Genoil Inc 6-K, filed May 28, 2024
Genoil Inc (GNOLF)
About this 6-K
Genoil Inc filed this 6-K on May 28, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the Period ending March 31, 2024
Commission File Number 000-50766
| GENOIL INC. |
| (Translation of registrant’s name into English) |
One Rockefeller Plaza 11th Floor
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Genoil Inc. |
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| (Registrant) |
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| Date: May 28, 2024 | By: | /s/ David Lifschultz |
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| Name: | David Lifschultz |
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| Title: | CEO |
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EXHIBIT 99.1
GENOIL INC.
March 31, 2024
FORM 6-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
| Table of Contents |
| GENOIL INC. | ||||||||
| (Expressed in US Dollars) | ||||||||
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| ASSETS | ||||||||
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| March 31, |
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| December 31, |
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| 2024 |
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| 2023 |
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| (Unaudited) |
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| CURRENT ASSETS |
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| Cash and cash equivalents |
| $ | 31,006 |
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| $ | 10,464 |
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| Prepaid expenses and other current assets |
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| 78,301 |
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| 84,762 |
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| Total Current Assets |
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| 109,307 |
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| 95,226 |
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| Land located in Alberta Canada |
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| 43,163 |
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| 43,163 |
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| OTHER ASSETS |
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| Due from related party |
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| 103,208 |
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| 102,330 |
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| Intangible assets, net |
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| 1 |
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| 1 |
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| TOTAL ASSETS |
| $ | 255,679 |
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| $ | 240,720 |
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| CURRENT LIABILITIES |
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| Trade and other payables |
| $ | 105,527 |
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| $ | 110,527 |
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| Accrued interest payable to related parties |
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| 16,947 |
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| 10,406 |
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| Due to related parties |
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| 46,875 |
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| 46,875 |
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| Total Current Liabilities |
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| 169,349 |
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| 167,808 |
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| NON-CURRENT LIABILITIES |
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| Convertible notes to related parties, noncurrent portion |
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| 208,232 |
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| 208,232 |
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| Total Non-Current Liabilities |
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| 208,232 |
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| 208,232 |
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| TOTAL LIABILITIES |
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| 377,581 |
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| 376,040 |
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| STOCKHOLDERS' EQUITY (DEFICIT) |
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| Preferred Stock, no par value; authorized 10,000,000 shares, issued and outstanding 0 and 0 shares, respectively |
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| - |
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| - |
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| Common Stock, no par value; issued and outstanding 1,928,867,429 and 1,913,137,429 shares, respectively |
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| 63,799,518 |
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| 63,642,218 |
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| Contributed surplus |
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| 40,280,745 |
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| 40,280,745 |
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| Accumulated other comprehensive income (loss) |
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| (221,860 | ) |
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| (221,860 | ) |
| Accumulated deficit |
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| (103,980,305 | ) |
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| (103,836,423 | ) |
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| Total Stockholders' Deficit |
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| (121,902 | ) |
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| (135,320 | ) |
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| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
| $ | 255,679 |
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| $ | 240,720 |
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| The accompanying notes are an integral part of these consolidated Financial Statements | ||||||||
| F-2 |
| Table of Contents |
| GENOIL INC. | ||||||||
| (Expressed in US Dollars) | ||||||||
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| For the three months ended March 31, |
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| 2024 |
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| 2023 |
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| REVENUES |
| $ | - |
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| $ | - |
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| COST OF REVENUES |
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| - |
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| - |
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| GROSS PROFIT |
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| - |
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| - |
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| OPERATING EXPENSES |
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| Stock based compensation to officers, directors, and consultants |
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| - |
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| 2,097,468 |
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| Other Operating Expenses |
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| 137,341 |
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| 102,148 |
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| Total Operating Expenses |
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| 137,341 |
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| 2,199,616 |
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| LOSS FROM OPERATIONS |
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| (137,341 | ) |
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| (2,199,616 | ) |
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| Other Income (Expense) |
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| Finance expense |
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| (6,541 | ) |
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| (323,999 | ) |
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| Total Other Income (Expense) - Net |
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| (6,541 | ) |
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| (323,999 | ) |
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| INCOME (LOSS) BEFORE INCOME TAXES |
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| (143,882 | ) |
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| (2,523,615 | ) |
| PROVISION FOR INCOME TAXES |
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| - |
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| - |
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| NET INCOME (LOSS) |
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| (143,882 | ) |
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| (2,523,615 | ) |
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| Weighted average shares outstanding - Basic and Diluted |
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| 1,919,301,715 |
