U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended JuneSeptember 30, 2015

 

Commission File No. 000-52438

 

Cirque Energy, Inc.

(Exact name of small business issuer as specified in its charter)

 

Florida 65-0855736
(State or other jurisdiction
of incorporation)
 (I.R.S. Employer
Identification No.)

 

414 West Wackerly Street, Midland, MI 48640-4701

(Address of Principal Executive Offices)

PO Box 214981, Auburn Hills, MI 48321-4981

(Mailing Address)

 

989-266-9100

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ] No [X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation 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 [X] No [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an 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 [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

There were 343,180,157342,719,443 shares of common stock outstanding as of December 18, 2015.January 6, 2016.

 

Documents incorporated by reference: None

 

 

 

 
 

 

TABLE OF CONTENTS

 

 Page
  
PART I – FINANCIAL INFORMATION
   
Item 1.Condensed Financial Statements.4
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.2632
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk.3036
   
Item 4.Controls and Procedures.3036
   
PART II – OTHER INFORMATION
   
Item 1.Legal Proceedings3238
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3238
   
Item 3.Defaults upon Senior Securities.3238
   
Item 4.Mine Safety Disclosures.3238
   
Item 5.Other Information.3238
   
Item 6.Exhibits3238
   
SIGNATURES3339

2

FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this Form 10-Q is filed, and we do not intend to update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to confirm these statements to actual results, unless required by law.

 

3
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Cirque Energy, Inc.

CondensedConsolidated Balance Sheets

 

 June 30, 2015 December 31, 2014  September 30, 2015 December 31,2014 
 Unaudited   Unaudited  
          
Assets                
Current assets                
Cash $5,308  $-  $848  $- 
Total current assets  5,308   -   848   - 
                
Land  -   -   -   - 
Equipment, net  1,625   4,148   1,434   4,148 
Total Assets $6,933  $4,148  $2,282  $4,148 
                
Liabilities and Stockholders’ Deficit                
Current liabilities                
Bank overdraft $-  $15  $-  $15 
Accounts and other payables  609,391   547,160   738,664   547,160 
Accounts and other payables - related party  9,043   8,029   9,043   8,029 
Accrued salaries and wages - related party  448,962   457,006   547,402   457,006 
Accrued interest  191,422   131,838   240,798   131,838 
Notes payable  364,673   361,673   364,673   361,673 
Convertible notes - (net of $146,950 and $152,101 unamortized discount)  964,933   1,034,502 
Convertible notes - (net of $154,708 and $152,101 unamortized discount)  918,288   1,034,502 
Derivative liability  928,979   1,246,748   1,701,325   1,246,748 
Total current liabilities  3,517,403   3,786,971   4,520,193   3,786,971 
                
Total Liabilities  3,517,403   3,786,971   4,520,193   3,786,971 
                
Stockholders’ Deficit                
Preferred stock, $.001 par value, 20,000,000 shares authorized at June 30, 2015 and December 31, 2014.        
Class A Preferred stock, $10.00 stated value, 13,420 shares issued and outstanding at June 30, 2015 and December 31, 2014.  134,200   134,200 
Class B Preferred stock, $10.00 stated value, 99,997 and 38,193 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively.  999,910   381,930 
Class C Preferred stock, $10.00 stated value, 24,340 shares issued and outstanding at June 30, 2015 and December 31, 2014.  204,850   204,850 
Class D Preferred stock, $10.00 stated value, 12,500 and 0 shares designated, issued and outstanding at June 30, 2015 and December 31, 2014, respectively.  125,000   - 
Common stock, par value $0.001, 900,000,000 shares authorized, 300,241,514 and 192,532,405 shares outstanding at June 30, 2015 and December 31, 2014, respectively  300,241   192,532 
Preferred stock, $.001 par value, 20,000,000 shares authorized at September 30, 2015 and December 31, 2014.        
Class A Preferred stock, $10 stated value, 13,420 shares issued and outstanding at September 30, 2015 and December 31, 2014.  134,200   134,200 
Class B Preferred stock, $10 stated value, 99,997 and 38,193 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively.  999,910   381,930 
Class C Preferred stock, $10 stated value, 24,340 shares issued and outstanding at September 30, 2015 and December 31, 2014.  204,850   204,850 
Class D Preferred stock, $10 stated value, 12,500 and 0 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively.  125,000   - 
Common stock, par value $0.001, 900,000,000 shares authorized, 343,180,130 and 192,532,405 shares outstanding at September 30, 2015 and December 31, 2014, respectively  343,180   192,532 
Additional paid-in capital  10,080,960   9,592,543   10,268,073   9,592,543 

Preferred stock dividends payable

  5,000   -   7,500   - 
Stock payable  424,825   421,825   424,825   421,825 

Stock payable-related party

  409,375   395,000 
Stock payable-related Party  486,875   395,000 
Accumulated deficit  (16,194,831)  (15,105,703)  (17,512,324)  (15,105,703)
Total Stockholders’ Deficit  (3,510,470)  (3,782,823)  (4,517,911)  (3,782,823)
Total Liabilities and Stockholders’ Deficit $6,933  $4,148  $2,282  $4,148 

 

The accompanying notes are an integral part of these consolidated financial statements.

Cirque Energy, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 For the quarter ended June 30, For the six months ended June 30,  For the quarter ended
September 30,
  For the nine months ended September 30, 
 2015 2014 2015 2014  2015 2014 2015 2014 
Sales $-  $-  $-  $-  $-  $-  $-  $- 
Cost of sales  -   -   -   -   -   -   -   - 
Gross profit  -   -   -   -   -   -   -   - 
                                
Bank service charges  1,400   1,157   2,866   2,483   712   1,105   3,578   3,589 
Development projects  511   28,598   837   66,680   135   12,534   972   79,214 
Office and miscellaneous  22,809   13,306   29,577   22,870   17,078   9,336   46,648   46,292 
Executive and directors’ compensation  238,793   209,033   507,611   434,870   198,746   282,204   706,357   717,073 
Professional fees  91,811   70,690   194,238   142,997   138,831   30,794   333,069   159,703 
Investor relations  6,005   4,463   11,349   96,597   3,995   1,429   15,344   98,026 
Travel  21,930   15,251   37,041   32,355   4,820   5,311   41,868   37,666 
Forfeiture of deposit on landfill  -   -   -   -           -   - 
Property taxes  -   14,960   -   14,960   -       -   14,960 
Other financing costs  -   253,500   -   346,250   -       -   346,250 
Total operating expense  383,259   610,958   783,519   1,160,062   364,317   342,713   1,147,836   1,502,773 
                                
Operating loss  (383,259)  (610,958)  (783,519)  (1,160,062)  (364,317)  (342,713)  (1,147,836)  (1,502,773)
                                
