NOTES
TO FINANCIAL STATEMENTS
June
30, 2018
(unaudited)
NOTE
1 – BASIS OF PRESENTATION
The
unaudited consolidated financial statements of the Company present the financial position, results of operations, and cash flows
of Alliance Bioenergy Plus, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions
to Form 10-Q and Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain
information and footnote disclosures normally included in comprehensive financial statements have been omitted pursuant to such
rules and regulations. The consolidated balance sheet as of December 31, 2017 derives from the audited financial statements at
that date, but does not include all the information and footnotes required by GAAP. These unaudited consolidated financial statements
should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2017.
The
unaudited consolidated financial statements as of and for the six months ended June 30, 2018 and 2017, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s
financial condition and results of operations. The results of operations for the six months ended June 30, 2018 and 2017 are not
necessarily indicative of the results to be expected for any other interim period or for the entire year.
NOTE
2 – GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going concern, which assumes the Company will realize its assets and discharge
its liabilities in the normal course of business. The Company has not generated any revenue, has incurred losses since inception,
has a working capital deficit of $3,256,005 and may be unable to raise further equity. At June 30, 2018, the Company had incurred
accumulated losses of $38,225,783 of which approximately $25,222,460 is non-cash, since its inception. The Company expects to
incur significant additional liabilities in connection with its start-up activities. The Company’s ability to continue as
a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities
when they become due and to generate sufficient revenues from its operations to pay its operating expenses. These unaudited consolidated
financial statements do not include any adjustments related to the recoverability and classifications of recorded asset amounts,
or amounts and classifications of liabilities that might result from this uncertainty. There are no assurances that the Company
will continue as a going concern.
Management
believes that the Company’s future success is dependent upon its ability to achieve profitable operations, generate cash
from operating activities and obtain additional financing. There is no assurance that the Company will have the ability to obtain
additional cash could have a material adverse effect on its financial position, results of operations, and its ability to continue
in existence. These unaudited consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty
The
Company intends to raise additional capital, sell licenses to its CTS technology and continue constructing its full-scale demonstration
facility and purchase an ethanol plant for production of cellulosic ethanol and other cellulosic bio-fuels, which, once operational,
is expected to generate cash flow in amounts sufficient to cover the Company’s operating expenses and debt service.
Through
its private offerings, the Company raised $7,816,894 from inception through December 31, 2017 and an additional $400,200 in
the six months ended June 30, 2018.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the dates presented and reported amounts of revenues and expenses during
the reporting periods presented. Significant estimates inherent in the preparation of the accompanying unaudited consolidated
financial statements include estimates of impairment assessment of identifiable intangible assets and valuation allowance for
deferred tax assets. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual
results may differ from these estimates.
Cash
and Cash Equivalents
All
highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.
Stock
Compensation
The
Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments
include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant
the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist
only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the
provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments
to consultants, service providers and other non-employees are accounted for in accordance with ASC Topic 718, ASC Topic 505, “Equity
Payments to Non-Employees” or other applicable authoritative guidance.
Stock-based
Compensation Valuation Methodology
Stock-based
compensation resulting from the issuance of common stock is calculated by reference to the valuation of the stock on the date
of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee
options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the
stock options or warrants granted is estimated at the grant date, using the Black-Scholes option-pricing model, and the expense
is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the
option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes
option-pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique
characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock
is determined by the then-prevailing closing market price. Expected volatility was based on the historical volatility of the Company’s
closing day market price per share. The expected term of options and warrants was based upon the life of the option, and the risk-free
rate used was based on the U.S. Treasury Daily Yield Curve Rate.
