CitroTech Inc 10-Q, filed Mar 31, 2023
CitroTech Inc. (CITR)
About this 10-Q
CitroTech Inc filed this 10-Q on March 31, 2023, covering the quarter ended September 30, 2014.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended: September 30, 2014 |
or
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☐ |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ___________ to ___________ |
Commission File No. 33-55254-38
General Enterprise Ventures, Inc.
(Exact name of Small Business Issuer as specified in its charter)
| WYOMING | 87-2765150 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| 1740h Del Range Blvd, Suite 166 Cheyenne, Wyoming 82009 |
| (Address of principal executive offices, Zip Code ) |
| (800) 401-4535 |
| Issuer’s telephone number, including area code |
Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T ($232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, a non- accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
Indicate by check mark whether the registrant is a shell company ( as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date. As of March 22, 2023 there were 93,945,388 shares of the issuer’s $0.001 par value common stock issued and outstanding.
GENERAL ENTERPRISE VENTURES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
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| Part 1 | Financial Information | |
| Item 1 | Financial Statements (Unaudited) | 3 |
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Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operation | 21 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 22 |
| Item 4 | Controls and Procedures | 22 |
| Part II | Other Information | |
| Item 1 | Legal Proceedings | 23 |
| Item 1A | Risk Factors | 23 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| Item 3 | Defaults Upon Senior Securities | 23 |
| Item 4 | Submission of Matters to a Vote of Security Holders | 23 |
| Item 5 | Other Information | 23 |
| Item 6 | Exhibits and Reports on Form 8K | 24 |
| Signatures | 25 | |
| CEO Certification | ||
| CFO Certification |
| 2 |
PART 1 - FINANCIAL INFORMATION
GENERAL ENTERPRISE VENTURES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | – | $ | – | ||||
| Total assets | $ | – | $ | – | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 2,115,138 | $ | 2,115,138 | ||||
| Accrued expenses | 17,140,587 | 11,058,427 | ||||||
| Payable to related entities | 931,726 | 931,726 | ||||||
| Current portion of financing agreement | 6,777,027 | 6,777,027 | ||||||
| Current portion of long term obligations | 4,049,236 | 4,049,236 | ||||||
| Current portion of acquisition notes payable | 564,534 | 564,534 | ||||||
| Total current liabilities | 31,578,248 | 25,496,088 | ||||||
| Long term obligations, net of current portion | 3,783,919 | 3,783,919 | ||||||
| Acquisition notes payable, net of current portion | 8,171,674 | 8,171,674 | ||||||
| Total liabilities | 43,533,841 | 37,451,681 | ||||||
| Stockholders' Deficit | ||||||||
| Common stock, par value $0.001, 1,000,000,000 shares authorized, 22,945,388 and 22,945,388 shares issued and outstanding of shares as of September 30, 2014 and December 31, 2013, respectively | 22,958 | 22,958 | ||||||
| Additional paid in capital | 56,426,831 | 56,426,831 | ||||||
| Accumulated deficit | (99,983,630 | ) | (93,901,470 | ) | ||||
| Total stockholders’ deficit | (43,533,841 | ) | (37,451,681 | ) | ||||
| Total liabilities and stockholders' deficit | $ | – | $ | – | ||||
The accompanying notes are an integral part of these unaudited financial statements
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GENERAL ENTERPRISE VENTURES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months | Three Months | Nine | Nine | |||||||||||||
| Ended | Ended | Months Ended | Months Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Other income (expenses) | ||||||||||||||||
| Interest and financing costs | (868,880 | ) | (868,880 | ) | (2,606,640 | ) | (2,606,640 | ) | ||||||||
| Total other income (expenses), net | (868,880 | ) | (868,880 | ) | (2,606,640 | ) | (2,606,640 | ) | ||||||||
| Income (loss) before provision for income tax | (868,880 | ) | (868,880 | ) | (2,606,640 | ) | (2,606,640 | ) | ||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net income(loss) | $ | (868,880 | ) | $ | (868,880 | ) | $ | (2,606,640 | ) | $ | (2,606,640 | ) | ||||
| Basic and diluted loss per share consolidated | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.11 | ) | $ | (0.11 | ) | ||||
| Weighted average number of shares outstanding | 22,945,388 | 22,945,388 | 22,945,388 | 22,945,388 | ||||||||||||
The accompanying notes are an integral part of these unaudited financial statements
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GENERAL ENTERPRISE VENTURES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Value | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, December 31, 2012 | 22,945,388 | $ | 22,958 | $ | 56,426,831 | $ | (93,901,470 | ) | $ | (37,451,681 | ) | |||||||||
| Net loss | – | – | – | (2,606,640 | ) | (2,606,640 | ) | |||||||||||||
| Balance, September 30, 2013 | 22,945,388 | $ | 22,958 | $ | 56,426,831 | $ | (96,508,110 | ) | $ | (40,058,321 | ) | |||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Value | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, December 31, 2013 | 22,945,388 | $ | 22,958 | $ | 56,426,831 | $ | (97,376,990 | ) | $ | (40,927,201 | ) | |||||||||
| Net loss | – | – | – | (2,606,640 | ) | (2,606,640 | ) | |||||||||||||
| Balance, September 30, 2014 | 22,945,388 | $ | 22,958 | $ | 56,426,831 | $ | (99,983,630 | ) | $ | (43,533,841 | ) | |||||||||
The accompanying notes are an integral part of these unaudited financial statements
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GENERAL ENTERPRISE VENTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine | Nine | |||||||
| Months Ended | Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2014 | 2013 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income (loss) | $ | (2,606,640 | ) | $ | (2,606,640 | ) | ||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Changes in assets and liabilities | ||||||||
| Accrued expenses and other liabilities | 2,606,640 | 2,606,640 | ||||||
| Net cash provided by (used in) operating activities | – | – | ||||||
| Net (decrease) increase in cash and cash equivalents | – | – | ||||||
| Cash and cash equivalents, beginning of period | – | – | ||||||
| Cash and cash equivalents, end of period | $ | – | $ | – | ||||
The accompanying notes are an integral part of these unaudited financial statements
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GENERAL ENTERPRISE VENTURES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
General Enterprise Ventures, Inc. (the “Company”) was incorporated as Ultronics Corporation (the “UC”) under the laws of the State of Nevada on March 14, 1990. UC never had operations and was formed to investigate potential companies that would be interested in merging with it.