Other income (expense)  -   -   -   -   -   -   -   - 
Gain on sale of assets  -   2,078   -   2,078   -   -   -   2,078 
Amortization of debt discount  (98,029)  (223,827)  (219,105)  (541,408)  (43,742)  (193,734)  (262,847)  (735,142)
Derivative expense  (68,785)  (110,972)  (72,899)  (191,921)  (62,316)  -   (135,215)  (191,921)
Gain (loss) on settlement of debt  -   21,000   -   (171,564)  -   -   -   (171,564)
Loss on settlement of promissory convertible notes  (332,199)  (83,376)  (488,413)  (324,082)  (137,203)  -   (625,616)  (324,082)
Gain (loss) on derivative liability  (75,314)  (83,192)  599,715   677,082   (653,623)  53,118   (53,908)  730,200 
Interest expense  (142,546)  (258,087)  (119,907)  (267,774)  (53,792)  (124,837)  (173,699)  (392,611)
Total other income (expense)  (716,873)  (736,376)  (300,609)  (817,589)  (950,676)  (265,453)  (1,251,285)  (1,083,042)
Net loss $(1,100,132) $(1,347,334) $(1,084,128) $(1,977,651) $(1,314,993) $(608,166) $(2,399,121) $(2,585,815)
                                
Net loss per common share $(0.004) $(0.007) $(0.006) $(0.011) $(0.004) $(0.003) $(0.012) $(0.014)
Weighted average common shares outstanding  249,898,528   186,781,386   193,250,352   178,502,729   337,351,637   194,474,851   195,746,809   180,494,661 

 

The accompanying notes are an integral part of these consolidated financial statements.

Cirque Energy, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 For the six months ended June 30,  For the nine months ended
September 30,
 
 2015 2014  2015 2014 
Operating Activities                
Cash flows from operating activities                
Net loss $(1,084,128) $(1,977,651) $(2,399,121) $(2,585,815)
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation  521   547   712   878 
Salary costs-options  5,888   -   8,833   2,944 
Addition to convertible promissory notes for default  22,405   211,722   22,405   211,722 
Amortization of debt discount  219,105   541,408   262,847   735,142 
Issuance of common stock for services  -   339,500   -   339,500 
Issuance of common stock for executive and director compensation  209,375   -   286,875   158,692 
Issuance of preferred stock for executive and director compensation  167,792       167,792   - 
Loss on settlement of debt  -   171,564   -   171,564 
Loss on settlement of convertible promissory notes  (488,413)  324,082 
Gain (loss) on settlement of convertible promissory notes  (625,616)  324,082 
Derivative expense  72,899   191,921   135,215   191,921 
Gain on derivatives  (604,622)  (677,082)
Loss (gain) on derivatives  53,908   (730,200)
Gain on sale of land  -   (2,078)  -   (2,078)
Conversion of convertible notes payable  1,017,714       1,333,970     
Changes in operating assets and liabilities        
Changes in operating assets and liabilities:        
Accounts payable and accrued liabilities  62,231   215,374   191,504   128,512 

Accrued interest

  62,584   - 
Accrued Interest  72,627   - 
Accrued salaries and wages  (8,044)  (33,883)  90,396   32,915 
Accounts payable-related parties  14   -   14   - 
Cash used in operating activities  (344,679)  (694,576)  (397,639)  (1,020,221)
                
Investing activities        
Investing Activities        
Proceeds from sales of land  -   5,000   -   5,000 
Proceeds from sale of furniture  2,002   -   2,002   - 
Purchase of equipment  -   (4,581)  -   (4,581)
Cash used in investing activities  2,002   419   2,002   419 
                
Financing activities        
Financing Activities        
Payment of bank overdraft  (15)  -   (15)  - 
Stock payable  195,000   267,500   195,000   508,625 
Proceeds from issuance of preferred stock  125,000   -   125,000   - 
Preferred stock issued to pay stock payable  (195,000)  -   (195,000)  - 
Proceeds from convertible promissory notes  219,000   425,188   267,500   500,188 
Proceeds from promissory notes  3,000   75,000   3,000   75,000 
Proceeds from related party  1,000   2,900   1,000   2,900 
Payoff of convertible promissory notes  -   (72,531)  -   (75,531)
Cash provided by financing activities  347,985   698,057   396,485   1,011,182 
                
Increase in cash  5,308   3,900   848   (8,620)
                
Cash, beginning of period  -   8,841   -   8,841 
Cash, end of period $5,308  $12,741  $848  $221 
                
Supplemental Disclosures of Cash Flow Information        
Cash paid during the period for        
Supplemental disclosures of cash flow information:        
Cash paid during the period for:        
Interest $-  $-  $-  $- 
Income tax $-  $-  $-  $- 
                
Non-cash investing and financing activities        
Non-cash investing and financing activities:        
Shares issued for settlement of convertible notes payable $1,017,714  $529,893  $1,333,970  $529,893 
Preferred Class B shares issued to settle stock payable $195,000  $381,930  $195,000  $381,930 
Preferred Class B shares issued to settle accrued payroll $167,792  $-  $167,792  $- 
Preferred Class C shares issued to settle stock payable $-  $204,850  $-  $204,850 
Convertible notes issued to settle notes payable $-  $128,500  $-  $128,500 

 

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Financial Statements

 

Note 1 – Nature of Operations

 

The Company was incorporated in Florida on July 16, 1998 under the name of Salty’s Warehouse, Inc. and was engaged in selling name brand consumer products over the Internet. The Company focused on selling consumer electronics and audio-video equipment such as speakers, amplifiers, and tuners, though the Company also sold assorted other goods such as watches, sunglasses and sports games. On December 11, 2006, owners of an aggregate of 22,450,000 shares of common stock of Salty’s Warehouse, Inc. sold all of the shares held by them to a group of approximately 54 purchasers in a private transaction. As a result of this transaction, a change of control in the Company occurred resulting in a change in the name of the Company to E World Interactive, Inc. (the “Company” or “E World”). At that time, E World was principally engaged in the selling of online game services and media production business in mainland China.

 

Having operated in this sector for some time, the Company then disposed of its subsidiaries Shanghai E World China Information Technologies Co., Ltd (“E World China”) and Mojo Media Works Limited in August 2008, and following this ceased all business in online game and media production business and became a shell company.

 

In March of 2009, the Company entered into a stock purchase agreement with Blue Atelier, Inc. (“Blue Atelier”) whereby Blue Atelier acquired 25,000,000 newly authorized and issued common stock of E World after E World executed a 1 for 40 reverse split of the issued and outstanding common stock and also entered into a series of agreements with various holders of Convertible Notes to convert these notes plus accumulated interest to E World Common Stock in the aggregate to 6,872,830 shares of common stock. As a result of this transaction, a change of control in the Company occurred in E World with Blue Atelier then owning 75% of the outstanding common stock of E World.

