
|
2019
|
|
|
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, 2020 and 2019
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
NOTE
5 – TERM NOTES PAYABLE AND NOTES PAYABLE RELATED PARTIES
Term
notes payable, including notes payable to related parties consisted of the following at December 31, 2020 and 2019;
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Secured notes payable with related parties at 18% per annum related to the Mabert LLC as Agent Loan Agreement originally dated September 14, 2018 for up to $5,000,000 (as amended), shown net of debt discount of $13,153 and $107,880 (1)
|
|
$
|
2,411,605
|
|
|
$
|
1,923,176
|
|
|
Total notes payable related parties
|
|
$
|
2,411,605
|
|
|
$
|
1,923,176
|
|
|
Unsecured note payable at 4.5% per annum dated December 20, 2017 to a corporation, payable in two parts on January 8, 2018 and 2019 (3)
|
|
|
166,667
|
|
|
|
166,667
|
|
|
Promissory Note 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 August 15, 2022 (4)
|
|
|
525,000
|
|
|
|
-
|
|
|
Settlement agreement to pay $5,000 per month for 60 monthly installments beginning March 2019. (5)
|
|
|
195,000
|
|
|
|
260,000
|
|
|
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
|
|
|
Convertible $118,000 1 Yr term note payable at 10.0% per annum dated January 24, 2020 to a lender, payable by January 24, 2021, or converts into shares of the Company’s common stock by a predetermined formula (6)
|
|
|
-
|
|
|
|
-
|
|
|
Convertible $53,000 1 Yr note payable at 10.0% per annum dated February 12, 2020 to a lender, payable by February 12, 2021, or it converts into shares of the Company’s common stock by a predetermined formula (7)
|
|
|
-
|
|
|
|
-
|
|
|
Total notes payable and convertible notes payable
|
|
$
|
886,667
|
|
|
$
|
476,667
|
|
(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 late wife Christine Early (for each and all references herein forward, “Mabert”).
Under the Loan Agreement, Mabert has loaned gross loan proceeds of $2,424,758 (excluding debt discount of $13,153, for a net $2,411,605
debt) through December 31, 2020. Mr. Jones, and his late wife have loaned $1,751,324 from inception through December 31, 2020,
including $325,268 in the current year ended December 31, 2020. 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, 2020, the Company issued an additional 787,403 shares
of Common Stock related to these loans. Pursuant to ACS 470, the fair value attributable to a discount on the debt is $27,429
for the period ended December 31, 2020, and $107,880 for the year ended 2019; 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.
On
March 31, 2020, the Company executed a Promissory Note under the Loan Agreement with Kevin Jones, a Director and shareholder for
$101,823, at 18% interest per annum. As a cost of the note, the Company agreed to issue 203,646 shares of its Common Stock at
a market price of $0.06 per share for a total debt discount of $10,901, subject to standard Rule 144 restrictions.
On
July 1, 2020, the Company executed a Promissory Note under the Loan Agreement with Kevin Jones, a Director and shareholder for
$128,093, at 18% interest per annum. As a cost of the note, the Company agreed to issue 256,186 shares of its Common Stock at
a market price of $0.04 per share for a total debt discount of $9,488, subject to standard Rule 144 restrictions.
On
July 1, 2020, the Company executed a Promissory Note under the Loan Agreement with Ransom Jones, a Director and shareholder for
$25,000, at 10% interest per annum. As a cost of the note, the Company agreed to issue 50,000 shares of its Common Stock at a
market price of $0.04 per share for a total debt discount of $1,852, subject to standard Rule 144 restrictions.
On
July 1, 2020, the Company executed a Promissory Note under the Loan Agreement with Kent Harer, a Director and shareholder for
$25,000, at 10% interest per annum. As a cost of the note, the Company agreed to issue 50,000 shares of its Common Stock at a
market price of $0.04 per share for a total debt discount of $1,852, subject to standard Rule 144 restrictions.
On
October 1, 2020, the Company executed a Promissory Note under the Loan Agreement with Kevin Jones, a Director and shareholder
for $95,352, at 18% interest per annum. As a cost of the note, the Company agreed to issue 190,704 shares of its Common Stock
at a market price of $0.02 per share for a total debt discount of $2,795, subject to standard Rule 144 restrictions.
On
August 28, 2020, the Company executed a Promissory Note under the Loan Agreement with Michael Wykrent, a Director and shareholder
for $10,000, at 18% interest per annum. As a cost of the note, the Company agreed to issue 20,000 shares of its Common Stock at
a market price of $0.02 per share for a total debt discount of $293, subject to standard Rule 144 restrictions.
