NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation and Accounting Policies:
The
unaudited interim consolidated financial statements include the accounts of our Company and our new subsidiary, Smart Fuel Solutions,
Inc. On September 28, 2016, the Company acquired a controlling interest in Smart Fuel Solutions, Inc., (Smart Fuel) a Florida
Corporation, established and staffed as a service company. Smart Fuel will undertake and/or assist with the operational responsibilities
of the Company. Our management will continue to focus on business development
as its major priority. We will utilize Smart Fuel’s abilities to assist us with management, engineering and development
of proposed plant projects and promotion of the Company. The ownership interest in Smart Fuel, held by third parties, are presented
in the consolidated balance sheet within the equity section as a line item identified as “non-controlling interest”,
separate from the parent’s equity. All significant inter-company balances and transactions have been eliminated in the consolidation.
The
unaudited interim consolidated financial statements also include our new wholly owned subsidiary, GETH CFP, Inc. (CFP). CFP is
a Delaware Corporation formed on February 9, 2017 for the purpose of handling and upgrading both third party carbon black and
the carbon black produced by our GEN 1 End of Life Tire Processing Plants. We acquired a Carbon Black Finishing System last year
for installation in our Centralized Carbon Black Finishing Plant located in Ohio. The equipment is being relocated and installed
with the assistance of GETH’s strategic partners, under a master services agreement that covers all of the GETH plants.
The Ohio site is being provided by the Lawrence County Economic Development Corporation as part of its mission to bring jobs back
to that part of Ohio.
The
unaudited interim consolidated financial Statements presented herein have been prepared by us in accordance with the accounting
policies described in our December 31, 2016 and 2015 audited financial statements included in Form 10-K and should be read in
conjunction with the notes to the financial statements which appear in that report.
The
preparation of these unaudited interim consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
related intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources.
Actual results may differ from these estimates under different assumptions or conditions.
In
the opinion of management, the information furnished in these unaudited interim consolidated financial statements reflect all
adjustments necessary for a fair statement of the financial position and results of operations and cash flows as of and for the
three months ended March 31, 2017 and 2016. All such adjustments are of a normal recurring nature. The results of operations for
the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim
consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements
for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 Going Concern
These
unaudited interim consolidated financial statements have been prepared on a going concern basis which assumes we will be able
to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. For the three
months ended March 31, 2017, we had a net loss. We also have a working capital deficit. We have accumulated a deficit since inception.
These factors raise substantial doubt about our ability to continue as a going concern.
These
unaudited interim consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of liabilities that might result from a future uncertainty. The Company
plans to mitigate going concern include converting its debt into equity and raise capital through loans and new
equity.
Note
3 Construction in Progress
During
the first quarter ended March 31, 2017, the Company added approximately $61,000 in construction in progress when it started
development of its Ohio carbon finishing plant. This brings the total construction in progress to $324,489 at three months
ended March 31, 2017.
Note
4 Loan Payable – Related Party and Convertible
On
March 3, 2017, we approved a new working capital line of credit loan with our CEO, Chris Bowers in the amount up to $150,000 at
8% due December 31, 2017. The note has conversion rights into our common shares at $0.10 per share. On March 8, 2017, we received
$100,000 of this loan. To date the remaining balance of $50,000 has not been received. For the three months ended March 31, 2017,
this note had accrued interest in the amount of $525. The Company evaluated this convertible LOC for Beneficial Conversion Features
(BCF) and concluded that the LOC incurred a Beneficial Conversion Features (BCF) when it was issued on March 3, 2017. The BCF
resulted in a debt discount in the amount of $35,300 of which $2,724 was amortized for the three months ended March 31, 2017 leaving
a balance of $32,576 to be amortized going forward.
(LOC) in the amount of $500,000 from our new CEO Chris Bowers. On November 14, 2016, we accepted a second Line of Credit (LOC)
in the amount of $500,000 from our CEO. The Company received $100,000 on January 31, 2017 which represented the balance on
the second LOC. As of the March 31, 2017, these two LOCs had an outstanding balance in the amount of $1,000,000 with no accrued
interest. These LOCs accrue interest at the rate of 1% per month based upon $1,000,000 total balance. We have been paying
$10,000 per month in interest on the two LOCs. The due date of the two loans is December 31, 2017. The funds were used for
working capital of the Company. The first LOC has two Addendums attached to it. Addendum A clarifies debt conversion rights
attached to the LOC at $0.20 per share of common stock. Addendum B clarifies other rights attached to the LOC. These other
rights are numbered below. (The second LOC has the same rights as that of the first LOC). These certain other rights in Addendum
B provide for the following:
|
|
1.