 

In May 2010, the Company acquired 100% of the outstanding common stock of Media and Technology Solutions, Inc. (“MTS”), a Nevada corporation with a variety of media and related interests and rights and emerged from shell status. The consideration for the purchase of MTS was 10,000,000 shares of E World common stock. Blue Atelier, the principal shareholder of MTS, was also the largest shareholder in E World. Following this acquisition, E World moved its principal office to Las Vegas, Nevada. The acquisition of MTS was accounted for in a manner similar to a pooling of interests in accordance with accounting principles generally accepted in the United States because the entities were under common control.

 

On September 17, 2011, E World entered into a letter of intent with Green Renewable Energy Solutions, Inc. (“GRES”), the purpose of which was to acquire the assets of GRES which included certain contracts for the acceptance, processing and disposal of construction and demolition waste and as part of this agreement, E World changed its name to Green Energy Renewable Solutions (“GERS”), effective December 12, 2011. On January 26, 2012, GERS completed a 1-for-5 reverse split and on February 4, 2012 E World, including its subsidiary, MTS, was spun out as a separate private company by way of a special share dividend with one E World share issued for every share held on the date of the approval of the reverse split. FINRA approved the name change and the reverse split on January 26, 2012.

 

On February 4, 2012 GRES executed an asset purchase agreement (the “Purchase Agreement”) with GERS. Under the terms of the Purchase Agreement, GERS acquired all of the assets of GRES for 6,209,334 shares of its common stock and a further 4,604,666 common shares of deferred consideration.

 

GERS is focused on the acquisition of waste streams and maximizing its value utilizing recycling, renewable energy production, and environmentally responsible disposal strategies. On June 27, 2012, the Company approved a 1-for-1 stock dividend for shares held on June 29, 2012 and the dividend shares were issued following FINRA approval on July 27, 2012.

 

On April 29, 2013, the Company formed Green Harvest Landfill, LLC as a Delaware limited liability company to be a wholly owned subsidiary for the sole purpose of acquiring the Davison Landfill. An offer was made and accepted by the bankruptcy trustee who was in possession of the Davison Landfill. Subsequently, the transaction did not close and the Green Harvest Landfill, LLC lies dormant.

On May 15, 2013 GERS entered into a contribution agreement with Cirque Energy II, LLC (“Cirque LLC”) whereby Cirque LLC would contribute all of its assets in exchange for common stock in the Company. Included in Cirque LLC’s assets were three subsidiary limited liability companies: The Prototype Company, LLC; Gaylord Power Station, LLC; and Midland Renewable Energy Station, LLC. This contribution agreement has not yet been consummated.

 

In July 2013, GERS effectuated a name change to Cirque Energy, Inc. (the “Company” or “Cirque”) by amending its articles of incorporation. FINRA approval of the name change and change in trading symbol continues to be pending.

 

Cirque’s key area of business is focused on the securing of waste streams, including but not limited to: construction, demolition, and municipal solid waste streams and maximizing their values by recycling and waste to energy opportunities.

On November 14, 2013, Cirque and Northrop Grumman Systems Corporation entered into a Joint Development Agreement to continue the technology development of a Deployable Gasification Unit (DGU) and towards this end, to develop a DGU prototype for testing and demonstration. In consideration for Cirque to fund and develop a test unit, Northrop Grumman wished to permit its intellectual property to be used by Cirque and, provided a prototype is a success and the device is deemed viable, a division of responsibilities, obligations and customer sales privileges will be outlined in a mutually drafted and agreed to Business and Marketing Plan that will further define the intent of this Joint Development Agreement.

 

On March 1, 2015, Cirque changed its head office to 414 West Wackerly Street, Midland, Michigan 48640 from 645 Griswold Street, Suite 3274, Detroit, Michigan 48226.

 

Note 2 – Condensed Financial Statements

 

The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial positions, results of operations, and cash flows on JuneSeptember 30, 2015, and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2014 audited financial statements as reported in its Report on Form 10-K. The results of operations of the sixnine months ended JuneSeptember 30, 2015 are not necessarily indicative of the operating results for the full year ending December 31, 2015.

 

Note 3 - Summary of Significant Accounting Policies

 

a)Basis of Presentation
   
  The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
   
  Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below.
   
 b)Principles of Consolidation
   
  The consolidated financial statements include the accounts of Cirque and its wholly owned subsidiaries. On July 27, 2011 the Company acquired E World, which in turn had acquired 100% of the outstanding stock of MTS on May 24, 2010. On the date of the acquisition, MTS was 95% owned by Blue Atelier, the majority shareholder of the Company and the acquisition was accounted by means of a type of pooling of the entities from the date of inception of MTS on February 1, 2010 because the entities were under common control. All significant inter-company transactions and balances have been eliminated. Ownership of MTS was transferred to E World, a transaction which had no effect on the consolidated financial statements at December 31, 2011. On February 4, 2012, E World was spun off. On April 29, 2013, the Company formed Green Harvest Landfill, LLC as a Delaware limited liability company to be a wholly owned subsidiary for the sole purpose of acquiring the Davison Landfill. All significant inter-company transactions and balances have been eliminated.
 c)Cash and Cash Equivalents
   
  The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.
   
 d)Use of Estimates
   
  The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.
   
 e)Significant Risks and Uncertainties
   
  The Company’s management believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations or cash flows: the Company’s limited operating history; the Company’s ability to acquire new companies with profitable operations; the company’s ability to generate revenue and positive cash flow; advances and trends in new technologies and industry standards; competition from other competitors; regulatory related factors; risks associated with the Company’s ability to attract and retain employees necessary to support its growth; and risks associated with the Company’s growth strategies.

 

 f)Impairment of Long-Lived Assets and Intangible Assets
   
  Long-lived assets and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of the long-lived assets and intangible assets (other than goodwill) by comparing the carrying amount to the estimated future undiscounted cash flow associated with the related assets. The Company recognizes impairment of long-lived assets and intangible assets in the event that the net book value of such assets exceeds the estimated future undiscounted cash flow attributed to such assets. The Company uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.
   
 g)Leases
   
  Leases for which substantially all of the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases.
   
 h)Taxation
   
  The Company accounts for income taxes under the provisions of the Financial Accounting Standards Board’s (FASB’s”) Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Under ASC 740, income taxes are accounted for under the asset and liability method. Deferred taxes are determined based upon differences between the financial reporting and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided on deferred tax assets to the extent that it is more likely than not that such deferred tax assets will not be realized. The total income tax provision includes current tax expenses under applicable tax regulations and the change in the balance of deferred tax assets and liabilities. The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on technical merits. Income tax provisions must meet a more likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods.
 i)Basic and Diluted Net Earnings (Loss) Per Share
   
  The Company computes net income (loss) per share in accordance with ASC 205-10, which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive and is not presented in the accompanying statements.
   
 j)Fair value of Financial Instruments
   
  The carrying value of the Company’s financial instruments, including cash, amounts due to shareholders/related parties and accounts and other payables approximate their respective fair values due to the immediate or short-term maturity of these instruments.
   