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| 701,969,696 |
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| NET LOSS PER SHARE - Basic and Diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
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| The accompanying notes are an integral part of these consolidated Financial Statements | ||||||||
| F-3 |
| Table of Contents |
| GENOIL INC. | ||||||||||||||||||||||||
| (Expressed in US Dollars) | ||||||||||||||||||||||||
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| Accumulated |
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| Other |
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| Total |
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| Common |
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| Share |
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| Contributed |
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| Comprehensive |
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| Accumulated |
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| Stockholders' |
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| Shares |
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| Capital |
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| Surplus |
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| Income (Loss) |
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| Deficit |
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| Equity (Deficit) |
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| Balance as of January 1, 2023 |
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| 696,013,029 |
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| $ | 51,470,944 |
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| $ | 37,297,127 |
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| $ | (221,860 | ) |
| $ | (99,339,000 | ) |
| $ | (10,792,789 | ) |
| Sale of common shares (and warrants) in private placements |
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| 11,800,000 |
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| 118,000 |
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| - |
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| - |
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| - |
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| 118,000 |
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| Issuance of common shares for services |
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| 1,200,000 |
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| 12,000 |
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| - |
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| - |
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| - |
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| 12,000 |
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| Stock based compensation |
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| - |
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| - |
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| 2,088,968 |
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| - |
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| - |
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| 2,088,968 |
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| Net loss for the three-months ended March 31, 2023 |
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| - |
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| - |
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| - |
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| - |
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| (2,523,615 | ) |
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| (2,523,615 | ) |
| Balance as of March 31, 2023 |
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| 709,013,029 |
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| $ | 51,600,944 |
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| $ | 39,386,095 |
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| $ | (221,860 | ) |
| $ | (101,862,615 | ) |
| $ | (11,097,436 | ) |
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| Balance as of January 1, 2024 |
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| 1,913,137,429 |
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| $ | 63,642,218 |
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| $ | 40,280,745 |
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| $ | (221,860 | ) |
| $ | (103,836,423 | ) |
| $ | (135,320 | ) |
| Sale of common shares (and warrants) in private placements |
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| 15,730,000 |
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| 157,300 |
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| - |
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| - |
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| - |
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| 157,300 |
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| Net loss for the three-months ended March 31, 2024 |
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| - |
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| - |
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| (143,882 | ) |
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| (143,882 | ) |
| Balance as of March 31, 2024 |
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| 1,928,867,429 |
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| $ | 63,799,518 |
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| $ | 40,280,745 |
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| $ | (221,860 | ) |
| $ | (103,980,305 | ) |
| $ | (121,902 | ) |
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| The accompanying notes are an integral part of these consolidated Financial Statements | ||||||||||||||||||||||||
| F-4 |
| Table of Contents |
| GENOIL INC. | ||||||||
| (Expressed in US Dollars) | ||||||||
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| For the three months ended March 31, |
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| 2024 |
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| 2023 |
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| OPERATING ACTIVITIES |
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| Net income (loss) |
| $ | (143,882 | ) |
| $ | (2,523,615 | ) |
| Adjustments to reconcile net loss to cash flows used in operating activities: |
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| Stock based compensation |
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| - |
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| 2,100,968 |
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| Changes in operating assets and liabilities |
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| Prepaid expenses and other current assets |
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| 6,461 |
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| (181 | ) |
| Accrued interest payable |
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| 6,541 |
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| 324,000 |
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| Trade and other payables |
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| (5,000 | ) |
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| (10,201 | ) |
| Net Cash Used in Operating Activities |
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| (135,880 | ) |
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| (109,029 | ) |
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| FINANCING ACTIVITIES |
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| Net change in related party receivables |
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| (878 | ) |
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| (8,185 | ) |
| Cash received from equity investors |
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| 157,300 |
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| 118,000 |
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| Net cash provided by Financing Activities |
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| 156,422 |
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| 109,815 |
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| Increase in Cash |
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| 20,542 |
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| 786 |
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| Cash at beginning of year |
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| 10,464 |
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| 5,044 |
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| Cash at end of period |
| $ | 31,006 |
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| $ | 5,830 |
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| Supplemental disclosure of cash flow information |
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| Interest Paid |
| $ | - |
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| $ | - |
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| Income taxes paid |
| $ | - |
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| $ | - |
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| The accompanying notes are an integral part of these consolidated Financial Statements | ||||||||
| F-5 |
| Table of Contents |
Genoil INC.