The
stock compensation issued for services during the six months ended June 30, 2018, was valued on the date of issuance. The following
assumptions were used in calculations of the Black-Scholes option pricing models for warrant-based stock compensation issued in
the six months ended June 30, 2018:
|
|
1/2/18
|
|
|
2/1/18
|
|
|
3/1/18
|
|
|
3/29/18
|
|
|
4/2/18
|
|
|
4/18/18
|
|
|
4/25/18
|
|
|
5/1/18
|
|
|
5/4/18
|
|
|
5/15/18
|
|
|
6/1/18
|
|
Risk-free
interest rate
|
|
|
2.25
|
%
|
|
|
2.56
|
%
|
|
|
2.58
|
%
|
|
|
2.56
|
%
|
|
|
2.55
|
%
|
|
|
2.73
|
%
|
|
|
2.84
|
%
|
|
|
2.82
|
%
|
|
|
2.78
|
%
|
|
|
2.92
|
%
|
|
|
2.74
|
%
|
Expected
life
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
133.20
|
%
|
|
|
141.65
|
%
|
|
|
146.21
|
%
|
|
|
147.73
|
%
|
|
|
147.73
|
%
|
|
|
150.31
|
%
|
|
|
149.86
|
%
|
|
|
149.69
|
%
|
|
|
149.50
|
%
|
|
|
149.64
|
%
|
|
|
153.19
|
%
|
ALLM
common stock fair value
|
|
$
|
0.022
|
|
|
$
|
0.029
|
|
|
$
|
0.050
|
|
|
$
|
0.037
|
|
|
$
|
0.035
|
|
|
$
|
0.038
|
|
|
$
|
0.032
|
|
|
$
|
0.032
|
|
|
$
|
0.028
|
|
|
$
|
0.029
|
|
|
$
|
0.076
|
|
Accounting
and Reporting of Discontinued Operations
As
required by the FASB ASC Subtopic 205.20, per ASU 2014-08, Discontinued Operations, a component of an entity or a group of components
of an entity, or a business or nonprofit activity can be classified as discontinued operations if the disposal represents a strategic
shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs:
(i) the criteria in paragraph 205.20.45.1E to be classified as held for sale is met (ii) the component is disposed of by sale,
or (iii) the component is disposed of other than by sale in accordance with paragraph 360.10.45.15 (for example, by abandonment
or in a distribution to owners in a spinoff). Certain components to be disposed of other than by sale shall continue to be classified
as “held and used” until it is disposed of, per the requirements of ASC Subtopic 360.10. Depreciation on these assets
ceases upon their classification as “held and used.” The Company adopted ASU No. 2014-08 effective September 1, 2014.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the
useful lives of the assets, generally 5 to 7 years. Expenditures for additions and improvements are capitalized; repairs and maintenance
are expensed as incurred.
Research
and Development
The
Company expenses all research and development costs as incurred. For the periods ended June 30, 2018 and 2017, the amounts charged
to research and development expenses were $164,601 and $160,153 , respectively.
Revenue
Recognition
The
Company follows FASB ASC 606 “Revenue Recognition” and recognizes revenue when it is realized or realizable and earned.
The Company’s revenues will be derived principally from the sales of licensing agreements, royalties and eventually corporate
owned plants. However, no sales have occurred through those revenue streams to date. The Company considers revenue realized or
realizable and earned when all of the following criteria are met:
|
1.
|
persuasive
evidence of an arrangement exists;
|
|
2.
|
the
product has been shipped or the services have been rendered to the customer;
|
|
3.
|
the
sales price is fixed or determinable; and,
|
|
4.
|
collectability
is reasonably assured.
|
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives
and Hedging Activities”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under
these arrangements are amortized over the term of the related debt to their stated date of redemption.
Accounting
for Derivative Instruments
The
Company issues debentures where the number of shares into which a debenture can be converted is not fixed. For example, when a
debenture converts at a discount to market based on the stock price on the date of conversion. In such instances, the embedded
conversion option of the convertible debentures is bifurcated from the host contract and recorded at their fair value. In accounting
for derivatives, the Company records a liability representing the estimated present value of the conversion feature considering
the historic volatility of the Company’s stock, and a discount representing the imputed interest associated with the beneficial
conversion feature. The discount is then amortized over the life of the debenture and the derivative liability is adjusted periodically
according to stock price fluctuations. At the time of conversion, any remaining derivative liability is charged to additional
paid-in capital. For purposes of determining derivative liability, the Company uses Black-Scholes modeling for computing historic
volatility.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company classifies as equity any contracts that require physical settlement or net-share settlement or provide it with a choice
of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided
that such contracts are indexed to its own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”).
The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the Company’s control) or give the counterparty
a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses the
classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether
a change in classification between assets and liabilities is required.
Investments
in non-consolidated affiliates
Investments
in non-consolidated affiliates are accounted for using the equity method or cost basis depending upon the level of ownership and/or
the Company’s ability to exercise significant influence over the operating and financial policies of the investee. When
the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company’s
proportionate share of the investees’ net income or losses after the date of investment. When net losses from an investment
are accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional
losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently
reports net income and the Company’s share of that net income exceeds the share of net losses not recognized during the
period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value
that is other than temporary has occurred.
The
Company’s investment in Carbolosic, LLC is accounted for using the equity method of accounting. The Company monitors its
investment for impairment at least annually and make appropriate reductions in the carrying value if it determines that an impairment
charge is required based on qualitative and quantitative information.