  It is management’s opinion that the Company is not exposed to significant interest, price or credit risks arising from these financial instruments.
   
 k)Concentration of Credit Risk
   
  Financial instruments that potentially expose the Company to significant concentrations of credit risk consist principally of cash. The Company places its cash with financial institutions with high-credit ratings.
   
 l)Stock-Based Compensation
   
  The Company has adopted FASB ASC Topic 718-10, “Compensation - Stock Compensation” (“ASC 718-10”) which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors. Under the fair value recognition provisions of ASC 718-10, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period.
   
  The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

 m)Recent Accounting Pronouncements
   
  In June 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-10, “Development Stage Entities.” The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments in this update are applied retrospectively. The adoption of ASU 2014-10 removed the development stage entity financial reporting requirements from the Company.

Note 4 – Going Concern

 

Our continuation as a going concern is dependent upon obtaining additional working capital to sustain our current status. As shown in the accompanying financial statements, the Company had an accumulated deficit of $16,194,831$17,512,324 at JuneSeptember 30, 2015. At present, Management does not have any pending, realistic, or even plausible plans to obtain additional financing from any source. The Company is essentially insolvent. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

Note 5 – Related Party Transactions

 

The Company records transactions of commercial substance with related parties at fair value as determined with management. Amounts due to shareholders/related parties are non-interest bearing, unsecured, and due upon demand.

 

The following is a list of related party balances as of JuneSeptember 30, 2015 and December 31, 2014:

 

 June 30, 2015 December 31,2014  September 30, 2015 December 31, 2014 
Accounts and other payable, due to related parties  9,043   8,029   9,043   8,029 
Accrued salaries and wages - related party  448,962   457,006   547,402   457,006 
Stock payable - related parties  409,375   395,000   486,875   395,000 
 $867,380  $860,035  $1,043,320  $860,035 

 

Related party transactions during the period include salary and consultancy fees for the sixnine months ended JuneSeptember 30, 2015 and 2014 as follows:

 

  For the Six Months Ended June 30, 
  2015  2014 
Joe DuRant: CEO, Director (through April 23, 2015) $48,046  $156,791 
Roger W. Silverthorn: CFO, Director (effective February 1, 2013 through June 30, 2014); CEO effective April 24, 2015 $133,044   151,583 
Richard L. Fosgitt: Director, EVP Engineering and Technology (effective August 15, 2013) $133,044   116,496 
David W. Morgan: CFO (effective July 1, 2014) $79,826   - 
Thomas G. Cote’: Director  10,000   10,000 
Total $403,960  $434,870 
  For the Nine Months Ended September 30, 
  2015  2014 
Joe DuRant: CEO, Director (through April 23, 2015 $111,094  $226,570 
Roger Silverthorn: CFO, Director (effective February 1, 2013 through June 30, 2014); CEO effective April 24, 2015  194,672   221,362 
Richard L. Fosgitt: Director: EVP Engineering and Technology (effective August 15, 2013)  194,672   221,362 
David Morgan, CFO (effective July 1, 2014)  121,106   30,020 
Thomas Cote’: Director  15,000   15,000 
Total $636,544  $714,314 

 

The Company has recorded $18,943$110,846 and $12,446$85,306 in payroll tax liabilities during the sixnine months ended JuneSeptember 30, 2015 and June 30, 2014, respectively related to payments made to its executives.

As of JuneSeptember 30, 2015, the Company has accrued liabilities to officers and directors for compensation in common stock in the following amounts:

 

  Accrued Compensation
to be issued in Capital Stock
  Accrued Board of Director
Fee to be issued in Capital
Stock
  Total  Shares of Common Stock
to be issued at June 30,
2015
Market Price
 
Joe DuRant: CEO, Director $101,875  $25,000  $126,875   17,869,718 
Roger W. Silverthorn: CEO, Director $45,000  $5,000  $50,000   7,042,254 
Richard L. Fosgitt: EVP, Director$56,250  $25,000 $81,250  11,443,662
Thomas G. Cote’: Director  -  $25,000  $25,000   3,521,127 
  $203,125  $80,000  $283,125   39,876,761 
  Accrued
Compensation to be
issued in Capital
Stock
  Accrued Board of
Director Fee to be
issued in
Capital Stock
  Total  Shares of
Common Stock
to be issued at
September 30, 2015
Market Price
 
Joe DuRant: CEO, Director $101,875  $25,000  $126,875   15,286,145 
Roger Silverthorn: CFO, Director  76,250   10,000   86,250   10,391,566 
Richard Fosgitt, Director  87,500   30,000   117,500   14,156,627 
Thomas Cote’: Director  -   30,000   30,000   3,614,458 
  $265,625  $95,000  $360,625   43,448,796 

 

David W. Morgan Employment Agreement

 

On July 1, 2014, the Company executed an employment agreement with David W. Morgan under which Mr. Morgan agreed to become the Company’s Chief Financial Officer. The agreement expires on July 1, 2016 and provides for Mr. Morgan to receive an annual salary of $150,000. He was also granted options to purchase 1,000,000 shares of the Company’s common stock under this agreement. See Note 9 – Stockholders Equity.

 

Note 6 – Operating Lease Commitments

 

On February 1, 2014, the Company entered into a twelve-month lease for office space for its head office at 645 Griswold Street, Suite 3274, Detroit, Michigan 48226. The monthly lease payment was $1,200. The lease expired on February 1, 2015 and the Company vacated the premises.

 

On March 1, 2015, the Company entered into a twelve-month lease for office space for its head office at 414 W. Wackerly Street, Midland, Michigan 48640. The monthly lease payment is $1,720. The lease expires on March 1, 2016.

 

Note 7 – Convertible Notes

 

Asher Enterprises Promissory Note VIII July 10, 2013

 

On July 10, 2013, the Company issued a Convertible Promissory Note (the “Note”) to Asher Enterprises, Inc. (the “Holder”) in the original principal amount of $32,500 bearing an 8.00% annual interest rate, unsecured and maturing April 8, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 58% of the market price, which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $32,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $68,097 and derivative expense of $35,597 based on the Black Scholes Merton pricing model.

 

On November 7, 2013, this Note was assigned to Matthew Morris by the Holder.

 

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $16,250 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

As of December 31, 2014, the entire debt discount of $32,500 had been amortized.

 

On May 5, 2015, Matthew Morris declared an event of default as the Company failed to timely deliver shares upon notice of conversion. The Company and Morris entered into a forbearance agreement on June 21, 2015 under which the Company agreed to add $27,421 to the principal amount of the Note. The Note balance as of JuneSeptember 30, 2015 was $76,171. The amount added to the principal was reflected in Interest Expense on the income statements for the three and sixnine months ended JuneSeptember 30, 2015.