Notes to Consolidated Financial Statements
For the three months ended March 31, 2024 and March 31, 2023
(Expressed in US Dollars)
1. REPORTING ENTITY AND GOING CONCERN
Genoil Inc. (“Genoil”) was incorporated under the Canada Business Corporations Act in September 1996. The consolidated financial statements of Genoil Inc. comprise Genoil Inc. and its subsidiaries, Genoil USA Inc., Genoil Emirates LLC (“Emirates LLC”) and Two Hills Environmental Inc. (“Two Hills”) (collectively the “Company”). The Company is a technology development company focused on providing innovative solutions to the oil and gas industry through the use of proprietary technologies. The Company’s business activities are primarily directed to the development and commercialization of its hydro-conversion upgrader technology, which is designed to economically convert heavy crude oil into light synthetic crude. The Company is quoted on the OTC Markets under the symbol GNOLF. The Company’s registered address is care of Bennett Jones LLP, Suite 4500, 855 - 2nd Street SW, Calgary, Alberta.
These consolidated financial statements have been presented on a going concern basis. The Company reported net losses of $143,882 and $2,523,615 for the three months ended March 31, 2024 and 2023, respectively. The Company used funds in operating activities of $135,880 and $109,029 for the three months ended March 31, 2024 and 2023, respectively. The Company had a net working capital deficiency of $60,042 and $72,582 at March 31, 2024 and December 31, 2023, respectively. The Company had a stockholders’ deficit of $121,902 and $135,320 at March 31, 2024 and December 31, 2023, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on commercializing its technologies, achieving profitable operations and obtaining the necessary financing in order to develop these technologies further. The outcome of these matters cannot be predicted at this time. The Company will continue to review the prospects of raising additional debt and equity financing to support its operations until such time that its operations become self-sustaining, to fund its research and development activities and to ensure the realization of its assets and discharge of its liabilities. While the Company is expanding its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for future operations.
The Company is not expected to be profitable during the ensuing twelve months and therefore must rely on securing additional funds from either issuance of debt or equity financing for cash consideration. During the three months ended March 31, 2024 and 2023, the Company received net proceeds of $156,422 and $109,815, respectively, pursuant to financing activities.
Management, utilizing close personal relationships, has been successful in raising capital through periodic private placements of the Company’s common shares. Although these shares are subject to a “hold” period on the United States stock markets, the investors’ confidence in the undertakings of management, with respect to future positive market performance of the Company’s common stock, permits this avenue of financing to exist. External sources of debt financing are not available to the Company due to its precarious financial position.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue its operations. Such adjustments could be material.
| F-6 |
| Table of Contents |
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
| (a) | Principles of Consolidation: |
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and incorporate the financial statements of Genoil and entities controlled by it. Control is achieved where Genoil has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Genoil has the following subsidiaries:
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| · | Genoil USA Inc., incorporated in Delaware, United States, which is a wholly owned subsidiary of Genoil. |
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| · | Genoil Emirates LLC, incorporated in the United Arab Emirates, which will focus upon the fields of oil and water processing and treatment in the United Arab Emirates. Genoil Emirates LLC is jointly owned by S.B.K. Commercial Business Group LLC and Genoil. As of March 31, 2024, Emirates LLC had not yet commenced operations and holds no assets. |
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| · | Two Hills Environmental Inc., incorporated in Canada and registered in Alberta, which is a wholly owned subsidiary of Genoil. Two Hills was formed to enter into the oilfield waste disposal industry by capitalizing upon its current undeveloped asset base. The asset base comprises a site under which three salt caverns have been formed in the Lotsberg Formation beneath the earth's surface. Such caverns are used in the oilfield disposal industry as a destination for oilfield wastes. |
The financial results of Genoil’s subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by Genoil.