Impairment
of Long Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group
may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable,
the Company compares the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected
to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the
carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds
the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less
costs to sell.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions
for any of the reporting periods presented.
Profit
(Loss) per Common Share:
Basic
profit (loss) per share amounts have been calculated using the weighted-average number of common shares outstanding during each
reporting period. Diluted loss per share has been calculated using the weighted-average number of common shares plus the potentially
dilutive effect of securities such as outstanding options and warrants. The computation of potential common shares has been performed
using the treasury stock method. The warrants and options are antidilutive for all periods presented. When net loss is reported,
diluted and basic net loss per share amounts are the same as the impact of potential common shares is antidilutive.
Fair
Value Measurements
The
Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value
as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair
value measurements.
The
estimated fair value of certain financial instruments, payables to related parties, and accounts payable and accrued expenses
are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The
Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using
a Black-Scholes option-pricing model with the following assumption inputs:
|
|
December
31, 2017
|
|
|
June
30, 2018
|
|
Annual
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected
life (years)
|
|
|
0.50
– 0.10
|
|
|
|
0.10
– 0.37
|
|
Risk-free
interest rate
|
|
|
1.04%
- 0.98
|
%
|
|
|
1.70%
- 1.93
|
%
|
Expected
volatility
|
|
|
22%
- 156
|
%
|
|
|
173%
- 198
|
%
|
|
|
Fair
Value Measurements at
|
|
|
|
December
31, 2017
|
|
|
|
Using
Fair Value Hierarchy
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivative liabilities – (Debenture)
|
|
|
|
|
|
|
|
|
|
|
234,754
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
234,754
|
|
|
|
Fair
Value Measurements at
|
|
|
|
June
30, 2018
|
|
|
|
Using
Fair Value Hierarchy
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivative liabilities – (Debenture)
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
90,000
|
|
For
the six months ended June 30, 2018, the Company recognized a loss of $350,931 on the change in fair value of its derivative liabilities.
At June 30, 2018, the Company did not identify any other assets or liabilities that are required to be presented on the balance
sheet at fair value in accordance with ASC 825-10.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies
that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting
pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on
its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash
flows when implemented.
NOTE
4 – INVESTMENT IN UNCONSOLIDATED AFFILIATE
On
December 26, 2013, AMG Renewables, LLC, a Florida limited liability company (“AMG Renewables”), a wholly-owned subsidiary
of the Company, acquired the controlling interest (51%) in AMG Energy Group, LLC a Florida limited liability company (“AMG
Energy”) from certain related parties and subsequently acquired the remaining 49% in 2016. AMG Energy owns a fifty percent
(50%) interest of Carbolosic, LLC, a Delaware limited liability company (“Carbolosic”), which holds an exclusive worldwide
license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.”
The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels
industry as well as other fine chemical manufacturing. The results of AMG Renewables and AMG Energy are consolidated in the Company’s
financial statements. AMG Energy’s investment in Carbolosic is accounted for using the equity method of accounting.
The
following is a unaudited condensed balance sheet of the unconsolidated affiliate as of June 30, 2018 and December 31, 2017 and
a comparative statement of operations for the six months ending June 30, 2018 and 2017.
Condensed
Balance Sheet of Non-Consolidated Affiliate
|
|
(Unaudited)
|
|
|
|
|
|
|
30-Jun-18
|
|
|
31-Dec-17
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
50
|
|
|
$
|
100
|
|
Prepaid
royalties
|
|
|
17,500
|
|
|
|
-
|
|
TOTAL
ASSETS
|
|
$
|
17,550
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
593,539
|
|
|
$
|
629,681
|
|
Interest
payable
|
|
|
72,034
|
|
|
|
56,679
|
|
Current
notes payable
|
|
|
902,732
|
|
|
|
798,288
|
|
TOTAL
CURRENT LIABILITIES
|
|
$
|
1,568,305
|
|
|
$
|
1,484,648
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER’S
EQUITY
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
$
|
(1,550,755
|
)
|
|
$
|
(1,484,548
|
)
|
TOTAL
EQUITY
|
|
$
|
(1,550,755
|
)
|
|
$
|
(1,484,548
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
$
|
17,550
|
|
|
$
|
100
|
|
Unaudited
Condensed Statement of Operations of Non-Consolidated Affiliates
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
30-Jun-18
|
|
|
30-Jun-17
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
35,000
|
|
|
|
35,000
|
|
General
and administrative
|
|
|
15,852
|
|
|
|
146,506
|
|
Total
operating expenses
|
|
|
(50,852
|
)
|
|
|
(181,506
|
)
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
15,355
|
|
|
|
12,011
|
|
Total
other expenses
|
|
|
(15,355
|
)
|
|
|
(12,011
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(66,207
|
)
|
|
$
|
(193,517
|
)
|
NOTE
5 – UNEARNED REVENUE
In
March 2018, the Company received a $60,000 nonrefundable deposit for a 60-day extension for a license agreement. This payment
is to be applied towards the license agreement balance, if and when that agreement is finalized. As of June 30, 2018 the 60 day
term has expired and the license agreement does not exist. However, the Company is in negotiations with the party in the
hopes that some deal can be put together when the party has the financing in place.