 

The fair value of the derivative liability at JuneSeptember 30, 2015 was $66,366,$97,103, resulting in a loss on the change in fair value of the derivative of $9,645$40,382 and $29,410$30,737 for the sixnine and three months ended JuneSeptember 30, respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $17,917$24,580 and $12,650, respectively.

 

JMJ Financial Promissory Note V September 25, 2013

 

On September 25, 2013, the Company received cash proceeds of $25,000 with an original issue discount of $4,481 on the fifth tranche of the Convertible Note (“Note”) with JMJ Financial. The Company recorded a debt discount in the amount of $29,481 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $47,618 and derivative expense of $22,618 based on the Black Scholes Merton pricing model.

 

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $14,741 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

As of December 31, 2014, the entire debt discount of $29,481 had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $42,728$98,915 resulting in a gainloss on the change in fair value of the derivative of $34,052$90,669 and a loss on the change in fair value of the derivative of $8,283$47,904 for the sixnine and three months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $12,293$14,671 and $7,615, respectively.

 

JMJ Financial Promissory Note VI December 9, 2013

 

On December 9, 2013, the Company received cash proceeds of $50,000 with an original issue discount of $8,962 on the sixth tranche of the Convertible Note (“Note”) with JMJ Financial. The Company recorded a debt discount in the amount of $58,962 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $434,130 and derivative expense of $384,130 based on the Black Scholes Merton pricing model.

 

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $29,481 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

 

As of December 31, 2014, the entire debt discount of $58,962 had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $85,322$198,557 resulting in a gainloss on the change in fair value of the derivative of $35,046$78,189 and a loss on the change in fair value of the derivative of $16,568$113,235 for the sixthree and threenine months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $23,799$28,534 and $14,422, respectively.

LG Capital Funding, LLC Promissory Note IV September 18, 2013

 

On September 18, 2013, the Company issued a Convertible Promissory Note (the “Note”) to LG Capital Funding, LLC (the “Holder”) in the original principal amount of $26,500 bearing an 8.00% annual interest rate, unsecured and maturing June 27, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $26,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $45,285 and derivative expense of $18,785 based on the Black Scholes Merton pricing model.

 

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $13,250 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

 

As of December 31, 2014, the entire debt discount of $26,500 had been amortized. During February, 2015, the Holder converted the entire principal balance of $26,500 and the accrued interest of $5,461 into 4,891,260 shares of the Company’s common stock. The Company recorded a loss on the conversion of $38,761, a gain on the derivative liability of $72,142, and gain on settlement of debt of $0 during the three months and the sixnine months ended JuneSeptember 30, 2015 respectively.

 

LG Capital Funding, LLC Promissory Note VI November 18, 2013

 

On November 18, 2013, the Company issued a Convertible Promissory Note (the “Note”) to LG Capital Funding, LLC (the “Holder”) in the original principal amount of $30,000 bearing an 8.00% annual interest rate, unsecured and maturing August 18, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $30,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $77,099 and derivative expense of $47,099 based on the Black Scholes Merton pricing model.

 

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $15,000 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

 

As of December 31, 2014, the entire debt discount of $30,000 had been amortized. On February 15, 2015, the Holder transferred the Note to Kodiak Capital Group. The default penalty was extinguished. The fair value of the derivative liability at JuneSeptember 30, 2015 was $39,801$62,197 resulting in a gain on the change in fair value of the derivative of $42,061$19,670 and a gainloss on the change in fair value of the derivative of $16,120$22,396 for the sixnine and three months ended JuneSeptember 30, 2015 respectively. The Company recorded a gain on settlement of debt of $0 and $15,000 during the three months and sixnine months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $15,807$18,907 and $9,708, respectively.

12

 

LG Capital Funding, LLC Promissory Note VII November 27, 2013

 

On November 27, 2013, the Company issued a Convertible Promissory Note (the “Note”) to LG Capital Funding, LLC (the “Holder”) in the original principal amount of $26,500 bearing an 8.00% annual interest rate, unsecured and maturing August 27, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $26,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $214,287 and derivative expense of $187,787 based on the Black Scholes Merton pricing model.

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $13,250 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

 

As of December 31, 2014, the entire debt discount of $26,500 had been amortized. During March, 2015, the Holder converted the entire principal balance of $26,500 and the accrued interest of $4,130 into 8,751,423 shares of the Company’s common stock. The fair value of the derivative liability at JuneSeptember 30, 2015 was $0. The Company recorded a loss on the conversion of $0 and $43,161, a gain on the derivative liability of $0 and $72,462, and gain on settlement of debt of $0 and $13,250 during the three and sixnine months ended JuneSeptember 30, 2015,2015.

 

The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $0 and $3,481, respectively.

 

LG Capital Funding, LLC Promissory Note IX January 6, 2014

 

On January 6, 2014, the Company issued a Convertible Promissory Note (the “Note”) to LG Capital Funding, LLC (the “Holder”) in the original principal amount of $52,000 bearing an 8.00% annual interest rate, unsecured and maturing September 30, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $52,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $98,265 and derivative expense of $46,265 based on the Black Scholes Merton pricing model.

 

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $26,000 to be added to the principal of the Note. This same amount has been expensed as additional interest expense.

 

As of December 31, 2014, the entire debt discount of $52,000 had been amortized. The fair value of the derivative liability at December 31, 2015 is2014 was $55,921. On February 15, 2015, the Holder transferred the Note to Kodiak Capital Group. The default penalty was extinguished. The Company recorded a gain on settlement of debt of $0 and $26,000 during the three and sixnine months ended JuneSeptember 30, 2015 respectively. The fair value of the derivative liability at JuneSeptember 30, 2015 was $68,988$107,808 resulting in a gain on the change in fair value of the derivative of $73,201$34,381 and a loss on the change in fair value of the derivative of $13,067$38,820 for the sixnine and three months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $19,318$23,119 and $11,480,$11,840, respectively.

 

Matthew Morris Promissory Note I November 8, 2013

 

On November 8, 2013, the Company issued a Convertible Promissory Note (the “Note”) to Mr. Morris (the “Holder”) in the original principal amount of $46,500 bearing an 8.00% annual interest rate, unsecured and maturing August 8, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price, which means average trading price during the three trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $46,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $62,721 and derivative expense of $16,221 based on the Black Scholes Merton pricing model.

On May 5, 2015, Matthew Morris declared an event of default as the Company failed to timely deliver shares upon notice of conversion. The Company and Morris entered into a forbearance agreement on June 21, 2015 under which the Company agreed to add $62,484 to the principal amount of the Note. On April 9, 2015, the Holder converted $12,600 of principal into 5,000,000 shares of the Company’s common stock. On June 23, 2015, the Holder converted $32,730 of principal into 13,000,000 shares of the Company’s common stock. On July 6, 2015, the Holder converted $24,480 of principal into 12,000,000 shares of the Company’s common stock. The Company recorded a loss on these conversions of $51,120 and $148,750 for the conversion of $97,630.three and nine months ended September 30, 2015. The Note balance as of JuneSeptember 30, 2015 was $64,014.$39,534. The amount added to the principal was reflected in Interest Expense on the income statements for the three and sixnine months ended JuneSeptember 30, 2015.