On
October 1, 2020, the Company executed a Promissory Note under the Loan Agreement with Ransom Jones, a Director and shareholder
for $3,433, at 10% interest per annum. As a cost of the note, the Company agreed to issue 6,867 shares of its Common Stock at
a market price of $0.02 per share for a total debt discount of $101, subject to standard Rule 144 restrictions.
On
October 1, 2020, the Company executed a Promissory Note under the Loan Agreement with Kent Harer, a Director and shareholder for
$5,000, at 10% interest per annum. As a cost of the note, the Company agreed to issue 10,000 shares of its Common Stock at a market
price of $0.02 per share for a total debt discount of $147, 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 2020.
(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 had a maturity date of March
1, 2020 and provided for four equal payments of principal through such date, plus accrued interest at 10% upon maturity. The Company
made all required payments thereby extinguishing such Promissory Note as of period ended March 31, 2020. 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 – Notes Payable and Convertible Notes
Payable.
(4)
On September 26, 2019, the Company entered into a Settlement Agreement with Southwest Capital Funding Ltd. (“Southwest”),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. The Company was in default of its semiannual
interest payment as of February 2021, and thus has classified the note as a current liability. See Note 6 – Notes Payable
and Convertible Notes Payable and Note 12 – Subsequent Events.
(5)
On March 6, 2019, the Company entered into Settlement Agreement with Wildcat Consulting Group LLC (“Wildcat”), as
settlement of a consulting agreement lawsuit the Company agreed to pay Wildcat a total of $300,000, payable in sixty monthly installments
of $5,000 per month beginning March 2019 and continuing each month until the settlement is paid in full.
(6)
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 one year Convertible Promissory Note, dated January 24, 2020, payable with interest of ten percent (10%) per annum,
by and between the Company and PowerUp (the “Note”), in exchange for a cash purchase price of $118,000. The Note requires
the Company to hold certain amounts of its common stock in reserve in the event that the Company does not pay the balance within
the prescribed term and/or PowerUp elects to convert such Note to common stock after six months from inception, with any remaining
balance due at term. At inception of the loan, the Company fully discounted the note in the amount of $118,000. As of December
31, 2020, PowerUp had converted the entire $118,000 of note principal into 11,144,344 shares of the Company’s common stock.
See Note 6 – Notes Payable and Convertible Notes Payable .
(7)
On February 12, 2020, the Company entered into a second Purchase Agreement with PowerUp under substantially similar terms and
conditions, whereby the Company sold a one-year Convertible Promissory Note, dated February 12, 2020, payable with interest of
ten percent (10%) per annum, in exchange for cash of $53,000. The Note requires the Company to hold certain amounts of its common
stock in reserve in the event that the Company does not to pay the balance within the prescribed term and/or PowerUp elects to
convert such Note to common stock after six months from inception, with any remaining balance due at term. As of December 31,
2020, PowerUp had converted the entire $53,000 of note principal into 8,695,312 shares of the Company’s common stock. See
Note 6 – Notes Payable and Convertible Notes Payable.
For
the period ended December 31, 2020, total interest expense of $769,170 includes amortization expense of $171,000 related to the
PowerUp notes and $122,000 of discount on other notes. For the year ended December 31, 2020 the net loss on debt settlements was
due to total gain on derivative settlement and conversions of $142,333 and loss on debt extinguishments of $160,214.
NOTE
6 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The
Company issued a $166,667 convertible promissory note bearing interest at 4.50% per annum to a company, Tunstall Canyon Group,
LLC, payable in two installments of $86,667 on December 20, 2018 and $80,000, plus accrued interest on December 20, 2019. Per
the terms of the promissory note, 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 first $86,667
payment and 1,000,000 shares for the second $80,000 installment payment, respectively). As of December 20, 2018, a material event
of default occurred for breach of payment of the interest then due, with such default continuing thought the date of this report.
The holder of the note has the right to convert at any time and has indicated that it might convert under settlement discussions
with the principal, Richard Halden, unrelated to this convertible note. See Note 5 – Term Notes Payable and Notes Payable
Related Party.
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 $58,595 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. Due to the conversion of the convertible note on July 25, 2019, the Company extinguished 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, the Company 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. The Company has made all required interest payments to date. The principal balance
of $525,000 and remaining accrued interest on the note is due August 15, 2022. In addition, we agreed to issue and deliver to
Southwest 1,000,000 shares of Rule 144 restricted Common Stock valued at $0.05 per share. The shares were issued in the 3rd
quarter 2019, and were 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.