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.
| (b) | Interim Financial Statements |
The unaudited consolidated financial statements of the Company for the three months ended March 31, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2023 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2023 included in the Company’s Report of Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2024. These financial statements should be read in conjunction with that report.
| (c) | Foreign currency translation |
The reporting currency of the Company is the United States Dollar. The functional currency of Genoil and its subsidiaries is the United States Dollar. Transactions denominated in currencies other than the functional currency are translated at the exchange rates prevailing at the dates of the transactions. Exchange gains and losses are reflected in income.
| F-7 |
| Table of Contents |
| (d) | Use of estimates and judgments |
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. By their nature, judgments, estimates and assumptions are subject to measurement uncertainty and changes in such judgments, estimates and assumptions in future periods could result in a material change in future financial statements. Actual results may differ from these estimates.
Judgment is used in situations where there is a choice or assessment required by management. Estimates and underlying assumptions are required on an ongoing basis and revisions are recognized in the year in which such estimates are revised.
| (e) | Cash and cash equivalents |
The Company considers all short-term investments with original maturities of three months or less to be cash equivalents.
| (f) | Stock-based compensation |
The Company grants common stock, stock options, and Price Appreciation Certificates to employees, directors, and consultants for various services rendered to the company. Share-based payments to these individuals are measured at the fair value of the securities issued and amortized over the vesting periods. The amount recognized as a share-based payment expense during a reporting period is adjusted to reflect the number of awards expected to vest. The offset to this recorded cost is to contributed surplus. A forfeiture rate is estimated on the grant date and is subsequently adjusted to reflect the actual number of options that vest. At the time of exercise, the consideration and related contributed surplus recognized to the exercise date are credited to share capital.
| (g) | Income tax |
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
| F-8 |
| Table of Contents |
| (h) | Loss per share |
Basic earnings (loss) per share is calculated by dividing the income (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as stock options and warrants. The calculation assumes the proceeds on exercise of options and warrants are used to repurchase shares at the current market price. All options and warrants are anti-dilutive when the Company is in a loss position.
| (i) | Recent accounting pronouncements: |
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or operations.
3. DETERMINATION OF FAIR VALUES
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. The Company is required to classify fair value measurements using a hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy is as follows:
| ■ | Level 1 – quoted prices in active markets for identical assets or liabilities; |
| ■ | Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and, |
| ■ | Level 3 – inputs for the asset or liability that are not based on observable market data. |
Cash and cash equivalents have been measured using level 1 inputs.
The fair value of cash and cash equivalents, due from related parties, trade and other payables, accrued interest payable, convertible notes, and due to related parties approximates their carrying value due to their short term to maturity.
The fair values of stock options and Price Appreciation Certificates are measured using the Black-Scholes pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected forfeiture rate (based on historic forfeitures), expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate.
| F-9 |
| Table of Contents |
4. DUE FROM RELATED PARTY
Due from related party consists of:
|
|
| March 31, |
|
| December 31, |
| ||
| Borrower |
| 2024 |
|
| 2023 |
| ||
| Lifschultz Enterprise Company LLC (an entity controlled by David Lifschultz, Genoil chief executive officer, and Bruce Abbott, Genoil chief operating officer) |
| $ | 103,208 |
|
| $ | 102,330 |
|
| Current portion |
|
| - |
|
|
| - |
|
| Non-current portion |
|
| 103,208 |
|
|
| 102,330 |
|
| Total |
| $ | 103,208 |
|
| $ | 102,330 |
|
The receivable is non-interest bearing and is due on demand.
The receivable from Lifschultz Enterprise Company, LLC (“LEC”) represents ongoing advances from the Company to LEC. LEC had no business revenues in 2021, 2022, and 2023. At March 31, 2024, LEC’s principal assets consisted of a convertible note receivable from the Company due January 1, 2016, in the amount of $208,232 (see Note 6), accrued interest thereon of $16,947 (see Note 5), and ownership of $462,471,800 shares of Company common stock. Effective December 31, 2023, the Company reclassified this receivable from a current asset to a non-current asset.