On December 21, 2004, UC formed a subsidiary, Ultronics Acquisition Corporation (“UAC”) for the purpose of facilitating an agreement and plan of merger. UAC was incorporated in the State of Nevada. On December 23, 2004, UC, UAC and General Environmental Management, Inc. (“GEM”) entered into an Agreement and Plan of Merger whereby UAC would be merged into GEM (“Merger”) with GEM to be the surviving corporation. On February 14, 2005, a Certificate of Merger was filed in Delaware; however, there is no evidence of a Certificate of Merger being filed in Nevada. As such, GEM did not cease to exist in Nevada.
The acquisition was treated as a reverse merger with GEM deemed to be the accounting acquiror, and UAC the legal acquiror. UAC’s name was changed to General Environmental Management, Inc. (the “Company”) on March 16, 2005. On March 10, 2006, the Company entered into an Agreement with K2M Mobile Treatment Services, Inc. of Long Beach, California (“K2M”), a privately held company, pursuant to which the Company acquired all of the issued and outstanding common stock of K2M.
On August 31, 2008, The Company entered into an agreement with Island Environmental Services, Inc. of Pomona, California (“Island”), a privately held company, pursuant to which The Company acquired all of the issued and outstanding common stock of Island, a California-based provider of hazardous and non-hazardous waste removal and remediation services to a variety of private and public sector establishments.
On November 6, 2009, the Company entered into a Stock Purchase Agreement (“CLW Agreement”) with United States Environmental Response, LLC, a California limited liability company pursuant to which the Company purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated (“CLW”), a privately held company. CLW owns all of the issued and outstanding capital stock of Santa Clara Waste Water Company (“SCWW”) a California corporation. CLW's only operating subsidiary is SCWW.
On November 25, 2009, the Company entered into an Agreement with Luntz Acquisition (Delaware), LLC. (“Buyer”) pursuant to which the Company sold to Luntz all of the issued and outstanding stock of the Company's primary operating subsidiaries for cash (the “Sale”). On February 26, 2010, after approval of the transaction by the Company’s shareholders at a special meeting held on February 19, 2010, the Company completed the sale of the entities created out of GEM DE. The net cash proceeds from the transaction were used by the Company to retire senior debt and other obligations of the Company. The Company was not merged out of Nevada pursuant to this transaction.
Subsequent to the Luntz transaction, the Company’s revenues and expenses, operations, assets and liabilities were discontinued from February 2010 until January 2021.
On March 19, 2019, Small Cap Compliance, LLC was awarded custodianship of the Company by the Eighth Judicial District Court of Nevada. On May 19, 2019, the Company was revived in Nevada. On May 30, 2019, the custodian filed an Amendment to the Designations of the Series A Convertible Preferred Shares of the Company, and filed a Custodian’s Certification of Amendment certifying the same.
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On January 15, 2021, the Company filed a Certificate of Conversion from a Non-Delaware Corporation to a Delaware Corporation, and the associated Certificate of Incorporation, to become a corporation in Delaware. Delaware recognized this domestication of the Company.
On March 31, 2021, the Company formed General Entertainment Ventures, Inc. (“GEVI”) in Delaware as a wholly owned subsidiary of the Company. The purpose of the formation of GEVI was to merge the Company into GEVI pursuant to Section 251(g) of the General Corporation Law of the State of Delaware.
On April 10, 2021, after approval by the board of directors and shareholders of the Company, the Company was merged into GEVI pursuant to an Agreement and Plan of Merger dated as of the same date. GEVI is the accounting and legal acquiror of the Company.
On June 3, 2021, after approval by the board of directors and shareholders of the Company, the Company was redomiciled to the State of Wyoming.
On October 11, 2021, after approval by the board of directors and shareholders of the Company, the Company was renamed General Enterprise Ventures, Inc., in the State of Wyoming.
The Company’s year-end is December 31st
BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission, in the opinion of management, include all adjustments which, except, as described elsewhere herein, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the period presented.
Because the Company was dormant from the period from February 2010 through January 2021, the Company used the following methodology to prepare its financial statements. All assets on the Company’s March 31, 2010 balance were deemed disposed of for no value and fully impaired for quarter beginning April 1, 2010. All Company activities at that became discontinued operations with the exception of accrued interest recorded on outstanding debt. All liabilities outstanding as of March 31, 2010 remained on the Company’s balance sheet accruing interest until the quarter ending March 31, 2017 when they were written off due to the expiration of the Statue of Limitations.
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company utilized cash in operations of $-0- for the nine months ended September 30, 2014 and as of September 30, 2014 the Company had a working capital deficiency of $31,578,248 and had a stockholders’ deficit of $99,983,630. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company will also research technological opportunities in the waste-to-energy (W-T-E) marketplace as a further resource for our non-hazardous waste water treatment facilities. A W-T-E solution for managing the treating waste provides a significant advantage for generators of the waste, the environment, and the Company.
The Company will continue to develop SCWW as the foundation of our core business in the non-hazardous waste water treatment sector. We intend to do this through internal growth by offering SCWW’s integrated solution for generators of non-hazardous waste water and by making strategic acquisitions of non-hazardous waste water treatment companies.