NOTE
6 – DEBT
Short
Term Notes Payable - Related Parties
Throughout
2013, the Company issued unsecured short-term notes payable to various related parties, including officers and directors of the
Company, with a term of one year, which had been extended through June 1, 2018. As of June 30, 2018, there was one consolidated
note outstanding to Palm Beach Energy Solutions, LLC. The note has an outstanding principal balance of $71,000 and bears interest
at a rate of 5% per annum. As of June 30, 2018, and December 31, 2017, the total interest accrued on the note was $17,921 and
$16,146 respectively. The note, although in default, was modified in the separation agreement with Daniel de Liege that
it shall be repaid only out of the profits of the company.
In
July 2016, the Company issued six (6) short-term notes payable to related parties in conjunction with the Company’s acquisition
of the remaining 49% of AMG Energy Group. These notes have a value of $2,002,126 and accrue interest at a rate of six percent
(6%) per annum. As of June 30, 2018, and December 31, 2017, the total interest accrued on the notes was $236,524 and $176,460
respectively. All of the notes were due on August 4, 2017 and are currently in default. One of the notes is owed to Daniel de
Liege and had a principal and interest balance outstanding as of June 30, 2018 of $483,198 and $57,348, respectively.Within the
separation agreement, it has been agreed that it shall be repaid only out of the profits of the Company.
In
February 2018, the Company entered into a short-term loan with Steven Sadaka, with a principal balance of $100,000 due and payable
on May 1, 2018. The note does not accrue interest, however the Company provided 2,000,000 inducement shares to secure the note.
These inducement shares were valued at $84,000 and are being amortized over the life of the note. The notes’ maturity date
was been extended to 7/1/2018. The Company is renegotiating the terms of this note.
On
May 15, 2018, the Company entered into a short term loan with Christopher Jemapete , with a principal balance of $50,000
due and payable on 5/6/19. The note carries an interest rate of 5% plus the company issued 1,250,000 inducement shares to secure
the note. These inducement shares were valued at $36,250 and are being amortized over the life of the note. Additionally, 1,000,000
warrants at $0.10 with a value of $24,449. This note is being restructured as its terms are usurious. As of June 30, 2018 accrued
interest on this note is $315.
On
May 15, 2018, the Company entered into a short term loan with Pamela Jemapete , with a principal balance of $50,000
due and payable on 5/6/19. The note carries an interest rate of 5% plus the company issued 1,250,000 inducement shares to secure
the note. These inducement shares were valued at $36,250 and are being amortized over the life of the note. Additionally, 1,000,000
warrants at $0.10 with a value of $24,449. This note is being restructured as its terms are usurious. As of June 30, 2018 accrued
interest on this note is $315.
On
May 15, 2018, the Company entered into a short term loan with Steven Sadaka , with a principal balance of $25,000 due and
payable on 5/10/19. The note carries an interest rate of 5% plus the company issued 625,000 inducement shares to secure the note.
These inducement shares were valued at $18,125 and are being amortized over the life of the note. Additionally, 500,000 warrants
at $0.10 with a value of $12,225. This note has been restructured. As of June 30, 2018 accrued interest on this note is $157.
On July 20, 2018, both parties agreed to convert the note into an equity investment at 3 cents/share. Consequently, Steven Sadaka
received 833,333 shares and this note has been cancelled, along with any interest that might have been due.
Short
Term Notes Payable – Other
In
July 2016, the Company issued a short-term note payable to a third party in conjunction with the Company’s acquisition of
the remaining 49% of AMG Energy Group. The note has a principal balance of $96,570 and accrues interest at a rate of six percent
(6%) per annum. As of June 30, 2018 and December 31, 2017, the total interest accrued on the note was $10,017 and $8,588 respectively.