As of December 31, 2014, the entire debt discount of $46,500 had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $53,270$58,994 resulting in a loss on the change in fair value of the derivative of $8,143$13,867 and a loss on the change in fair value of the derivative of $6,621$5,724 for the sixnine and three months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $14,286$18,943 and $4,260, respectively.

 

GEL Properties, LLC Promissory Note II January 21, 2014

 

On January 21, 2014, the Company issued a Convertible Promissory Note (the “Note”) to LG Capital Funding, LLC (the “Holder”) in the original principal amount of $65,000 bearing a 6.00% annual interest rate, unsecured and maturing January 21, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $65,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $86,035 and derivative expense of $21,035 based on the Black Scholes Merton pricing model.

 

As of December 31, 2014, the entire debt discount of $65,000 had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $2,190 resulting in a gain on the change in fair value of the derivative of $36,693 and a gain on the change in fair value of the derivative of $24,694 for the six and three months ended JuneSeptember 30, 2015 respectively. During February and March, 2015, Holder converted $24,562 in principal into 5,000,000 shares of the Company’s common stock. During the three months ended JuneSeptember 30, 2015, Holder converted $34,521 in principal and $4,797 in accrued interest into 1,824,320 shares of the Company’s common stock. The Company recorded a loss on conversion of 29,442 and $47,878 for the three and six months ended JuneSeptember 30, 2015, respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $15,034$16,190 and $14,745, respectively, while principal of $2.667$2,667 and $65,000 is reflected in Convertible Notes on the balance sheet as of JuneSeptember 30, 2015 and December 31, 2014, respectively.

 

Typenex Co-Investment, LLC Promissory Note I February 13, 2014

 

On February 13, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Typenex Co-Investment, LLC (the “Holder”) in the initial principal amount of $150,000 bearing a 10.00% annual interest rate, unsecured and maturing May 13, 2015. The Holder has committed to accept and pay for additional Convertible Promissory Notes in $50,000 tranches up to a total investment of $550,000. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a fixed conversion price of $0.025 per share subject to a reduction if the Company share price falls below the conversion price. The Holder received a warrant to purchase shares of the Company exercisable for a period of 5 years from the closing. The number of warrants will be calculated at 30% of the maturity amount of the tranche’s exercised by the Company.

 

As of JuneSeptember 30, 2015, the Company had issued 1,500,000 warrants in accordance with the terms of this Note. The exercise price of the warrant is $0.025 per share. The Company recorded a debt discount in the amount of $112,688 for the Note and $51,484 for the warrants in connection with the initial valuation of the derivative liability of the Note and warrants to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $51,484 for the warrants at inception, a derivative liability of $112,688 for the conversion at inception, and derivative expense of $23,770 based on the Black Scholes Merton pricing model.

As of April 15, 2014, the Company had failed to file its annual report with the Securities and Exchange Commission thus creating a default according to the terms of the Note. In accordance to the terms of the Note, the default provision requires a penalty of $83,750 to be added to the principal of the Note. This same amount was expensed in the year ended December 31, 2014 as additional interest expense.

 

On September 19, 2014, the Company borrowed an additional $25,000 under this Note.

 

On November 19, 2014, the Company and the Holder entered into a forbearance agreement under which the Holder agreed to forebear from exercising any of its rights under the default provisions of the Note. In exchange, the Note principal was adjusted to $337,500 and the interest rate was set at 10.00% per annum.

 

As of JuneSeptember 30, 2015, the entire debt discount for the Note and warrants had been amortized. The fair value of the derivative liability of the Note and the warrants at JuneSeptember 30, 2015 was $0$21,703 and $4,637,$10,115, respectively, resulting in a gain on the change in fair value of the derivative liability on the Note of $54,785$33,172 and $26 ona loss of $19,933 for the Note and a gain on the change in fair value of the derivative liability of $18,255$11,388 and $1,953a loss of $9,673 on the warrants for the sixnine months and three months ended JuneSeptember 30, 2015. The Note and warrants are shown net of a debt discount of $0$31,818 at JuneSeptember 30, 2015. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $6,591$14,253 and $3,872, respectively. On March 17, 2015, Holder converted $10,365 of the outstanding principal and $11,535 of the accrued interest into 5,000, 0005,000,000 shares of the Company’s common stock. The Company recorded a loss on the conversion of $13,600 for the sixnine months ended JuneSeptember 30, 2015. On April 13, 2015, Holder converted $13,812 of principleprincipal and $2,188 of the accrued interest into 5,000,000 shares of the Company’s common stock. The Company recognized a loss on the conversion of $19,000 for the three and sixnine months ended JuneSeptember 30, 2015. On June 30, 2015, the Holder converted $24,800 of principal into 10,000,000 shares of the Company’s common stock. The Company recognized a loss of the conversion of $45,200 for the three and sixnine months ended JuneSeptember 30, 2015. On JuneJuly 30, 2015, the Holder converted $20,000 in principal into 8,064,516 shares of the Company’ common stock. The Company recognized a loss on conversion of $14,677 for the three and nine months ended September 30, 2015 On September 30, 2015 and December 31, 2014, outstanding principal on the Notes totaled $313,323$268,523 and $337,500, respectively.

Union Capital, LLC Promissory Note I April 2, 2014

 

On April 2, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital, LLC (the “Holder”) in the original principal amount of $100,000 bearing a 9.00% annual interest rate, unsecured and maturing April 2, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 58% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $100,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $148,053 and derivative expense of $48,053 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, the entire debt discount of $100,000 had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 is $43,598$16,599 resulting in a gain on the change in fair value of the derivative of $17,065$118,046 and $91,047$27,000 for the threenine and sixthree months ended JuneSeptember 30, 2015. The principal balance of the Note of $8,248 and $75,794 is shown net of a debt discount of $0 and $25,206 on the balance sheet at September 30, 2015 and December 31, 2014, and of $0 on the balance sheet at June 30, 2015.respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $2,641$1,196 and $15,034,$6,732, respectively. During February and March, 2015, Holder converted $27,000 of the outstanding principal and $2,296 of accrued interest into 7,518,885 shares of the Company’s common stock. During the fiscal quarter ended June 30, 2015, Holder converted $39,752 in principleprincipal and $4,123 of accrued interest into 14,027,936 shares of the Company’s common stock. During the fiscal quarter ended September 30, 2015, the Holder converted $25,000 of principal and $2,815 in accrued interest into 15,279,425 shares of the Company’s common stock. The Company recorded a loss on the conversion of $112,003$166,305 and $72,925$54,302 for the sixnine months and three months ended JuneSeptember 30, 2015 respectively.