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| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) Principles of Consolidation
The consolidated financial statements include the accounts of General Enterprise Ventures Inc. and its wholly owned subsidiaries, General Environmental Management, Inc., a Delaware corporation, Island Environmental Services, Inc., a California corporation, General Environmental Management of Rancho Cordova, LLC and California Living Waters Inc. Inter-company accounts and transactions have been eliminated.
(b) Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. These estimates and assumptions will also affect the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ materially based on any changes in the estimates and assumptions that the Company uses in the preparation of its financial statements that are reviewed no less than annually. Actual results could differ materially from these estimates and assumptions due to changes in environmental-related regulations or future operational plans, and the inherent imprecision associated with estimating such future matters.
(c) Revenue Recognition
The Company's business activities include providing wastewater treatment for companies and haulers in Ventura County, California, and in adjacent counties. The Company recognizes revenue at the time its customers unload untreated wastewater at the Company's facility. Concurrent with the recognition of revenue, the Company records the estimated costs to treat and dispose of the wastewater on hand.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured.
(d) Concentrations of Credit Risks
The Company’s financial instruments that are exposed to concentrations of credit risk consist principally of cash and trade receivables. The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances have exceeded FDIC insured levels at various times. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk in cash.
The Company’s trade receivables result primarily from removal or transportation of waste, and the concentration of credit risk is limited to a broad customer base located throughout the Western United States.
(e) Fair Value of Financial Instruments
Fair Value Measurements are adopted by the Company based on the authoritative guidance provided by the Financial Accounting Standards Board , with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption based on the authoritative guidance provided by the Financial Accounting Standards Board did not have a material impact on the Company's fair value measurements. Based on the authoritative guidance provided by the Financial Accounting Standards Board defines fair value 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. FASB authoritative guidance establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3- Unobservable inputs based on the Company's assumptions.
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FASB issued authoritative guidance that requires the use of observable market data if such data is available without undue cost and effort.
(f) Stock Compensation Costs
The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. Options vest and expire according to terms established at the grant date.
(g) Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. The diluted earnings per share calculation give effect to all potentially dilutive common shares outstanding during the period using the treasury stock method for warrants and options and the if-converted method for convertible debentures.
(h) Recent Accounting Pronouncements
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for the Company beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. We believe adoption of this new guidance will not have a material impact on our financial statements.
In January 2010, the FASB issued guidance on improving disclosures about fair value measurements to add new disclosure requirements for significant transfers in and out of Level 1 and 2 measurements and to provide a gross presentation of the activities within the Level 3 roll-forward. The guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to present the Level 3 roll-forward on a gross basis, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance was limited to the form and content of disclosures, and will not have a material impact on the Company’s results of operations or financial condition.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements .
| 3. | RELATED PARTY TRANSACTIONS |
Advances from Related Parties
During 2008, General Pacific Partners (“GPP”), a company operated by a prior member of the Board of Directors of the Company’s wholly owned subsidiary, General Environmental Management, Inc. of Delaware, made two unsecured advances to the Company totaling $472,500. The rate of interest on the advances was 10% per annum. As of December 31, 2009, $534,129 was outstanding under this advance (including accrued interest of $61,719). In 2008, GPP also provided certain financing services for which the Company agreed to pay GPP $250,000. The balance due to GPP for these services was $100,000 as of December 31, 2009. During the three month period ended March 31, 2010, General Pacific Partners agreed to convert $575,000 of the indebtedness to GPP into 1,437,500 shares of the Company’s common stock. The shares issued to GPP were valued at $273,125 based upon the trading price of the shares at the date of the agreement, resulting in a gain to the Company of $301,875. As of March 31, 2010, the remaining balance due to GPP was $69,226.
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During the year ended December 31, 2009 a related individual made an unsecured advance with no formal terms of repayment to the Company totaling $115,000. The proceeds were used for working capital purposes. At September 30, 2014 and December 31, 2013 the balance due on the advance was $97,500 and $97,500 respectively.
Due to Officers and Directors
Commensurate with the closing of the sale to Luntz (see Note 4), certain officers and directors were granted a bonus $765,000 which is outstanding as of September 30, 2014.
| 4. | SECURED FINANCING AGREEMENTS |
During the period 2008 through 2009, the Company entered into a series of financings with CVC California, LLC (“CVC”). The amounts due under these financings at September 30, 2014 and December 31, 2013 are as follows:
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| (Unaudited) | ||||||||
| Secured Notes from CVC California | $ | 6,777,027 | $ | 6,777,027 | ||||
| Valuation Discount | – | – | ||||||
| $ | 6,777,027 | $ | 6,777,027 | |||||
Note Agreements with CVC California
On September 4, 2009, the Company entered into a series of agreements with CVC that amended these agreements, including an Amended and Restated Revolving Credit and Term Loan Agreement, an Amended and Restated Revolving Credit Note, an Amended and Restated Convertible Term Note, a new Term Note, and Amended and Restated Warrants to purchase shares of the Company's common stock. Pursuant to the Amended and Restated Revolving Credit and Term Loan Agreement, (the "Amended Agreement") dated as of September 4, 2009 the Company issued to CVC:
(i) an Amended and Restated secured convertible term note (“ Convertible Note”) in the principal amount of $6,314,700. The principal amount of the Convertible Note bears an interest rate of fourteen percent, subject to adjustment, with interest payable monthly commencing November 1, 2009. The principal of the convertible Note is payable on demand or, in the absence of demand, (i) in seven (7) equal monthly installments of $138,000 each, due and payable on the first day of each calendar month commencing December 1, 2009 and continuing through and including June 1, 2010, and (ii) a final installment due and payable on June 30, 2010 in an amount equal to the entire remaining principal balance of this note. In the event of a prepayment of the Convertible Note, the Company must pay a prepayment premium in an amount equal to ( a ) two (2%) percent of the principal amount being prepaid if the prepayment is made on or prior to February 28, 2010, and (b) one (1%) percent of the principal amount being prepaid if such prepayment is made subsequent to February 28, 2010 and prior to August 1, 2011, unless the prepayment is made with the proceeds received from the sale of any business unit or units of the Company. The balance of the note outstanding at December 31, 2009 was $6,314,700. The note was paid in full on February 26, 2010 with the proceed from the sale of GEM Delaware (see Note 4).