The note was due on August 4, 2017 and is currently in default.
Convertible
Debt
On
April 25, 2016, the Company entered into a 12-month convertible debenture with JMJ Financial with a principal balance of $555,556.
The note carries a 10% one-time interest charge, a 10% original issue discount, and a 75% warrant coverage of the amount funded,
totaling an aggregate value of $416,666. The note may only be paid up to 98% of the balance due within the first 180 days at a
30% premium. After 180 days, the note cannot be repaid without the holder’s consent. The note is convertible after 180 days
at a 25% discount to the lowest trade price in the preceding 10 trading days. Per the warrant coverage feature, the Company issued
the investor 1,388,886 warrants with a 5-year term and a cashless exercise price equal to the lesser of $0.30 per share or the
lowest trade price in the 10 preceding trading days. The warrant agreement also contains a down-round ratchet provision allowing
the holder to increase its warrant count. The number of warrants to issue is calculated by dividing the aggregate value by the
lower of $0.30 or the lowest trade price in the 10 preceding trading days. As of December 31, 2017, JMJ Financial has converted
$466,080 into 3,670,000 shares of common stock. In addition, JMJ Financial has exercised its warrant agreement ratchet rights,
resulting in 3,067,668 warrants outstanding. As of December 31, 2017, the holder had exercised warrants to purchase 11,043 of
Company common stock and exercised its cashless conversion feature on the remaining warrants resulting in 1,340,201 shares of
common stock issued. As of June 30, 2018, and December 31, 2017, the conversion feature of this debenture carries a derivative
liability of $40,000 and $20,000 respectively. On April 24, 2018 and May 24, 2018 the company repaid $30,000 and $30,000 against
the principal of this note leaving a principal balance of $34,444 which continues to accrue interest. As of June 30, 2018 the
accrued interest on this note is $56,184. This note is currently in default and is accruing compounding quarterly interest at
a rate of eighteen percent (18%) per annum. This note is currently under a lock up / trickle out agreement.
In
April 2017, the Company entered into a convertible debenture with Auctus Fund, LLC with a principal balance of $117,750 due and
payable on or before December 22, 2017. The note carries an original issue discount of $17,750, accrues interest at a rate of
12% per annum and is convertible into the Company’s common stock at a 50% discount on the lowest trading price during the
twenty-five trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries
a prepayment penalty, adjusting after 90 days to a maximum of 135% of the then outstanding principal and interest balance due,
if the note is paid back within the first 180 days. In the year ended December 31, 2017, principal in the amount of $103,150 converted
into 2,200,000 shares of common stock and in the three months ended March 31, 2018, the remaining principal and interest balance
of $41,775 converted into 4,016,356 shares of common stock. This note has been fully converted.
In
April 2017, the Company entered into a convertible debenture with EMA Financial, LLC with a principal balance of $150,000 due
and payable on or before March 15, 2018. The note carries an original issue discount of $28,000, accrues interest at a rate of
10% per annum and is convertible into the Company’s common stock at a 35% discount on the lowest trading price during the
15 trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a
prepayment penalty, adjusting after 90 days to a maximum of 130% of the then outstanding principal and interest balance due, if
the note is paid back within the first 180 days. In the year ended December 31, 2017, principal in the amount of $125,641 converted
into 3,750,000 shares of common stock and in the three months ended March 31, 2018, the remaining principal and interest balance
of $35,962 converted into 3,706,178 shares of common stock. This note has been fully converted.
In
May 2017, the Company entered into a convertible debenture with Crown Bridge Partners, LLC with a principal balance of $58,000
due and payable on or before May 4, 2018. The note carries an original issue discount of $9,500, accrues interest at a rate of
10% per annum and is convertible into the Company’s common stock at a 40% discount on the lowest trading price during the
ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a
prepayment penalty, adjusting every 30 days to a maximum of 135% of the then outstanding principal and interest balance due, if
the note is paid back within the first 180 days. In the year ended December 31, 2017, principal in the amount of $38,124 converted
into 1,710,000 shares of common stock and in the three months ended March 31, 2018, the remaining principal and interest balance
of $26,538 converted into 2,323,040 shares of common stock. This note has been fully converted.
In
July 2017, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $110,000 due and payable
on January 15, 2018. The note carries an 8% one-time interest charge, a $10,000 original issue discount and a 35% conversion discount
to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of the holder.