|
LOC
has Repayment rights: The LOC has priority principal and interest repayment rights from other sources of capital received
by the Company.
|
|
|
|
|
|
|
2.
|
LOC
has Warrant rights: Bowers has the right to receive 500,000 (five hundred thousand) $0.10 warrants for providing the LOC and
250,000 (two hundred fifty thousand) $0.10 warrants per $100,000 drawn against the $500,000 LOC. This would be a total of
1,750,000 $0.10 warrants to be issued to Bowers and/or Assigns for providing the funding and the Company using all $500,000
LOC.
|
|
|
|
|
|
|
3.
|
LOC
has Additional Stock Conversion rights: At any time while the LOC is outstanding, Bowers has the right to convert per $100,000
of the LOC for 500,000 shares of duly paid and non-assessable common stock of the Company at a conversion price of $0.20 per
share (subject to adjustment in the event of stock splits or stock dividends) by providing a notice of conversion in a form
reasonably acceptable to the Company. The full conversion of the LOC would be 2,500,000 shares of the Company common stock.
|
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company evaluated these convertible LOCs for Beneficial Conversion Features (BCF) and concluded that the second LOC incurred a
Beneficial Conversion Features (BCF) when it was issued on November 14, 2016. The BCF resulted in a debt discount in the amount
of $105,600 of which $8,800 was amortized for the year ended December 31, 2016. $26,400 was amortized for the three months ended
March 31, 2017 leaving a balance of $70,400 to be amortized going forward. There was no BCF on the remaining $100,000 drawn
from the second LOC during the three months ended March 31, 2017.
On
February 1, 2016, we issued an 8%, $134,000 Note Payable to our now, new CEO Chris Bowers for funds received. These funds were
issued to Smart Fuel Solutions, Inc. (SFS) for a promissory note for the same amount at eight percent (8%). The funds were intended
for the working capital needs of Smart Fuel Solutions. On September 28, 2016, we acquired controlling interest in SFS and
assumed the note. The note is convertible at $0.50 per share and is due on December 31, 2017. As of March 31, 2017, the
accrued interest on this note was $7,247.
We
have an unsecured line of credit with H. E. Capital, S. A., a related party. The line of credit accrues interest at the rate of
8% per annum. The due date of the line of credit has been extended to December 31, 2017. Balance of the line of credit at March
31, 2017 was $496,737 with accrued interest in the amount of $135,560. We had an agreement with H.E. Capital wherein we paid $5,000
monthly for financial services. As of December 31, 2016, this agreement is no longer in effect. H. E. Capital had no activity
for the three months ended March 31, 2017. However, H. E. Capital converted $130,000 of its debt into 1,300,000 shares of our
common stock on April 3, 2017 at a $0.10 conversion rate (see Note 11). A schedule of the H. E. Capital loan activity with
us for the three months ended March 31, 2017 and for the year ended December 31, 2016 is as follows:
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
H. E. Capital S.A. transactions for 2017
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
496,737
|
|
|
$
|
241,582
|
|
|
Proceeds
|
|
|
-
|
|
|
|
352,000
|
|
|
Reclassification from accounts payable & accruals
|
|
|
-
|
|
|
|
76,060
|
|
|
Consulting fees
|
|
|
-
|
|
|
|
60,000
|
|
|
Assignments
|
|
|
-
|
|
|
|
(190,000
|
)
|
|
Non-cash conversions to stock
|
|
|
-
|
|
|
|
(42,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
496,737
|
|
|
$
|
496,737
|
|
Note
5 Secured Debentures
On January 24, 2011, we entered into
a series of securities purchase agreements with accredited investors pursuant to which we sold an aggregate of $380,000 in 12%
secured debentures. The Debentures are secured by the assets of the Company pursuant to security agreements entered into between
us and the investors. As of March 31, 2017 these secured debentures have an outstanding balance of $305,000 and accrued interest
in the amount of $246,370. These debentures are in default and the Company is in negotiations with the holders for extensions.
Note
6 Loan Payable – Other and Convertible
On
May 16, 2016, we approved H.E. Capital S.A.’s (HEC) request to assign to a private company $200,000 of its Line of Credit
Note. We approved the request and reduced HEC’s Line of Credit Note for that amount and record a new note. On July 19, 2016,
the private company converted $100,000 of its note into 1,000,000 common shares of the Company’s stock. The note is due
December 31, 2017. As of March 31, 2017, the note balance is $100,000 with accrued interest in the amount of $8,395.