The principal amount of the Convertible Note and accrued interest thereon due CVC was convertible into shares of the Company's common stock at a price of $0.60 per share, subject to certain adjustments. The convertible feature gave rise to a derivative liability that was valued at $896,542 at December 31, 2009. Concurrent with the extinguishment of the convertible note, the derivative liability was extinguished and a gain of $896,542 was recorded.
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(ii) an Amended and Restated Secured Non-convertible Revolving Credit Note in the principal amount of up to $1.7 million (the “Revolving Note”). The principal amount of the Revolving Note bears interest at the rate of 10% per annum and is payable on demand (or, in the absence of demand, on August 31, 2011, or sooner by reason of an Event of Default or other mandatory prepayment event. The balance of the note outstanding at March 31, 2010 and December 31, 2009 was $1,177,027 and $1,700,000, respectively.
The Amended and restated Secured Non-convertible Revolving Credit Note was amended on November 25, 2009 with an Overadvance Note in the amount of $1,190,357.The principal amount of the Overadvance Note bears interest at the rate of 15% per annum and is payable on demand or, in the absence of demand, on August 31, 2011, or sooner by reason of an Event of Default or other mandatory prepayment event. The balance of the Overadvance Note outstanding at December 31, 2009 was $1,043,665. The overadvance note was paid in full with the proceeds from the sale of GEM Delaware (see Note 4).
In connection with the Convertible Note and the Amended and restated Secured Non-convertible Revolving Credit Note, the Company had granted to CVC a Warrant to purchase Two Million Seven Hundred Thousand (2,700,000) fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, for cash at a price of $0.01 per share. The Company had previously determined that as the exercise price of the warrant contained reset provisions, the warrant was characterized as a derivative liability at December 31, 2009 in accordance with authorative guidance issued by FASB. Concurrent with the payoff of these notes, the warrant was converted to common shares and the derivative liability was extinguished (see Note 10).
(iii) a Term Note (“Term Note ”) in the principal amount of $5.6 million. The principal amount of the Term Note bears interest at the rate of 8% per annum and is payable as follows: on the first day of each calendar month commencing October 1, 2009 through and including August 1, 2010, accrued Interest on the outstanding principal shall be due and payable. Thereafter, principal and interest is payable in thirty-six (36) consecutive equal monthly installments of principal and interest of $174,321.50 each, with the first installment due and payable on September 1, 2010, and with subsequent installments due and payable on the first day of each calendar month thereafter through and including August 1, 2013. There is no pre-payment penalty in the event of a pre-payment. The balance of the Term Note outstanding at March 31, 2010 was $5,600,000.
On August 17, 2009, the Company had entered into a Stock Purchase Agreement with MTS Acquisition Company ("MTS"), pursuant to which the Company sold all of the issued and outstanding common stock of GEM Mobile Treatment Services, Inc. (“GEM MTS”). Consideration for the sale of GEM MTS was in the form of a promissory note (“the MTS Note") in the aggregate amount of $5.6 million, (payable on the same dates and terms as the Term Note), the assignment of approximately $1.0 million of accounts payable and possible future royalties. The consideration was immediately assigned to CVC. As the MTS Note is paid to CVC by MTS, the Company's indebtedness to CVC will be reduced.
Following the Closing of the sale of GEM Delaware and the payoff of the notes to CVC, the Revolving Credit Note was amended and restated so as to provide for (a) the reduced principal balance (after giving effect to the payment described above), (b) the elimination of any right to further Advances; (c) interest on the principal balance from time to time to be paid monthly in arrears as currently provided in the Revolving Credit Note, and (d) principal to be payable (i) as, when and to the extent that payments are received by GEM under the Royalty Provisions, (ii) from amounts paid to or in respect of the Borrower under Section 10.12 of the GEM MTS Purchase Agreement or otherwise in respect of the $900,000 deposit in the Union Bank trust account, and (iii) to the extent not theretofore paid, any remaining balance of the amended and restated Revolving Credit Note shall be due and payable on demand (or, if no demand is earlier made, then on March 1, 2011). (Other than as stated herein, the Revolving Credit Note shall remain unchanged and shall remain in full force and effect.) In furtherance of the foregoing, immediately after the Closing, GEM gave irrevocable written instructions to MTS Acquisition Company, Inc. (“MTS”) to remit all payments on the Purchase Money Note and pursuant to the Royalty Provisions directly to CVC, until otherwise instructed in writing by the CVC, and (B) GEM gave irrevocable written instructions to PSC to remit all amounts payable under Section 10.12 of the Purchase Agreement directly to CVC; and GEM shall not agree to any amendment of Section 10.12 of the Purchase Agreement or waive any required performance there-under without the Lender’s prior written consent. To the extent that, at any time, CVC shall have received payment in full of the amended and restated Revolving Credit Note and all other Obligations pursuant to the direct payments contemplated in the preceding sentence or otherwise, then CVC shall promptly (x) remit any excess amounts collected to GEM, and (y) give written notice to MTS and/or PSC (as applicable) that payments that would otherwise thereafter be made to CVC as aforesaid shall instead be paid directly to GEM or whomever else shall be entitled thereto. The balance of the revolving credit note was $1,177,027 at March 31, 2010.