In addition, the Company provided 150,000 inducement shares to secure the note, and may have to provide additional shares on the
note’s 6-month anniversary if the Company’s share price declines. These inducement shares were valued at $54,000
and are being amortized over the life of the note. The note can be repaid, without prepayment penalties, within the first 90 days.
Thereafter, the note will incur a 120% prepayment penalty of the then outstanding principal and interest due. In the three months
ended March 31, 2018, the Company issued 2,040,600 shares of common stock due to a decline in the Company’s share price
at the note’s 6-month anniversary date. Concurrently, the full principal and interest balance of $118,800 converted into
7,239,171 shares of common stock. This note has been fully converted.
In
July 2017, the Company entered into a convertible debenture with Power Up Lending Group, Ltd. with a principal balance of $153,000
due and payable on or before April 30, 2018. The note carries an original issue discount of $3,000 and accrues interest at a rate
of 8% per annum and is convertible into the Company’s common stock at a 39% discount on the average of the lowest three
trading prices during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder.
The note also carries a prepayment penalty, adjusting every 30 days to a maximum of 130% of the then outstanding principal and
interest balance due, if the note is paid back within the first 180 days. In January 2018, the Company paid the debenture in full
with a payment of $206,267, which represented a principal payment of $153,000 and $53,267 in interest and penalties. There
is a zero balance left on this note.
In
August 2017, the Company entered into a convertible debenture with Crown Bridge Partners, LLC with a principal balance of $58,000
due and payable on or before August 2, 2018. The note carries an original issue discount of $7,000, accrues interest at a rate
of 10% per annum and is convertible into the Company’s common stock at a 40% discount on the lowest trading price during
the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries
a prepayment penalty, adjusting every 30 days to a maximum of 135% of the then outstanding principal and interest balance due,
if the note is paid back within the first 180 days. In January 2018, the Company paid the debenture in full with a payment of
$80,890, which represented a principal payment of $58,000 and $22,890 in interest and penalties.
In
November 2017, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $143,000 due and
payable on May 30, 2018. The note carries an 8% one-time interest charge, a $13,000 original issue discount and a 35% conversion
discount to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of
the holder. In addition, the Company provided 500,000 inducement shares to secure the note, and provided an additional 916,096
shares due to the Company’s share price decline. These inducement shares were valued at $39,500 and are being
amortized over the life of the note. The note can be repaid, without prepayment penalties, within the first 90 days. Thereafter,
the note will incur a 120% prepayment penalty of the then outstanding principal and interest due. In May 2018, the company made
two principal payments totaling $40,000. The note went into default on June 1, 2018 and incurred a 40% penalty of the outstanding
balance immediately prior to the default event. Now the balance due including default penalty is $160,216. The Company is in negotiation
with Hoppel on this note.
In
December 2017, the Company entered into a convertible debenture with Power Up Lending Group, Ltd. with a principal balance of
$63,000 due and payable on or before September 30, 2018. The note carries an original issue discount of $3,000 and accrues interest
at a rate of 8% per annum and is convertible into the Company’s common stock at a 39% discount on the average of the lowest
three trading prices during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the
holder. The note also carries a prepayment penalty, adjusting every 30 days to a maximum of 130% of the then outstanding principal
and interest balance due, if the note is paid back within the first 180 days. Power Up Lending Group, Ltd. has filed suit against
the Company in the US District Court Eastern District of New York for breach of contract. The Company has filed a motion to dismiss.
As of June 30, 2018 the principal balance owed was $63,000 and interest due was $3,543.
In
January 2018, the Company entered into a convertible debenture with Power Up Lending Group, Ltd. with a principal balance of $128,000
due and payable on or before October 20, 2018. The note accrues interest at a rate of eight percent (8.0%) per annum and is convertible
into the Company’s common stock at a 39% discount, after 180 days, in whole or in part at the option of the holder. The
note also carried a prepayment penalty, adjusting every 30 days to a maximum of one hundred thirty percent (130%) of the then
outstanding principal and interest balance due, if the note is paid back within the first one hundred eighty (180) days. Power
Up Lending Group, Ltd. has filed suit against the Company in the US District Court Eastern District of New York for breach of
contract. The Company has filed a motion to dismiss. As of June 30, 2018 the outstanding principal and interest were $128,000
and $4,797.
In
February 2018, the Company entered into a convertible debenture with Crown Bridge Partners, LLC with a principal balance of $58,000
due and payable on or before February 2, 2019. The note carries an original issue discount of $7,000, accrues interest at a rate
of 10% per annum and is convertible into the Company’s common stock at a 40% discount on the lowest trading price during
the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries
a prepayment penalty, adjusting every 30 days to a maximum of 135% of the then outstanding principal and interest balance due,
if the note is paid back within the first 180 days. As of June 30, 2018 the accrued interest was $2,352. On July 31, 2018, reached
a settlement agreement paying $25,000 to settle this debt in its entirety.