5. ACCRUED INTEREST PAYABLE TO RELATED PARTIES
Accrued interest payable to related parties consist of:
|
|
| March 31, |
|
| December 31, |
| ||
| Lender |
| 2024 |
|
| 2023 |
| ||
| Lifschultz Enterprise Company LLC |
| $ | 16,947 |
|
| $ | 10,406 |
|
| Totals |
| $ | 16,947 |
|
| $ | 10,406 |
|
The accrued interest payable relates to the convertible notes outstanding (see Note 6).
6. CONVERTIBLE NOTES
Convertible notes consist of:
|
|
| March 31, |
|
| December 31, |
| ||
| Lender |
| 2024 |
|
| 2023 |
| ||
| Lifschultz Enterprise Company LLC |
| $ | 208,232 |
|
| $ | 208,232 |
|
| Totals |
|
| 208,232 |
|
|
| 208,232 |
|
| Current portion |
|
| - |
|
|
| - |
|
| Non-current portion |
| $ | 208,232 |
|
| $ | 208,232 |
|
| F-10 |
| Table of Contents |
The notes bear interest at 12% compounded semi-annually and their maturity was extended on April 27, 2020 to April 27, 2022 and effective January 1, 2023 to January 1, 2026. The notes are convertible into shares of Genoil common stock at a price of $0.01 per share. The notes are secured by the assets of the Company.
The notes provide that in the event that the inflation rate (based on the US CPI) exceeds 3%, the principal and accrued interest balances are increased by such inflation rate. Effective December 31, 2021, this inflation protection provision was triggered. The principal balances of the then outstanding convertible notes were increased 4.698% or a total of $221,358 (from $4,711,764 to $4,933,122) and the accrued interest balances were increased 4.698% or a total of $183,770 (from $3,911,705 to $4,095,475). The $405,128 total increase in the principal and accrued interest balances was included in finance expense in the consolidated statement of operations in the three months ended December 31, 2021.
Effective December 31, 2022, as a result of the inflation protection provision, the principal balances were increased 8.003% or a total of $394,798 (from $4,933,122 to $5,327,920) and the accrued interest balances were increased 8.003% or a total of $417,071 (from $5,211,424 to $5,628,495). The $811,869 total increase in the principal and accrued interest balances was included in finance expense in the consolidated statement of operations in the three months ended December 31, 2022.
On July 30, 2023, a total of $5,041,327 of convertible notes payable to related parties ($3,020,721 in principal and $2,020,606 in accrued interest) was converted into 504,129,700 shares of common stock. David K. Lifschultz converted $2,520,686 of convertible notes ($1,510,368 in principal and $1,010,318 in accrued interest) into 252,065,600 shares of common stock. Bruce S. Abbott converted $2,520,641 of convertible notes ($1,510,353 in principal and $1,010,288 in accrued interest) into 252,064,100 shares of common stock.
On August 1, 2023, a total of $6,367,097 of convertible notes payable to related parties ($2,107,199 in principal and $4,259,898 in accrued interest) was converted into 636,709,700 shares of common stock. Lifschultz Enterprise Company LLC converted $4,624,718 of convertible notes ($1,495,053 in principal and $3,129,665 in accrued interest) into 462,471,800 shares of common stock. Sidney B. Lifschultz 1992 Family Trust converted $1,742,379 of convertible notes ($612,146 in principal and $1,130,233 in accrued interest) into 174,237,900 shares of common stock.
Effective December 31, 2023, as a result of the inflation protection provision, the principal balance due Lifschultz Enterprise Company LLC increased 4.116% or $8,232 (from $200,000 to $208,232) and the accrued interest balance due Lifschultz Enterprise Company LLC increased 4.116% or $411 (from $9,995 to $10,406). The $8,643 total increase in the principal and accrued interest balances was included in Finance expense in the consolidated statement of operations for the three months ended December 31, 2023.
7. DUE TO RELATED PARTIES
Due to related parties consist of:
|
|
| March 31, |
|
| December 31, |
| ||
| Creditor |
| 2024 |
|
| 2023 |
| ||
| Occupancy costs payable to Bruce Abbott and David Lifschultz for use of Mamaroneck New York property from January 1, 2018 to September 30, 2020 |
| $ | 46,875 |
|
| $ | 46,875 |
|
| Totals |
| $ | 46,875 |
|
| $ | 46,875 |
|
| F-11 |
| Table of Contents |
The payables are non-interest bearing and are due on demand.