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Valuation Discount and Modification of Debt
In connection with the CVC financing and subsequent modifications, the Company had recorded valuation discounts against the notes relating to closing fees paid, relative value of warrants issued and the conversion features of the notes. The note discount was $2,196,585 as of December 31, 2009. During the three months ended March 31, 2010, the Company amortized $382,646 of the note discount until February 26, 2010, and recorded a charge of $1,813,939 to remove the discount when the debt was retired.
| 5. | ACQUISITION NOTES PAYABLE |
On November 6, 2009, Company entered into a Stock Purchase Agreement ("CLW Agreement") with United States Environmental Response, LLC, a California limited liability company pursuant to which the Company has purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company. In consideration for the sale, the Company issued six promissory notes (individually a "CLW Note" and collectively, the "CLW Notes") in the aggregate principal amount of $9,003,000. As of March 31, 2010 and December 31, 2009, aggregate amounts outstanding under these notes was $8,739,208 and $8,994,648 as follows:
$2,000,000 CLW the Seller's Note-- Payment of the outstanding principal of the CLW the Seller’s Note is due and payable in four (4) installments as follows: (A) Two Hundred Fifty Thousand Dollars ($250,000) in November, 2009, (B) Five Hundred Thousand Dollars ($500,000) and accrued interest on June 30 2010; (C) One Million Dollars ($1,000,000) and accrued interest on January 1, 2011 (D) the balance of all residual principal and accrued interest on March 31, 2011. The balance of the Note at March 31, 2010 and December 31, 2009 was $1,750,000 and $2,000,000, respectively.
$1,700,000 CLW Note One-- Payment of the outstanding principal of CLW Note One is due and payable in 120 installments commencing on December 1, 2009 and continuing on the first day of each calendar month through November 1, 2019. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first one hundred nineteen (119) Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note and (B) the one hundred twentieth (120th) Installment shall be a final, “balloon” payment. The balance of the Note at March 31, 2010 and December 31, 2009 was $1,693,803 and $1,696,917, respectively.
$1,100,000 CLW Note Two-- Payment of the outstanding principal of this CLW Note Two is due and payable in sixty (60) installments commencing on December 1, 2009 and continuing on the first day of each calendar month through November 1, 2014. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first fifty-nine (59) Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note; and (B) the final, “balloon” payment on November 1, 2014. The balance of the Note at March 31, 2010 and December 31, 2009 was $1,090,955 and $1,095,501, respectively.
$425,000 CLW Note Three-- Payment of the outstanding principal of the CLW Note is due and payable in 120 installments commencing on December 1, 2009 and continuing on the first day of each calendar month through November 1, 2019. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first one hundred nineteen (119) Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note and (B) the one hundred twentieth (120th) Installment shall be a final, “balloon”. CLW Note Three is convertible at any time in full or in part (but if in part, then only in principal increments of $100,000 or an integral multiple thereof) into shares of common stock of Company at the conversion rate of Four Dollars ($4.00) per share, subject to adjustment. The balance of the Note at March 31, 2010 and December 31, 2009 was $423,451 and $424,230, respectively.
$1,600,000 CLW Note Four-- Payment of the outstanding principal of the CLW Note Four is due and payable in 41 installments commencing on July 1, 2010 and continuing on the first day of each calendar month through November 1, 2013. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first forty Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note, provided that the first Installment shall also include all interest accrued during the first seven months from the date of this Note; Four and (B) the final, “balloon”, Installment shall be in the amount of all then-outstanding principal, interest and other amounts then outstanding. Note Four is convertible into 5% of the common stock of Company on a fully diluted basis until Company achieves a Capital Restructuring Goal. Capital Restructuring Goal means the concurrent fulfillment of each of the following events: (i) the CLW Seller’s Note shall have been fully paid on the terms thereof as to all theretofore outstanding principal, interest, costs and expenses; (ii) Company shall have available, as properly reflected in Company’s books one million dollars ($1,000,000) in uncommitted working capital (not including any working capital lines of credit); and (iii) Company shall have invested into SCWW capital of at least one million dollars $1,000,000. The balance of the Note at March 31, 2010 and December 31, 2009 was $1,600,000 and $1,600,000, respectively.
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$2,178,000 CLW Note Five-- Payment of the outstanding principal of the CLW Note Five is due and payable in 41 installments commencing on July 1, 2010 and continuing on the first day of each calendar month through November 1, 2013. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first forty Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note, provided that the first Installment shall also include all interest accrued during the first seven months from the date of this Note; Four and (B) the final, “balloon”, Installment shall be in the amount of all then-outstanding principal, interest and other amounts then outstanding. Note Four is convertible into 10% of the common stock of Company on a fully diluted basis until Company achieves the Capital Restructuring Goal. The balance at September 30, 2014 and December 31, 2013 was $2,178,000 and $ 2,178,000, respectively.