In
February 2018, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $165,000 due and
payable on September 21, 2018. The note carries an 8% one-time interest charge, a $15,000 original issue discount and a 40% conversion
discount to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of
the holder. In addition, the Company provided 500,000 inducement shares to secure the note. These inducement shares were valued
at $14,500 and are being amortized over the life of the note. The note can be repaid, without prepayment penalties, within
the first 90 days. Thereafter, the note will incur a 120% prepayment penalty of the then outstanding principal and interest due.
The Note went into default on June 1, 2018, through a cross default provision with another Note to Hoppel, and incurred a 40%
penalty of the outstanding balance immediately prior to the default event. Now the balance due, including default penalty, is
$249,480. The Company is in negotiation with Hoppel on this note.
In
April 2018, the Company entered into a convertible note with JMJ Financial, with a principal balance of $55,556 due and payable
on 4/16/20. The note carries a one-time interest charge of 12% or $6,667, original issue discount, and is convertible into the
company’s stock on October 13, 2018. The note also contains a prepayment penalty within 90 days of 120% or 140% between
days 91-180 outstanding.
Derivative
Liabilities
The
embedded conversion features of the above convertible notes payable contain discounted conversion prices and should be recognized
as derivative instruments. Such embedded conversion features should be bifurcated and accounted for at fair value. As of the six
months ended June 30, 2018 and the year ended December 31, 2017, the Company had a derivative liability balance of $90,000 and
$234,754, respectively. The Company uses the Black-Scholes option-pricing model to calculate derivate liability.
Fair
Value of Embedded Derivative Liabilities:
|
|
|
|
|
December
31, 2016
|
|
$
|
914,000
|
|
Addition
|
|
|
656,119
|
|
Converted
|
|
|
(2,189,373
|
)
|
Change
in fair value
|
|
|
854,008
|
|
As
of December 31, 2017
|
|
$
|
234,754
|
|
Addition
|
|
|
63,000
|
|
Converted
|
|
|
(558,685
|
)
|
Changes
in fair value
|
|
|
350,931
|
|
As
of June 30, 2018
|
|
$
|
90,000
|
|
NOTE
7 – STOCKHOLDERS’ EQUITY
The
total number of shares of capital stock, which the Company has authority to issue, is 510 million, 500 million of which are designated
as common stock at $0.001 par value (the “Common Stock”) and 10 million of which are designated as preferred stock
par value $0.001 (the “Preferred Stock”). As of June 30, 2018, the Company had 139,819,233 shares of Common
Stock issued and outstanding and no shares of Preferred Stock were issued. Holders of shares of Common stock shall be entitled
to cast one vote for each share held at all stockholders’ meetings for all purposes, including the election of directors.
The Common Stock does not have cumulative voting rights. No holder of shares of stock of any class shall be entitled as a matter
of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of
securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration
other than money, or by way of dividend. The Company has yet to designate any rights, preferences and privileges for any of its
authorized Preferred Stock.
In
January 2018, The Company commenced a new offering of units valued at $0.03 per share. Each unit consists of one share of common
stock. In the six months ended June 30, 2018, the Company has sold 13,340,000 units for aggregate proceeds of $400,200.
In
the six months ended June 30, 2018, the Company issued an aggregate of 60,000 shares of its common stock for services valued at
$2,435.
In
the six months ended June 30, 2018, the Company issued an aggregate of 5,625,000 shares of common stock valued at $189,125 as
inducements to secure debt notes.
In
the six months ended June 30, 2018, the Company issued an aggregate of 2,956,696 true up shares related to inducements to secure
debt notes. These were valued at $116,353 at the time of issuance.
In
the six months ended June 30, 2018, principal and interest in the amount of $283,075 was converted into 20,046,649 shares
of common stock. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the
intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of the convertible debt instruments
set out above, the fair value of the stock was greater than the conversion price, and therefore a total value of $457,582 was
attributed to the beneficial conversion features.
In
the six months ended June 30, 2018, the Company issued an aggregate of 110,000 warrants for services. Using a Black-Scholes asset-pricing
model, these warrants were valued at $3,194. These warrant agreements have terms of five years with exercise prices $0.25 per
share.