On
January 24, 2020, the Company entered into a Purchase Agreement and Convertible Promissory Note credit facility whereby at the
Company’s request, and depending on certain market factors at the time of each request, PowerUp agreed to provide up to
$1,000,000 to the Company under the same and substantially similar terms for each requested Note over a twelve-month period, subject
to stock price and trading attributes at the time of such request. During the period ended December 31, 2020, the Company entered
into, and converted to equity, two Convertible Promissory Notes, for total proceeds of $171,000. See Note 5 – Term Notes
Payable and Notes Payable Related Parties.
The
Purchase Agreement contains customary representations and warranties, covenants, and conditions to closing. Material terms of
the notes (“Notes”) include the following provisions:
|
●
|
The
unpaid principal balance of the Notes shall bear interest at the rate of 10% per year;
|
|
●
|
Any
amount of principal or interest due under the Notes 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;
|
|
●
|
PowerUp
may elect to convert all or any part of the outstanding and unpaid amount of the Notes into shares of common stock, par value
$0.0001 per share, at a 35% discount to various market prices after an initial Company option period, from time to time, during
the period that is 180 days following the issue date of the Notes;
|
|
●
|
The
Company must reserve up to five times the number of shares of common stock that would be issuable upon full conversion of
the Notes, and instruct the Company’s transfer agent, Transfer Online, Inc., to that effect;
|
|
●
|
The
Company may prepay the Notes, but must pay a prepayment percentage to PowerUp depending on the time that the Notes are prepaid;
|
|
●
|
So
long as the Notes remain 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
|
|
●
|
Certain
events qualify as events of default under the Notes including, but not limited to: (a) the Company’s breach of a
material term of an individual Note or Purchase Agreement; (b) the Company’s failure to pay the amount of principal
or interest due to PowerUp under the Notes 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.
|
On
January 24, 2020, the Company entered into its first Purchase Agreement with PowerUp, whereby PowerUp purchased, and the Company
sold, a one-year Convertible Promissory Note under the terms as described above, dated January 24, 2020, in exchange for cash
of $118,000. The Note requires the Company to hold certain amounts of its common stock in reserve in the event that the Company
elects not to pay the balance within the prescribed term and/or PowerUp elects to convert such Note to common stock after six
months from inception, with any remaining balance due at term.
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 $118,000 based on the difference between the fair value at the valuation date and the $118,000 note value.
The discount related to the beneficial conversion feature will be amortized over the term of the debt. The derivative value related
to the beneficial conversion feature on the note was determined using the Cox, Ross & Rubinstein Binomial Tree model.
The derivative liability for this note at its January 24, 2020 inception (“Commitment Date”) was $130,506 and for
the period ending December 31, 2020 was $0, as the entire note had been converted into shares issued. The conversion of the note
occurred on several dates, as such the range of values for the conversion dates is presented below. See Note 5 – Term
Notes Payable and Notes Payable Related Parties.
|
|
|
Conversion Dates
|
|
|
Commitment Date
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected annual volatility
|
|
|
99.5%-200.4
|
%
|
|
|
184.1
|
%
|
|
Expected term: conversion feature
|
|
|
Various
|
|
|
|
1 year
|
|
|
Risk free interest rate
|
|
|
.12-.14
|
%
|
|
|
1.51
|
%
|
On
February 12, 2020, the Company executed a second Purchase Agreement and Convertible Promissory Note for an additional $53,000
cash, under substantially similar terms described above, incorporating a new issue date for a one-year term maturing on February
12, 2021. The Note requires the Company to hold certain amounts of its common stock in reserve in the event that the Company elects
not to pay the balance within the prescribed term and/or PowerUp elects to convert such Note to common stock after six months
from inception, with any remaining balance due at term.
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 $53,000 based on the difference between the fair value at the valuation date and the $53,000 note value.
The discount related to the beneficial conversion feature will be amortized over the term of the debt. The derivative value related
to the beneficial conversion feature on the note was determined using the Cox, Ross & Rubinstein Binomial Tree model.