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Total debt | $ | 8,736,208 | $ | 8,736,208 | ||||
| Current portion | (564,534 | ) | (564,534 | ) | ||||
| Long Term portion | $ | 8,171,674 | $ | 8,171,674 | ||||
| 6. | LONG TERM OBLIGATIONS |
Long term obligations consist of the following at September 30, 2014 and December 31, 2013:
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| (a) Notes Payable, National Bank of California | $ | 3,970,545 | $ | 3,970,545 | ||||
| (b) Notes Payable, Island Acquisition | 1,250,000 | 1,250,000 | ||||||
| (c) Notes Payable, Investors | 521,251 | 521,251 | ||||||
| (d) Note payable, Wiker Trust | 270,986 | 270,986 | ||||||
| (e) Note payable, Agua de Oro 2 | 29,900 | 29,900 | ||||||
| (f) Equipment Note payable, OMNI Bank | 14,531 | 14,531 | ||||||
| (g) Note payable, Individual | 26,400 | 26,400 | ||||||
| (h) Subordinated notes payable | 1,800,000 | 1,800,000 | ||||||
| Total Notes Payable | 7,883,613 | 7,883,613 | ||||||
| Less Note discount | 50,458 | 50,458 | ||||||
| Less current portion | 4,049,236 | 4,049,236 | ||||||
| Notes payable, net of current portion | $ | 3,783,919 | $ | 3,783,919 | ||||
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| (a) | Notes payable to National Bank of California consists of the following at September 30, 2014 and December 31, 2013: |
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| (i) Notes Payable, National Bank of California 1 | $ | 1,769,257 | $ | 1,769,257 | ||||
| (ii) Notes Payable, National Bank of California 2 | 1,685,997 | 1,685,997 | ||||||
| (iii) Notes Payable, National Bank of California 3 | 46,331 | 46,331 | ||||||
| (iv) Notes Payable, National Bank of California 4 | 132,939 | 132,939 | ||||||
| (v) Notes Payable, National Bank of California 5 | 336,021 | 336,021 | ||||||
| Total | $ | 3,970,545 | $ | 3,970,545 | ||||
(i) Note payable to National Bank of California, 80% guaranteed by the USDA and various related parties of the Company, bears interest at Prime plus 1%, and is payable over 20 years. (i) Note payable to National Bank of California, 80% guaranteed by the USDA and various related parties of the Company, bears interest at Prime plus 1%, and is payable over 20 years. The loan is secured by a first lien on all assets and commercial real estate of the Company, including the pipeline, and is due in 2026.
(ii) Note payable National Bank of California, 80% guaranteed by the USDA and various related parties of the Company, bears interest at Prime plus 1%, and is payable over 20 years. The loan is secured by a first lien on all assets and commercial real estate of the Company’s California Living Water Subsidiary, including the pipeline, and is due in 2026.
(iii) Note payable to National Bank of California, 80% guaranteed by the USDA and various insiders of the Company, bears interest at Prime plus 1%, and is payable over 5 years. The loan is secured by a first lien on all assets and commercial real estate of the Company’s California Living Water Subsidiary, and is due in 2011.
(iv) Note payable to National Bank of California, guaranteed by various related parties of the Company, interest at Prime plus 2%, payable over five years. This loan is secured by equipment and is cross collateralized to all other notes with National Bank of California.
(v) Note payable to National Bank of California, secured primarily by accounts receivable, bearing interest at Prime plus 2%. The note was due on March 5, 2010 and has been extended until June 2010.
The above loans are subject to certain covenants with the senior lender, National Bank of California. The affirmative covenants apply to the financial results of the Company’s subsidiary, SCWW, and include certain ratio requirements such as current ratio, Debt / Worth ratio and debt service. At December 31, 2009, SCWW was not in compliance with certain of these covenants, and as such, the notes are in default. The company is currently in discussions to resolve the default, and has classified the notes as current in the accompanying March 31, 2010 balance sheet.
(b) On August 31, 2008, the Company entered into a stock purchase agreement with Island Environmental. As part of the consideration for the purchase, the Company issued two three year promissory notes totaling $1.25 million. The first note is payable to the former owners in the amount of $1,062,500. The second note is payable to NCF Charitable Trust in the amount of $187,500. The notes bear interest at eight percent (8%) with the entire balance of interest and principal payable August 31, 2011. In conjunction with the revision to the agreements with CVC described in Note 7 an amendment to these notes was executed that all interest payments and principal payments due pursuant to the notes were deferred until August 31, 2011.
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(c) During the period March 4, 2004 through June 22, 2004, the Company entered into a Loan and Security Agreement with several investors to provide the funding necessary for the purchase of the Transfer Storage Disposal Facility (TSDF) located in Rancho Cordova, California. The notes were secured by the TSDF, carried an interest rate of eight percent (8%) per annum, and principal and interest are convertible at $30.00 per share into common stock. In addition, the note holders were issued warrants to purchase common stock. The notes were initially due June 30, 2009, but were extended to September 30, 2011. As of December 31, 2008, notes payable of $422,500 plus accrued interest of $67,105 remained outstanding.
On July 1, 2009 three note holders entered into new promissory note agreements that replaced in full the principal of the Loan and Security Agreement dated June 1, 2004. The notes are unsecured and carry an interest rate of ten percent (10%) per annum. The principal of the notes is due December 31, 2010.
On August 1, 2009 accrued interest of $168,528 was converted into 485,150 shares of common stock. As an incentive to convert the accrued interest into shares of the Company's common stock, the Board of Directors awarded 663,814 fully vested warrants to purchase common stock of the Company to the three convertible note holders. The warrants are exercisable at $0.52 per share and have a forty (40) month term. The value of these warrants was calculated at $231,140 and included in the statement of operations for the year ending December 31, 2009 as a cost to induce conversion. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 1.72 % and expected volatility of 104.54 %. As of December 31, 2009, notes payable of $500,000 and accrued interest of $21,252 remained outstanding.
(d) The Wiker Trust obligation is interest only, bearing interest at 7.75% per annum, due August 1, 2012. This is an unsecured note that is subordinated to the National Bank of California notes.
(e) An unsecured four-year note, bearing interest at 15%, payable in monthly installments of $6,130, including interest. This note is subordinated to the National Bank of California notes.
(f) Note payable relating to the purchase of equipment. The note bears interest at 10.88% per annum, payable in 36 monthly installments of principal and interest at $2,456. This obligation is subordinated at the National Bank of California notes.
(g) An unsecured four-year note, bearing interest at 15%, payable in monthly installments of $6,130, including interest. This note is subordinated to the National Bank of California notes.