Union Capital, LLC Promissory Note III April 2, 2014

 

On April 2, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital, LLC (the “Holder”) in the original principal amount of $100,000 bearing a 9.00% annual interest rate, unsecured and maturing April 2, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 58% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $105,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $155,456 and derivative expense of $50,456 based on the Black Scholes Merton pricing model.

 

In accordance with the terms of the Note, the Holder partially converted the Note on April 3, 2014 into 1,930,005 shares of common stock for principal of $15,000 as disclosed in Note 8 resulting in a loss on settlement of promissory convertible notes of $12,599. As of JuneSeptember 30, 2015, the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $85,108$222,321 resulting in a loss on the change in fair value of the derivative liability of $12,294$137,213 and for the three months ended JuneSeptember 30, 2015 and a gainloss on the change in fair value of the derivative liability $47,158$90,054 for the sixnine months ended JuneSeptember 30, 2015. The Note is shown net of a debt discount of $22,685 at December 31, 2014 and $0 on the balance sheet at JuneSeptember 30, 2015. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $9,688$11,596 and $6,058, respectively. On February 12, 2015, Holder converted $5,000 of the outstanding principal and $387 of accrued interest into 619,209 shares of the Company’s common stock. On August 14, 2015 the Holder converted $1,000 in principal and $122 in accrued interest into 460,714 shares of the Company’s common stock. The Company recorded a loss on the conversionthese conversions of $5,449$767 and $6,216 for the three months and sixnine months ended JuneSeptember 30, 2015.

 

Union Capital, LLC Promissory Note II June 30, 2014

 

On June 30, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital, LLC (the “Holder”) in the original principal amount of $34,188 bearing a 9.00% annual interest rate, unsecured and maturing JuneSeptember 30, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 58% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $34,188 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $46,651 and derivative expense of $12,463 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015 the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $44,745$38,165 resulting in a gain on the change in fair value of the derivative liability of $6,580 and a loss on the change in fair value of the derivative liability of $328 and $1,331$13,453 for the three months and sixnine months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $3,077$2,166 and $1,551, respectively. On August 5, the Holder converted $15,000 in principal and $1,479 in accrued interest into 7,133,961 shares of the Company’s common stock. The Company recorded a loss on the conversion of $16,337 for the three months and nine months ended September 30, 2015.

15

 

Kodiak Capital Group Note July 31, 2014

 

On July 31, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Kodiak Capital Group, LLC (the “Holder”) in the original principal amount of $52,500 bearing a 15.00% annual interest rate, unsecured and maturing October 31, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the thirty trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $52,355 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $52,355 based on the Black Scholes Merton pricing model.

 

The proceeds from this Note were used as follows: $37,500 was used to repay principal on the E World Promissory Note February 2, 2014 and $15,000 was retained by the Holder as a discount.

As of JuneSeptember 30, 2015, the entire debt discount of $52,355 had been amortized. On June 4, 2015, the Holder converted $5,000 in principleprincipal into 2,439,025 shares of the Company’s common stock. The Company recognized a loss on conversion of $5,488 for the three and sixnine months ended JuneSeptember 30, 2015. On June 16, 2015, the Holder converted $10,000 in principleprincipal into 4,878,049 shares of the Company’s common stock. The Company recognized a loss on conversion of $43,658 for the three and sixnine months ended JuneSeptember 30, 2015. On June 19, 2015, the Holder converted $10,000 in principleprincipal into 4,878,049 shares of the Company’s common stock. The Company recognized a loss on conversion of $44,634 for the three and sixnine months ended JuneSeptember 30, 2015. On June 29, 2015, the Holder converted $15,000 in principleprincipal into 4,166,667 shares of the Company’s common stock. The Company recognized a loss on conversion of $104,530 for the three and sixnine months ended JuneSeptember 30, 2015.

 

The fair value of the derivative liability at JuneSeptember 30, 2015 was $16,892,$40,379, resulting in a gainloss on the change in fair value of the derivative of $39,497$23,487 and $78,969a gain on the change in the fair value of derivative liability of $55,481 for the three and sixnine months ended JuneSeptember 30, 2015 respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $10,565$13,873 and $4,056, respectively.

 

Blue Atelier Note August 8, 2014

 

On August 5, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Blue Atelier (the “Holder”) in the original principal amount of $35,000 bearing a 9.00% annual interest rate, unsecured and maturing September 30, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $34,051 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $34,051 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $47,298,$88,845, resulting in a gainloss of $16,609$24,938 and a loss of $9,705$41,546 on the change in fair value of the derivative liability for the sixnine and three months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $9,705 as of December 31, 2014. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $5,738$7,679 and $1,920, respectively.

 

E World Note August 8, 2014

 

On August 5, 2014, the Company issued a Convertible Promissory Note (the “Note”) to E World (the “Holder”) in the original principal amount of $15,000 bearing a 9.00% annual interest rate, unsecured and maturing September 15, 2014. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $14,593 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $14,593 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $20,271,$38,076, resulting in a loss on the change in fair value of the derivative liability of $4,161$17,806 and a gainloss of $7,118$10,688 for the three months and sixnine months ended JuneSeptember 30, 2015 The Note is shown net of unamortized debt discount of $4,159 as of December 31, 2014. The balance sheets as of March 31,September 30, 2015 and December 31, 2014 reflect accrued interest of $3,821$4,993 and $1,515, respectively.

 

O’Donnell 1 Note October 31, 2014

 

On October 31, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Frank O’Donnell (the “Holder”) in the original principal amount of $5,000 bearing a 6.00% annual interest rate, unsecured and maturing January 31, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $2,199 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $2,199 based on the Black Scholes Merton pricing model.

As of March 31,September 30, 2015, the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $1,077,$2,610, resulting in a gainloss on the change in fair value of the derivative liability of $250$1,533 and $1,367$166 for the three months and sixnine months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $741 as of December 31, 2014. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $199$275 and $50, respectively.

 

Union Capital, LLC Promissory Note IV June 30, 2014

 

On December 19, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital, LLC (the “Holder”) in the original principal amount of $20,000 bearing a 9.00% annual interest rate, unsecured and maturing December 19, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the thirty trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $20,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $43,533 and derivative expense of $23,533 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, $10,575$15,616 of the debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $29,917$63,606 resulting in a loss of $3,804$33,689 and a gainloss of $13,616$20,073 on the change in fair value of the derivative liability for the three months and sixnine months ended JuneSeptember 30, 2015 respectively. The Note is shown net of a debt discount of $9,425$4,384 and $19,342 at JuneSeptember 30, 2015 and December 31, 2014, respectively. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $952$1,405 and $59, respectively.