The derivative liability for this note at its February 12, 2020 inception (“Commitment Date”) was $74,472 and for
the period ending December 31, 2020 was $0, as the entire note had been converted into shares issued. The conversion of the note
occurred on several dates, as such the range of values for the conversion dates is presented below. See Note 5 – Term
Notes Payable and Notes Payable Related Parties.
|
|
|
Conversion Dates
|
|
|
Commitment Date
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected annual volatility
|
|
|
171.2%-190.2
|
%
|
|
|
182.9
|
%
|
|
Expected term: conversion feature
|
|
|
Various
|
|
|
|
1 year
|
|
|
Risk free interest rate
|
|
|
0.09%-.10
|
%
|
|
|
1.54
|
%
|
In
accordance with the terms of the PowerUp Purchase Agreement, the Company reserved 38,876,716 shares of its Common Stock upon execution
of the PowerUp Note Agreements in January and February, 2020. As of December 31, 2020, 23,860,828 shares are still being held
in reserve by the Company’s transfer agent awaiting the final confirmation notice from PowerUp that a reserve is no longer
needed.
The
foregoing descriptions of the Purchase Agreement and Notes do not purport to be complete and are qualified in their entirety by
reference to the full text of the Purchase Agreements and the Notes.
NOTE
7 – ACCRUED EXPENSES
Accrued
expenses consisted of the following at December 31, 2020 and 2019:
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Accrued consulting fees and expense
|
|
$
|
860,368
|
|
|
$
|
641,518
|
|
|
Total accrued expenses
|
|
$
|
860,368
|
|
|
$
|
641,518
|
|
NOTE
8 – CAPITAL STRUCTURE
At
the Company’s Special Shareholders Meeting held in December 2019, a number of proposals were presented and passed by the
Company’s shareholders, including Proposal 1 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 to change the name of the Company’s Class A Shares from “Class A” to “common
stock” (“common stock” or “Common Stock”),with the same $0.0001 par value per share, designations,
powers, privileges, rights, qualifications, limitations, and restrictions as the former Class A Shares, and Proposal 3 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, 2020, there were 335,268,075 shares of Common Stock issued and outstanding.
During
the three-months ended December 31, 2020, the Company: issued 19,066,312 shares of Rule 144 restricted Common Stock, including
15,015,888 shares as the result of a lender’s conversion of note principal at an average price of $0.01 per share, 3,466,667
shares issued in private placement to three (3) accredited investors at an average price of $0.02 per share, and, 583,757 shares
for costs related to the issuance of promissory notes at an average $0.01 per share. As of December 31, 2020, the Company has
537,762 shares of common stock to be issued to Kevin Jones, a related party, for costs related to issuance of promissory notes,
these shares will be issued in the first quarter of 2021. During the three-months ended December 31, 2020, the Company adjusted
the common stock and paid in capital accounts for $457 to reconcile common stock to par value.
During
the three-months ended September 30, 2020, the Company: issued 4,823,768 shares of Rule 144 restricted Common Stock as the result
of a lender’s conversion of a portion of note principal at an average price of $0.02 per share.
During
the three-months ended June 30, 2020, the Company: issued 904,711 shares of Rule 144 restricted Common Stock, including 375,000
shares issued in a private placement to an accredited investor, at $0.04 per share, and 529,711 shares at an average of $0.06
per share for the settlement of legal expenses which were previously accrued pursuant to agreements with two prior law firms.
During
the three-months ended March 31, 2020, the Company: issued 13,824,607 shares of Rule 144 restricted Common Stock, including 7,000,000
shares issued related to employment agreements, 600,000 shares issued in a private placement to an accredited investor, at $0.10
per share, 3,906,610 for the conversion of a prior loan at $0.047 per shares, 1,460,260 shares for costs related to the issuance
of promissory notes at an average $0.085 per share and 857,737 shares at $0.01 per share from convertible warrants conversions.
Shares to be issued are for the settlement of legal expenses which were accrued pursuant to agreements with two prior law firms.
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.
Class
B Stock
At
December 31, 2020 and 2019, there were no Class B shares issued and outstanding, as such shares were terminated in December 2019.
Stock
options, warrants and other rights
As
of December 31, 2020 and 2019 respectively, the Company has not adopted and does not have an employee stock option plan.