(h) The Company has two notes payable that are subordinated to the notes payable to National Bank of California. The subordinated Notes Payable consists of the following at September 30, 2014:
| (i) Note payable, Wiker Trust | $ | 800,000 | ||
| (ii) Note payable, US Environmental Response | 1,000,000 | |||
| Total | $ | 1,800,000 |
(i) The Wiker Trust obligation is interest only, bearing interest at 7.75% per annum, due August 1, 2012. This is an unsecured note that is subordinated to the National Bank of California notes. The Wiker Trust is a charitable remainder trust who made the initial loan to the Company in order to fund the acquisition of SCWW in 2004. The CEO of SCWW is a trustee of the Wiker Trust.
(ii) The United States Environmental Response (“USER”) note, formerly held by Aqua de Oro, is a four year note, bearing interest at 7.75%, payable in monthly installments of $6,458 for 7 years, with all remaining principal and interest due on July 31, 2011. The CEO of SCWW is the President of USER. The balance due represents funds paid by Company to the court appointed disbursing agent for the benefit of approved creditors. This is an unsecured note that is subordinated to the National Bank of California notes and all debts allowed in the Company's bankruptcy reorganization.
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| 7. | DERIVATIVE LIABILITIES |
In 2009, the Company adopted the FASB’s guidance on “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” This guidance requires that instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of the Company’s Secured Financing and the related warrants, do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the note holders from the potential dilution associated with future financings. In accordance with current guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and recognized as an embedded derivative instrument at December 31, 2009. During the three months ended March 31, 2010, the Company eliminated these derivative liabilities.
Warrant Liability
In connection with the CVC financings described in Note 7, the Company had granted to CVC an Amended and Restated Warrant to purchase Two Million Seven Hundred Thousand (2,700,000) fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, for cash at a price of $0.01 per share at any time and from time to time from and after the date hereof and until 5:00 p.m. (Pacific time) on August 31, 2014. CVC also had the right and option, exercisable effective at any time upon or after the consummation of a Sale of the Company’s revenue-generating business units, or upon and after the occurrence and during the continuance of an Event of Default or any other event or circumstance which causes, effects or requires any payment in full under the Loan Agreement and until the Expiration Date, to require the Company to redeem and purchase any or all Warrant Shares or rights to purchase Warrant Shares hereunder, for a cash purchase price of $0.75 per Warrant Share or per right to purchase a Warrant Share hereunder, such option purchase price to be subject to adjustment from time to time in respect of certain events. The total value of the put if all shares are redeemed was $2,025,000, and was recorded as a derivative liability at December 31, 2009. In conjunction with the closing and the Amended and Restated Warrant to Purchase Shares of Common Stock, CVC of California exercised its put option related to its warrant for 2,700,000 shares for a cash purchase price of $0.75 per Warrant Share or $2,000,000. At closing, CVC was paid $500,000 and issued 3,750,000 shares of the Company’s common stock valued at $712,500 to satisfy the put option, resulting in a gain on extinguishment of the derivative liability of $812,500 in the accompanying March 31, 2010 statement of operations.
| 17 |
Conversion feature
The principal amount of the Convertible Note and accrued interest thereon due CVC was convertible into shares of the Company's common stock at a price of $0.60 per share, subject to certain adjustments. The convertible feature gave rise to a derivative liability that was valued at $896,542 at December 31, 2009. Concurrent with the extinguishment of the convertible note during 2010, the derivative liability was extinguished and a gain of $896,542 was recorded in the accompanying March 31, 2010 statement of operations.
| 8. | STOCK OPTIONS AND WARRANTS |
On March 28, 2007 the Board of Directors approved and implemented the 2007 Stock Option Plan (the “Plan”). The plan authorized option grants to employees and other persons closely associated with the Company for the purchase of up to 5,500,000 shares.
No options were issued during the quarter ended September 30, 2014.
| Weighted Avg. | Weighted Avg. | Weighted Avg. | ||||||||||
| Options | Exercise Price | Life in Years | ||||||||||
| Options outstanding, January 1, 2010 | 3,400,155 | 1.54 | 7.58 | |||||||||
| Options granted | – | – | – | |||||||||
| Options exercised | – | – | – | |||||||||
| Options cancelled | (192,083 | ) | 1.60 | – | ||||||||
| Options outstanding, March 31, 2010 | 3,208,072 | 1.53 | 7.30 | |||||||||
| Options exercisable, March 31, 2010 | 2,985,563 | 1.58 | 7.20 | |||||||||
The options had no intrinsic value at September 30, 2014.
For the three months ended March 31, 2010 and 2009, the fair value of options vesting during the period was $119,677 and $261,734 respectively, and has been reflected as compensation cost. As of September 30, 2014, the Company has unvested options valued at $151,287 which will be reflected as compensation cost over the estimated remaining vesting period of 24 months.
| 18 |
Warrants
A summary of the warrant activity during the period is as follows:
| Shares outstanding | Range of exercise prices | Weighted Avg. in Years | ||||||||||
| Warrants outstanding, January 1, 2010 | 10,411,426 | $ | 0.52-$37.50 | 4.19 | ||||||||
| Warrants granted | – | – | – | |||||||||
| Warrants exercised | – | – | – | |||||||||
| Warrants expired | – | – | – | |||||||||
| Warrants outstanding, March 31, 2010 | 10,411,426 | $ | 0.52-$37.50 | 3.92 | ||||||||
The warrants had no intrinsic value at September 30, 2014.
| 9. | COMMITMENTS AND CONTINGENCIES |
Legal Proceeding
On July 5, 2007, a lawsuit was instituted by Romic Environmental Technologies Corp. (“RET”) against the Company and four of its senior executives, all of whom were formerly employed by RET. The lawsuit was brought in the Superior Court of the State of California, County of Los Angeles. The lawsuit was settled by the Company in February 2010 with the majority of the settlement payment funded by insurance.