In
the six months ended June 30, 2018, the Company issued options under its Employee & Directors Stock Option Plan to purchase
an aggregate of 2,304,942 shares of common stock for a period of five years at an exercise price ranging from $0.03 to $0.05.
Using a Black-Scholes asset-pricing model, these agreements were valued at $70,925.
In
the six months ended June 30, 2018, 168,184 options under the Employee & Director Stock Option Plan expired. In addition,
1,230,101 Class A and 1,230,101 Class B warrants also expired. Moreover, 1,050,000 other warrants expired.
In
the separation agreement made with the ex-CEO Daniel de Liege, 250,000 Employee Stock Options were cancelled. Additionally, 1,000,000
Employee Stock Options were cancelled from a former employee in accord with the rules of the Employee Stock Option Plan.
On
June 1, 2018, 250,000 shares were issued to Daniel de Liege in accord with his separation agreement that had a value of $18,575
on that date.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
Lease
The
Company has leased office space pursuant to a lease for a period of 36 months from August 5, 2015, through July 31, 2018. Annual
rent commenced at approximately $48,925 per annum and increases on a year-to-year basis by 3% over the base year. In addition,
the Company is obligated to pay an amount equal to 3.76% of the operating expenses of the building together with sales tax on
all amounts.
EK
Laboratories leases office and warehouse space in Royal Palm Beach, FL, which serves as the Company’s research and demonstration
facility. The lease period is for thirty-six (36) months from December 1, 2017 through December 30, 2020 . Annual rent
commences at approximately $32,400 per annum and increases on a year-to-year basis by three percent (3.0%) over the prior year.
Rent
expense for the six months ended June 30, 2018 and June 30, 2017 were $50,952 and $64,162 respectively. For the three
months ended June 30, 2018 and June 30, 2017 rent expense was $20,555 and $32,091.
NOTE
9 – RELATED PARTY TRANSACTIONS
Related
Transactions
|
1.
|
Short-term
notes payable and convertible notes issued to related parties are described in NOTE 6.
|
|
2.
|
In
December 2017, EK Laboratories rented office and warehouse space from Royal Palm Dev
I, LLC, a company owned by a shareholder with greater than 10% ownership of the Company.
Rent payments for this lease began in January 2018 and are $2,700 per month.
|
NOTE
10 – DISCONTINUED OPERATIONS
On
September 1, 2014, the Company decided to focus on its renewable energy holdings and future energy technologies, and to divest
itself of its entertainment-related assets and subsidiaries. The Company made this decision because the entertainment business
was no longer commercially viable, whereas the energy business represented a better economic opportunity. Specifically, the Board
decided to discontinue operations of its entertainment-related subsidiaries, including but not limited to: Prelude Pictures Entertainment,
LLC; AMG Live, LLC; AMG Restaurant Operations, LLC (including The New York Sandwich Co.); AMG Music, LLC; AMG Releasing, LLC;
and AMG Television, LLC.
Below
is a reconciliation of the total assets and liabilities of the discontinued operations, which are presented separately on the
balance sheet.
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Carrying
amounts of major classes of assets included as part of discontinued operations
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
-
|
|
|
|
-
|
|
Total
assets of the discontinued operation
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Carrying
amounts of major classes of liabilities included as part of discontinued operations
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
36,148
|
|
|
|
36,148
|
|
Total
liabilities of the discontinued operation
|
|
$
|
36,148
|
|
|
$
|
36,148
|
|
NOTE
11 – SUBSEQUENT EVENTS
The
Company evaluated subsequent events through the date the financial statements were available to be issued. Based on this evaluation,
the Company identified the following subsequent events:
The
Company has been sued by Porter, Levay and Rose, Inc . for the outstanding principal of $84,994 and interest accrued. On
August 16, 2018 the Company agreed to settle this debt for $30,000. This amount will be made in three payments: $15,000 on September
15, 2018, $7,500 on October 15, 2018 and $7,500 on November 15, 2018.
On
July 6, 2018, the Company cancelled 9,338,737 stock options that were issued in lieu of salary accrued for in 2017.
On
July 18, 2018, the Company’s former Controller, who was terminated for cause is suing the Company for $2,694,577. The Company
is in process of providing a response to this complaint.
On
July 20,2018 625,000 inducement shares were cancelled.
On
August 23, 2018 150,000 shares of common stock were issued to a board member for services.
On
September 18, 2018 the Company cancelled 12,739,976 warrants issued to related parties in 2017.
Subsequent
to June 30, 2018 the Company has issued 9,366,666 of its common stock for $281,000.