8. SHARE CAPITAL
Preferred Stock
There are 10,000,000 shares of Class A Preferred Stock authorized but none are outstanding.
Common Stock
There are an unlimited number of shares of common stock, no par value, authorized to be issued.
During the first quarter of 2023, the Company sold a total of 11,800,000 shares of common stock (and warrants) in private placements for total proceeds of $118,000.
During the first quarter of 2023, the Company issued a total of 1,200,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $12,000.
During the second quarter of 2023, the Company sold a total of 12,520,000 shares of common stock (and warrants) in private placements for total proceeds of $125,200.
During the second quarter of 2023, the Company issued a total of 2,450,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $24,500.
During the third quarter of 2023, the Company sold a total of 12,960,000 shares of common stock (and warrants) in private placements for total proceeds of $129,600.
During the third quarter of 2023, the Company issued a total of 4,305,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $43,050.
During the fourth quarter of 2023, the Company sold a total of 27,850,000 shares of common stock (and warrants) in private placements for total proceeds of $ 278,500.
During the fourth quarter of 2023, the Company issued a total of 3,200,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $32,000.
During the first quarter of 2024, the Company sold a total of 15,730,000 shares of common stock (and warrants) in private placements for total proceeds of $ 157,300.
| F-12 |
| Table of Contents |
Warrants
In conjunction with the private placements, the Company issued warrants to purchase common stock. The following is a summary of the warrant activity for the period January 1, 2023 to March 31, 2024.
| Number outstanding at January 1, 2023 |
|
| 174,691,174 |
|
| Granted |
|
| 65,130,000 |
|
| Cancelled |
|
| (17,425,507 | ) |
| Number outstanding at December 31, 2023 |
|
| 222,395,667 |
|
| Granted |
|
| 15,630,000 |
|
| Cancelled |
|
| (12,514,000 | ) |
| Number outstanding at March 31, 2024 |
|
| 225,511,667 |
|
At March 31, 2024, the 225,511,667 warrants outstanding had a weighted average exercise price of $0.03 per share, a weighted average remaining contractual life of 2.96 years, and an aggregate intrinsic value of $0.
9. STOCK-BASED COMPENSATION
Stock-based compensation consists of:
|
|
| Three Months Ended |
| |||||
|
|
| March 31, |
|
| March 31, |
| ||
| Type of Security |
| 2024 |
|
| 2023 |
| ||
| Price Appreciation Certificates |
| $ | - |
|
| $ | 2,026,969 |
|
| Options issued to outside directors and consultants |
|
| - |
|
|
| 61,999 |
|
| Common stock issued for services |
|
| - |
|
|
| 8,500 |
|
| Totals |
| $ | - |
|
| $ | 2,097,468 |
|
The following is a summary of the compensatory securities activity for the period January 1, 2023 to March 31, 2024:
| Common stock equivalent |
| Price Appreciation Certificates |
|
| Options |
|
| Total |
| |||
| Number outstanding at January 1, 2023 |
|
| 589,400,000 |
|
|
| 49,200,000 |
|
|
| 638,600,000 |
|
| Granted |
|
| 262,700,000 |
|
|
| 55,666,000 |
|
|
| 318,366,000 |
|
| Cancelled |
|
| (162,700,000 | ) |
|
| (19,650,000 | ) |
|
| (184,350,000 | ) |
| Number outstanding at December 31, 2023 |
|
| 689,400,000 |
|
|
| 85,216,000 |
|
|
| 774,616,000 |
|
| Granted |
|
| - |
|
|
| - |
|
|
| - |
|
| Cancelled |
|
| - |
|
|
| (2,000,000 | ) |
|
| (2,000,000 | ) |
| Number outstanding at March 31, 2024 |
|
| 689,400,000 |
|
|
| 83,216,000 |
|
|
| 772,616,000 |
|
| F-13 |
| Table of Contents |
PRICE APPRECIATION CERTIFICATES
In lieu of compensation the Company has entered into agreements (“Price Appreciation Certificates”) with David Lifschultz and Bruce Abbott whereby, at the request of the executives, the Company agrees to pay the equivalent sum of the rise in the Company’s stock price based on the agreed upon number of shares, from a fixed per share amount to the average of the last 10 trading days (volume weighted average price).