On
July 1, 2016, we issued a note to a private individual in the amount of $49,295. This note is convertible at $0.50 per
share and accrues interest at 8%. The note is due December 31, 2017. As of March 31, 2017, this note had accrued interest
in the amount of $2,960.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
7 Loan Payable – Other and Non-Convertible
On
November 16, 2012, we issued a note to a private individual in the amount of $170,000 with interest accruing at 8% per annum.
This note has been extended to December 31, 2017. As of March 31, 2017, the accrued interest was $10,284.
Note
8 Commitments
On
March 29, 2017, we entered into a lease and working capital credit facility with Caliber Capital & Leasing LLC and its assignee,
Real Estate Acquisition Development Sales, LLC (“READS”). Under the agreements, READS is providing an initial commitment
of up to $2.5 million for the construction of our first processing line in our centralized Carbon Finishing Plant in Ohio. The
loan is dated for April 4, 2017 and to date we have not received our first draw.
On
March 29, 2017, we also signed the Master Equipment and Building Related Lease Agreement. The lease will have an initial term
of seven years, after which we will have the option to purchase the facility from READS or renew the lease under the same terms.
The commencement date is April 4, 2017.
Note
9 Equity
Common
Stock
We
have 250,000,000 common shares of $0.001 par value stock authorized. On December 31, 2016, we had 28,517,597 common shares outstanding.
As of March 31, 2017, we had 28,617,597 common shares outstanding.
On
January 15, 2017, we issued 100,000 common shares for consulting services valued at $20,000.
Warrants
On February 8, 2017, 1,000 common stock warrants, with an exercise price of $10 per share, expired.
On
January 9, 2017 our subsidiary, Smart Fuel Solutions, Inc., issued 150,000 warrants to each of its four directors. These warrants
were valued at $142,857 using the Black-Sholes option pricing model. These warrants are convertible into common
shares of the Company. The grant date fair value calculation included the following inputs: three year US Treasury note
interest rate of 1.48%, dividend yield of 0, expected volatility of 289% and the expected term of three years. These warrants
were fully vested and have an exercise price of $0.10 per share, and expire on December 31, 2019.
The
weighted average exercise price is $0.10, the average term is 2.84 years and the intrinsic value is calculated to be $1,136,349.
.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
10 Related Party Transactions
We
have an unsecured line of credit with H. E. Capital, S. A., a related party. The line of credit accrues interest at the rate of
8% per annum. The due date of the line of credit has been extended to December 31, 2017. Balance of the line of credit at March
31, 2017 was $496,737 with accrued interest in the amount of $135,560. This line of credit has $0.10 per share of common stock
conversion feature. We had an agreement with H.E. Capital wherein we paid $5,000 monthly for financial services. As of December
31, 2016, this agreement is no longer in effect. H. E. Capital had no activity for the three months ended March 31, 2017.
On
August 15, 2016, we accepted a Line of Credit (LOC) in the amount of $500,000 from our new CEO Chris Bowers. On November 14, 2016,
we accepted a second Line of Credit (LOC) in the amount of $500,000 from our CEO. As of the December 31, 2016, these two LOCs
had an outstanding balance in the amount of $900,000 with no accrued interest. These LOCs accrue interest at the rate of 1% per
month based upon $1,000,000 total balance. We have been paying $10,000 per month in interest on the two LOCs. The due date of
the two loans is December 31, 2017. The funds were used for working capital for the Company. The first LOC has two Addendums attached
to it. Addendum A clarifies debt conversion rights attached to the LOC at $0.20 per share of common stock. Addendum B clarifies
other rights attached to the LOC. The Company received $100,000 on January 31, 2017 which represented the balance of the LOC2.
There was no BCF on the balance of the LOC2. These other rights are numbered below. (The second LOC has the same rights as that
of the first LOC).
1.
LOC has Repayment rights: The LOC has priority principal and interest repayment rights from other sources of capital received
by the Company.
2.
LOC has Warrant rights: Bowers has the right to receive 500,000 (five hundred thousand) $0.10 warrants for providing the LOC and
250,000 (two hundred fifty thousand) $0.10 warrants per $100,000 drawn against the $500,000 LOC. This would be a total of 1,750,000
$0.10 warrants to be issued to Bowers and/or Assigns for providing the funding and the Company using all $500,000 LOC.
3.