The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have material adverse effect on its financial position, results of operations or liquidity.
| 10. | INCOME TAXES |
The Company's net deferred tax assets consisted of the following at September 30, 2014 and December 31, 2013:
| September 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Deferred tax asset, net operating loss | $ | – | $ | – | ||||
| Less valuation allowance | – | – | ||||||
| Net deferred tax asset | $ | – | $ | – | ||||
| 19 |
As of March 31, 2010, the Company had federal net operating loss carry forwards of approximately $27,245,415 expiring in various years through 2025, which can be used to offset future taxable income, if any. No deferred asset benefit for these operating losses has been recognized in the financial statements due to the uncertainty as to their realizability in future periods.
As of March 31, 2010, the Company recorded a gain on the sale of General Environmental Management, Inc. (DE) and its subsidiaries (“GEM Delaware”), which include five service centers, the TSDF of GEM Rancho Cordova LLC, and the Island Environmental Services business (See Note 4). Due to the State of California disallowing the use of NOL carryforwards for the calendar year 2010, the Company recorded a state tax provision of $325,000. Due to the affect of the Federal Alternative Minimum Tax on the gain transaction, the Company recorded a $100,000 federal tax provision.
Reconciliation of the effective income tax rate to the United States statutory income tax rate for the nine months ended September 30, 2014 is as follows:
| September 30, | ||||
| 2014 | ||||
| Tax expense at U.S. statutory income tax rate | (34.0% | ) | ||
| Increase in the valuation allowance | 34.0 | |||
| Effective rate | – | |||
Effective January 1, 2007, the Company adopted a new accounting requirement to Account for Uncertainty in Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the new accounting requirements, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The new requirements also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of March 31, 2010, the Company did not have a liability for unrecognized tax uncertainties.
The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2002. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Because these NOLs and tax credit carry forwards may be utilized in future periods, they remain subject to examination.
The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of March 31, 2010 the Company has no accrued interest or penalties related to uncertain tax positions.
| 20 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes”, “expects”, “intends”, “anticipates”, “plans to”, “estimates”, “ projects”, or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Future Results”. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in other documents the company files from time to time with the Securities and Exchange Commission ( the “SEC”),
Statements made in this Form 10-Q (the “Quarterly Report”) that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
The words “we,” “us,” “our,” and the “Company,” refer to General Enterprise Ventures, Inc. The words or phrases “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative thereof, are intended to identify “forward-looking statements.” Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including but not limited to: (a) our failure to implement our business plan within the time period we originally planned to accomplish; and (b) other risks that are discussed in this Quarterly Report or included in our previous filings with the Securities and Exchange Commission (“SEC”).
OVERVIEW
Because the Company was dormant from the period from February 2010 through January 2021, the Company used the following methodology to prepare its financial statements. All assets on the Company’s March 31, 2010 balance were deemed disposed of for no value and fully impaired for quarter beginning April 1, 2010. All liabilities outstanding as of March 31, 2010 remained on the Company’s balance sheet accruing interest until the quarter ending March 31, 2017 when they were written off due to the expiration of the Statue of Limitations. As a result no MD&A is being provided.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not required
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act (defined below)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Because the Company was dormant from February 2010 to January 2021 disclosure controls and procedures as of September 30, 2014 are deemed to be ineffective.
Changes in Internal Control Over Financial Reporting
In addition, our management with the participation of our Principal Executive Officer and Principal Financial Officer have determined that change in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) occurred during or subsequent to the quarter ended September 30, 2014 that internal control over financial reporting is deemed to be ineffective.
| 22 |
The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have material adverse effect on its financial position, results of operations or liquidity.
No material changes from risk factor as previously disclose.
Item 2. Unregistered Sales of Securities and Use of Proceeds – S-1/A Registration Statement
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
None
| 23 |
| (a) | Exhibits |
| (b) | Reports on Form 8-K |
| 1. | Amendment to Revolving Credit and Term Loan Agreement, filed with the Commission on 6/4/09 |
| 2. | Material definitive agreement and Completion of acquisition or disposition of assets, filed with the commission on 8/21/09 |
| 3. | 3. Material definitive agreement and Corporate governance and management, filed with the commission on 9/11/2009 |
| 4. | Material definitive agreement and Completion of acquisition or disposition of assets, filed with the commission on 8/21/09 |
| 5. | 5. Material definitive agreement and Corporate governance and management, filed with the commission on 9/11/2009 |
| 6. | Material definitive agreement and Completion of acquisition or disposition of assets, filed with the commission on 11/18/09 |
| 7. | Material definitive agreement and Completion of acquisition or disposition of assets, filed with the commission on 12/03/09 |
| 8. | Material definitive agreement , filed with the commission on 12/23/2009 |
| 9. | Material definitive agreement and Amended Completion of acquisition or disposition of assets, filed with the commission on 01/26/10 |
| 10. | Material definitive agreement and Amended Completion of acquisition or disposition of assets, filed with the commission on 01/29/10 |
| 11. | Material definitive agreement and other events, filed with the commission on 02/24/10 |
| 12. | Material definitive agreement and Completion of acquisition or disposition of assets, filed with the commission on 03/02/10 |
| 24 |
In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENERAL ENTERPRISE VENTURES, INC
| Dated: | March 31, 2023 | /s/ Joshua Ralston | |
| Joshua Ralston CEO and CFO (Principal Executive and Accounting Officer) |
| 25 |
Exhibit 31.1
CEO CERTIFICATION
I, Joshua Ralston certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of General Enterprise Ventures Inc; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b. | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c. | Disclosed in this report any changes in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
Date: March 31, 2023
| /s/ Joshua Ralston | ||||
| Joshua Ralston, Chief Executive Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Joshua Ralston, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of General Enterprise Ventures, Inc. for the quarterly period ending September 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of General Enterprise Ventures Inc.
| Date: March 31, 2023 | /s/ Joshua Ralston | |||
| Joshua Ralston, Chief Financial Officer |