The number of shares reflect a potential salary for the two executives that only exist if the price of the shares rise above the price appreciation base amount. The Company has no obligation to pay the two executives if the stock does not rise. The Company, at its exclusive option and benefit, can proceed with a private placement at the share price on the date of exercise and the executive will subscribe to this private placement for the entire sum advanced by the Company.
The Company accounts for these Price Appreciation Certificates as an equity instrument due to its exclusive option to require a subscription to the private placement as determined by the fair value of the instruments using a Black-Scholes pricing model.
At December 31, 2023, the 689,400,000 Price Appreciation Certificates outstanding had a weighted average exercise price of $0.01 per share, a weighted average remaining contractual life of 2.85 years, and an aggregate intrinsic value of $0.
At March 31, 2024, the 689,400,000 Price Appreciation Certificates outstanding had a weighted average exercise price of $0.01 per share, a weighted average remaining contractual life of 2.6 years, and an aggregate intrinsic value of $0.
OPTIONS
The Company has a stock option plan for directors, officers, employees and consultants. The term and vesting conditions of each option may be fixed by the Board of Directors when the option is granted, but the term cannot exceed 10 years. The maximum number of shares that may be reserved for issuance under the plan is fixed at 200,000,000. The maximum number of shares that may be optioned to any one person is 5% of the shares outstanding at the date of the grant. The options granted in 2023 all vested immediately.
The fair value of stock options granted during 2023 was estimated on the dates of grant using the Black-Scholes pricing model based on the following assumptions:
|
|
| 2023 |
| |
| Volatility |
|
| 385.8 | % |
| Expected life |
| 5 years |
| |
| Risk-free rate |
|
| 3.59 | % |
| Dividend yield |
|
| - |
|
| Forfeiture rate |
|
| 0 | % |
| Stock Price at Valuation |
| $ | 0.01 |
|
| Exercise Price |
| $ | 0.01 |
|
On August 2, 2023, the Company modified options held by its current directors to reduce the exercise price of 17,000,000 options from $0.01 to $0.001; no other terms were modified. No expense was recorded for this modification since the fair value of the options pre modification and post modification were not different.
On August 16, 2023, the Company delivered 20,000,000 options (exercisable at $0.001 per share and expiring August 16, 2028) to a director in exchange for the cancellation of 20,000,000 Price Appreciation Certificates held by this director. No expense was recorded for this transaction since the fair value of the PAC’s pre-cancellation and the fair value of the options was not different.
| F-14 |
| Table of Contents |
At December 31, 2023, the 85,216,000 stock options outstanding had a weighted average exercise price of $0.008 per share, a weighted average remaining contractual life of 4.03 years, and an aggregate intrinsic value of $553,194.
At March 31, 2024, the 83,216,000 stock options outstanding had a weighted average exercise price of $0.007 per share, a weighted average remaining contractual life of 3.87 years, and an aggregate intrinsic value of $553,194.
10. INCOME TAXES
The provision for (benefit from) income taxes reflects the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The provision for (benefit from) income taxes differs from that computed by applying the statutory United States federal income tax rate of 21% for 2024 and 2023 to loss before income taxes. The sources of the differences are as follows:
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2024 |
|
| 2023 |
| ||
| Income (loss) before income taxes |
| $ | (143,882 | ) |
| $ | (2,523,615 | ) |
| Expected recovery at statutory tax rate |
| $ | 30,215 |
|
| $ | 529,959 |
|
| Non-deductible stock-based compensation |
|
| - |
|
|
| (440,468 | ) |
| Increase in valuation allowance |
|
| (30,215 | ) |
|
| (89,491 | ) |
| Provision for Income Taxes |
| $ | - |
|
| $ | - |
|
Based on management’s present assessment, the Company has not yet determined that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of March 31, 2024 will be realized. Accordingly, the Company has maintained a 100% valuation allowance against the deferred tax asset in the financial statements at March 31, 2024. The Company will continue to review this valuation allowance and make adjustments as appropriate.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
All tax years remain subject to examination by major taxing jurisdictions.
11. SUBSEQUENT EVENTS
From April 1, 2024 to May 15, 2024, the Company sold a total of 7,750,000 shares of common stock (and warrants) in private placements for proceeds of $77,500.
| F-15 |