LOC has Additional Stock Conversion rights: At any time while the LOC is outstanding, Bowers has the right to convert per $100,000
of the LOC for 500,000 shares of duly paid and non-assessable common stock of the Company at a conversion price of $0.20 per share
(subject to adjustment in the event of stock splits or stock dividends) by providing a notice of conversion in a form reasonably
acceptable to the Company. The full conversion of the LOC would be 2,500,000 shares of the Company common stock.
The
Company evaluated the addendums under ASC 470-50 and concluded that these addendums did not qualify for debt modification.
The
Company evaluated these convertible LOCs for Beneficial Conversion Features (BCF) and concluded that the second LOC incurred a
Beneficial Conversion Features (BCF) when it was issued on November 14, 2016. The BCF resulted in a debt discount in the amount
of $105,600 of which $8,800 was amortized for the year ended December 31, 2016. $26,400 was amortized for the three months ended
March 31, 2017 leaving a balance of $70,400 to be amortized going forward.
On
February 1, 2016, we issued an 8%, $134,000 Note Payable to our now, new CEO Chris Bowers for funds received. This note has been
extended to December 31, 2017.The note is convertible at $0.50 per share. As of March 31, 2017, the accrued interest on this note
was $7,247.
GREEN
ENVIROTECH HOLDINGS CORP.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On
March 3, 2017, we approved a new working capital loan with our CEO, Chris Bowers in the amount up to $150,000 at 8% due December
31, 2017. The note has conversion rights into our common shares at $0.10 per share. On March 8, 2017, we received $100,000 of
this loan. To date we have not requested the remaining balance of $50,000. For the three months ended March 31, 2017, this note
had accrued interest in the amount of $525. The Company evaluated this convertible LOC for Beneficial Conversion Features (BCF)
and concluded that the LOC incurred a Beneficial Conversion Features (BCF) when it was issued on March 3, 2017. The BCF resulted
in a debt discount in the amount of $35,300 of which $2,724 was amortized for the three months ended March 31, 2017 leaving a
balance of $32,576 to be amortized going forward.
On
January 9, 2017 our subsidiary, Smart Fuel Solutions, Inc., issued 150,000 warrants to each of its four directors. These warrants
were valued at $142,857 by the Black-Sholes method. These warrants are convertible into common shares of the Company. The grant
date fair value calculation included the three year US Treasury note interest rate of 1.48%, dividend yield of 0, expected volatility
of 289% and the expected term of three years. These warrants were fully vested and have an exercise price of $0.10 per share of
the Company’s common stock, and expire on December 31, 2019.
Note
11 Subsequent Events
On
May 5, 2017 (“Issue Date”), we issued a note in the amount of $77,500 to Auctus Fund LLC. The
note has an interest rate of 10% and is due February 5, 2018. The note can be prepaid any time during the period beginning on
the Issue Date and ending on the date which is ninety (90) days following the Issue Date at 125% of the unpaid principal balance
including interest. The note can be prepaid at any time during the period beginning the day which is ninety one (91) days following
the Issue Date and ending on the date which is one hundred eighty (180) days following the Issue Date at 135% of the unpaid principal
balance plus interest. After the expiration of one hundred eighty (180) days following the date of the note, the Company
shall have no right of prepayment. The note has a variable conversion price feature per the agreement which starts
on August 5, 2017. The conversion price shall equal the lesser of (i) the average of the two (2) lowest trading prices
during the previous twenty-five (25) trading day period ending on the latest complete trading day prior to the date
of the note and (ii) the variable conversion price. The variable conversion price
shall mean 55% multiplied by the market price, representing a discount rate of 45%. Market price means the
average of the two (2) lowest trading prices for the common stock during the twenty-five (25) trading
day period ending on the latest complete trading day prior to the conversion date.
On
April 12, 2017, we received a note in the amount of $100,000 from a third party. The note has an interest rate of
8% and is due on April 11, 2018. The note has a variable conversion price feature per the agreement, in which, the note is
convertible at $0.20 or if the stock price is below $0.20 per share at conversion, the lender can convert at a 15% discount on
stock price.
On
April 11, 2017, our wholly owned subsidiary GETH CFP, Inc. signed a 10 year lease with the Lawrence Economic Development Corporation
of Lawrence County, Ohio for the lease of 11,200 sq. ft. of manufacturing space for our carbon finishing plant in Ohio. The lease
has a start date of June 1, 2017 and runs to June 1, 2027. The lease has three, five year extensions. Monthly lease payments
amount to $3,733 on the original term and will increase to $4,200 per month starting on the second extension.
On
April 3, 2017, we issued 1,300,000 common shares to H. E. Capital, a related party, to settle $30,000 of debt and $100,000 of
accrued interest as stated in the debt settlement agreement.