At
December 31, 2020 and 2019 respectively, the Company had 7,000,000 and 10,857,737 warrants outstanding and
exerciseable.
|
Name of Warrant Holder
|
|
Warrants Issue Date
|
|
Total Warrants Issued
|
|
|
Term (Yrs)
|
|
|
Expiration Date
|
|
Activity in 2019
|
|
|
Balance 2019
|
|
|
Activity in 2020
|
|
|
Balance 2020
|
|
|
Norman Reynolds (Legal Compensation)
|
|
Oct-15
|
|
|
4,000,000
|
|
|
|
5
|
|
|
Oct-00
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
(4,000,000
|
)
|
|
|
-
|
|
|
Various Shareholders
|
|
Jan-17
|
|
|
641,489
|
|
|
|
3
|
|
|
Dec-19
|
|
|
(641,489
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Richard Halden (Settlement)
|
|
Feb-17
|
|
|
4,000,000
|
|
|
|
2
|
|
|
Feb-19
|
|
|
(4,000,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Richard Halden (Settlement)
|
|
Feb-17
|
|
|
2,000,000
|
|
|
|
3
|
|
|
Feb-20
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
(2,000,000
|
)
|
|
|
-
|
|
|
MTG Holdings LTD (Settlement)
|
|
Nov-17
|
|
|
1,000,000
|
|
|
|
3
|
|
|
Nov-20
|
|
|
(1,000,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Kent Harer (Share Exchange)
|
|
Jan-18
|
|
|
4,000,000
|
|
|
|
3
|
|
|
Jan-21
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
-
|
|
|
|
4,000,000
|
|
|
Mabert
|
|
Dec-18
|
|
|
1,624,404
|
|
|
|
15
|
|
|
Dec-33
|
|
|
(766,667
|
)
|
|
|
857,737
|
|
|
|
(857,737
|
)
|
|
|
-
|
|
|
Dean Goekel (Consultant Compensation)
|
|
Jul-20
|
|
|
3,000,000
|
|
|
|
2
|
|
|
Jun-22
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
Total:
|
|
|
|
|
20,265,893
|
|
|
|
|
|
|
|
|
|
(6,408,156
|
)
|
|
|
10,857,737
|
|
|
|
(3,857,737
|
)
|
|
|
7,000,000
|
|
For
the year ended December 2020, the Company had 7,000,000 warrants outstanding, of which 4,000,000 have subsequently expired. The
remaining 3,000,000 warrants in the favor of Dean Goekel expire in June 2022. The exercise price of these remaining warrants is
$0.03. There is no unvested expense relating to the warrants listed above.
On
July 1, 2020, the Company issued 3,000,000 warrants for consulting work. The warrants are exercisable at $0.03 per share. The
Company valued the warrants as of October 19, 2020, at $42,000 using the Black-Scholes Model with expected dividend rate of 0%,
expected volatility rate of 171%, expected conversion term of 1.7 years and risk-free interest rate of 0.16%. These warrants were
not exercised before December 31, 2020 and will expire by their terms on June 30, 2022.
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 within the period provided and expired 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. The other 2,000,000 warrants were not exercised within the period
provided and expired by their terms on February 3, 2020.
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 – Commitments and Contingencies.
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, were converted to common stock in
January 2019, excluding Mr. Jones’ 857,737 warrants, which were exercised in 2020.
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 late 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, 2020, a total of $2,424,758 (excluding debt discount of $13,153) has been loaned to the
Company and $562,890 has been accrued in interest by eight shareholders, including Mr. Jones. Since the inception of the Loan
Agreement through December 31, 2019, a total of $2,031,056 (excluding debt discount of $107,880) had been loaned to the Company
by six shareholders, including Mr. Jones. See Note 5 – Term Notes Payable and Notes Payable Related Parties.
Through
Mabert, as of December 31, 2020, Mr. Jones along with his late wife and his company have loaned $1,751,324, and six other shareholders
have loaned the balance of the Mabert Loans. As of December 31, 2019, Mr. Jones along with his wife and his company had loaned
$1,426,056, and four other shareholders had 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, 2020, the Company accrued expenses for related parties of $1,797,818 to account for the total deferred
compensation expenses among two current executives, two former executive and one current employee. 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.
Through
the year ended December 31, 2020, the Company received $142,934 in cash and payment advances from Kevin Jones, a greater than
5% shareholder, which has been accrued as “Advances - related parties” for the period. In the year ended December
31, 2019, the Company 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.
For
the periods ended December 31, 2020 and December 31, 2019, the Company made advances to an affiliate, OPMGE, of $412,885 and $387,847,
respectively. As reported previously, the Company owns a non-consolidating 42.86% interest in the OPMGE GTL plant located in Wharton,
Texas. In the event of default, the Company holds a second lien against the assets of OPMGE. The amount advanced was booked as
a related party receivable by the Company. Given the uncertainty of the collectability of this receivable, the Company has fully
reserved the full amount of this equity method receivable with OPMGE as of December 31, 2020. The Company does not consider the
results of the equity method investee to be material to the Company’s net loss. The cost basis for this equity method
investee is zero and thus, losses have not been allocated to the Company. The financial data for OPMGE for the period ended
December 31, 2020 is as follows:
|
|
|
December 31,
|
|
|
Balance Sheet
|
|
2020
|
|
|
Assets
|
|
|
|
|
|
Cash
|
|
$
|
43,997
|
|
|
Total Current Assets
|
|
|
43,997
|
|
|
|
|
|
|
|
|
Property & equipment, net
|
|
|
3,752,800
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,796,797
|
|
|
|
|
|
|
|
|
Liabilities & Stockholders’ Equity
|
|
|
|
|
|
Payable - GWTI
|
|
|
412,885
|
|
|
Payables - Other
|
|
|
1,144,776
|
|
|
Notes payable
|
|
|
633,256
|
|
|
Total Liabilities
|
|
$
|
2,190,917
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
Partners’ equity
|
|
$
|
2,035,392
|
|
|
Accumulated deficit
|
|
|
(429,512
|
)
|
|
Total Stockholders’ Equity
|
|
|
1,605,880
|
|
|
Total Liabilities & Stockholders’ Equity
|
|
$
|
3,796,797
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Income Statement
|
|
2020
|
|
|
Revenues
|
|
$
|
-
|
|
|
Expenses
|
|
|
341,122
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(341,122
|
)
|
|
|
|
|
|
|
|
Total other income / (expense)
|
|
|
-
|
|
|
Loss before income taxes
|
|
|
(341,122
|
)
|
|
Provision for income taxes
|
|
|
-
|
|
|
Net loss
|
|
$
|
(341,122
|
)
|
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, 2020 and 2019 was $0.
The
difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
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, 2020 and 2019 the Company’s deferred tax assets were as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
25,802,072
|
|
|
$
|
22,840,100
|
|
|
Deferred compensation / management fees
|
|
|
4,610,630
|
|
|
|
3,569,833
|
|
|
Total deferred tax assets
|
|
|
30,412,702
|
|
|
|
26,409,933
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(30,412,702
|
)
|
|
|
(26,409,933
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31, 2020, the Company had unused net operating loss carry forwards of approximately $33.0 million available to reduce
future federal taxable income. Net operating loss carryforwards of $26.5 million expire through fiscal years ending 2038, 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 $4,002,769 and $5,469,078 for the years ended December 31, 2020 and 2019, 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-month
periods ended December 31, 2020 and December 31, 2019, the Company paid and/or accrued a total of $180,000 for each 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 $35,000 per year, such
amount having been accrued for the years ended December 2020 and December 2019, respectively. 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 was expensed as of the effective date of the agreement.
Such stock-based compensation shares were physically issued in February 2020. Effective December 15, 2020, Mr. Phillips resigned
from the Company.
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 was expensed as of
the effective date of the agreement. Such stock-based compensation 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
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.
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.
Greenway
rents approximately 600 square feet of office space at 1521 North Cooper St., Suite 205, Arlington, Texas 76011, at a rate of
$949 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 $11,880 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
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. Through a mediated settlement,
the Company’s agreed to a Rule 11 Agreement, providing the Company execute a new promissory note to replace the prior Promissory
Note with new payment provisions, among other requirements, and further stipulating that the parties would enter into a form of
mutually settlement agreement. The Company performed in all regards under the Rule 11 Agreement, Wildcat (Gleason) signed the
mutually agreed Compromise Settlement and Release Agreement on February 4, 2020, and all litigation among the parties was dismissed
by the Court on February 25, 2020.
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
On
August 15, 2019, the Company issued a note to Southwest Capital Funding, Ltd. The note was issued in connection with a settlement
agreement relating to a guarantee by the Company of a note payable to Southwest Capital Funding, Ltd. The note is in the amount
of $525,000. Under its terms, interest is payable semiannually and the principal is due on August 15, 2022. Since the note was
issued, two semiannual payments of interest have been paid. The third was due on February 15, 2021. The Company has not paid that
payment, which resulted in a default on the loan.
Through
the period ended April 14, 2021, the Company: issued 1,200,000 shares of Rule 144 restricted Common Stock issued in a private
placement to one accredited investor at price of $0.03 per share.
Through
the period ended April 14, 2021, we received $142,934 in cash and payment advances from Kevin Jones, a director and greater
than 5% shareholder. Such advances and any further advances received will be accrued as “Advances - related parties”
in the period received.