 

O’Donnell 2 December 30, 2014

 

On December 30, 2014, the Company issued a Convertible Promissory Note (the “Note”) to Frank O’Donnell (the “Holder”) in the original principal amount of $2,000 bearing a 6.00% annual interest rate, unsecured and maturing March 31, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $923 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $923 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, the entire debt discount had been amortized. The fair value of the derivative liability at March 31,September 30, 2015 was $431,$1,044, resulting in a gainloss on the change in fair value of the derivative liability of $100$613 and $547$66 for the three and sixnine months ended JuneSeptember 30, 2015 respectively. The Note is shown net of unamortized debt discount of $913 as of December 31, 2014. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect accrued interest of $60$90 and $1, respectively.

 

JMJ 8 March 31, 2015

 

On March 31, 2015, the Company issued a Convertible Promissory Note (the “Note”) to JMJ Financial (the “Holder”) in the original principal amount of $30,000 bearing a 8.00% annual interest rate, unsecured and maturing JuneSeptember 30, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price, which means the lowest trading price during the twenty-five trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $30,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $24,234 based on the Black Scholes Merton pricing model.

As of JuneSeptember 30, 2015, the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $28,139,$63,831, resulting in a loss of $3,905$35,692 and $63,381 on the change in fair value of the derivative liability for the three and sixnine months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $30,000 as of March 31, 2015. The balance sheet as of JuneSeptember 30, 2015 reflects accrued interest of $529.$1,063.

 

Union 5 April 2, 2015

 

On April 2, 2015, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital LLC (the “Holder”) in the original principal amount of $26,500 bearing a 9.00% annual interest rate, unsecured and maturing April 2, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $26,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $43,229 based on the Black Scholes Merton pricing model.

As of JuneSeptember 30, 2015, $6,047$12,299 of the debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $43,229,$53,617, The Company recognized Derivative Expense of $16,729 in the nine months ended September 30, 2015 and a loss on fair value of derivative liability of $9,655 and $52,884 for the three and sixnine months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $20,453$14,201 as of JuneSeptember 30, 2015. The balance sheet as of JuneSeptember 30, 2015 reflects accrued interest of $582.$1,183.

 

Union 6 May 20, 2015

 

On May 20, 2015, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital LLC (the “Holder”) in the original principal amount of $26,500 bearing a 9.00% annual interest rate, unsecured and maturing May 20, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $26,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $43,927 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, $2,969$9,630 of the debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $43,927,$53,617, The Company recognized Derivative Expense of $17,249 for the nine months ended September 30, 2015 and a loss on fair value of derivative liability of $9,690 and $53,617 for the three and sixnine months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $23,531$16,870 as of JuneSeptember 30, 2015. The balance sheet as of JuneSeptember 30, 2015 reflects accrued interest of $268.$869.

 

LG Capital Funding, LLC 10 May 29, 2015

 

On May 29, 2015, the Company issued a Convertible Promissory Note (the “Note”) to UnionLG Capital Funding, LLC (the “Holder”) in the original principal amount of $29,000 bearing a 8.00% annual interest rate, unsecured and maturing May 29, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 55% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $29,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $42,919 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, $2,536$9,825 of the debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $29,000,$52,189, The Company recognized Derivative Expense of $13,919 for the nine months ended September 30, 2015 and a loss on fair value of derivative liability of $9,271 and $38,270 for the three and sixnine months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $26,464$19,175 as of JuneSeptember 30, 2015. The balance sheet as of JuneSeptember 30, 2015 reflects accrued interest of $203.

$788.

Adar Bays LLC June 19, 2015

 

On June 19, 2015, the Company issued a Convertible Promissory Note (the “Note”) to Adar Bays LLC (the “Holder”) in the original principal amount of $25,000 bearing a 8.00% annual interest rate, unsecured and maturing June 19, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price, which means the average of the three lowest closing trading price during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $25,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $33,543 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, $751$7,036 of the debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $33,543$40,809 The Company recognized Derivative Expense of $8,543 for the nine months ended September 30, 2015 and a loss on fair value of derivative liability of $10,878 and $32,266 for the three and sixnine months ended JuneSeptember 30, 2015. The Note is shown net of unamortized debt discount of $24,249$17,964 as of JuneSeptember 30, 2015. The balance sheet as of JuneSeptember 30, 2015 reflects accrued interest of $115.$619.

 

O’Donnell 4 May 15, 2015

 

On May 4, 2015, the Company issued a Convertible Promissory Note (the “Note”) to Frank O’Donnell (the “Holder”) in the original principal amount of $32,000 bearing 8.00% annual interest rate, unsecured and maturing June 30, 2015. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price, which means the lowest trading price during the twenty-five trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $32,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $30,027 based on the Black Scholes Merton pricing model.

As of JuneSeptember 30, 2015, $19,177 of the entire debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $30,027.$67,983. The Note is shown netCompany recognized Derivative Expense of unamortized debt discount$30,027 for the nine months ended September 30, 2015 and a loss on fair value of $11,843 asderivative liability of June$37,956 for the three and nine months ended September 30, 2015. The balance sheet as of JuneSeptember 30, 2015 reflects accrued interest of $403.$1,049.

 

JMJ 9 June 24, 2015

 

On June 24, 2015, the Company issued a Convertible Promissory Note (the “Note”) to JMJ Financial (the “Holder”) in the original principal amount of $50,000 bearing an 8.00% annual interest rate, unsecured and maturing June 24, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price, which means the lowest trading price during the twenty-five trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded legal fees of $5,000 and a debt discount in the amount of $46,927 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $46,927 based on the Black Scholes Merton pricing model.

 

As of JuneSeptember 30, 2015, $8,108$13,172 of the debt discount had been amortized. The fair value of the derivative liability at JuneSeptember 30, 2015 was $46,927.$112,389. The Company recognized a loss on fair value of derivative liability of $65,462 and a loss on the fair value of derivative liability of $112,389 for the three and nine months ended September 30, 2015. The Note is shown net of unamortized debt discount of $41,892$36,828 as of JuneSeptember 30, 2015. The balance sheet as of JuneSeptember 30 reflects accrued interest of $39.$640.

Union 7 August 27, 2015

On August 27, 2015, the Company issued a Convertible Promissory Note (the “Note”) to Union Capital LLC (the “Holder”) in the original principal amount of $26,500 bearing a 9.00% annual interest rate, unsecured and maturing May 20, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $26,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $56,748 based on the Black Scholes Merton pricing model.

As of September 30, 2015, $4,152 of the debt discount had been amortized. The fair value of the derivative liability at September 30, 2015 was $56,478, The Company recognized Derivative Expense of $30,248 for the three and nine months ended September 30, 2015. The Note is shown net of unamortized debt discount of $22,348 as of September 30, 2015. The balance sheet as of September 30, 2015 reflects accrued interest of $222.

Adar Bays LLC 2 August 27, 2015

On August 27, 2015, the Company issued a Convertible Promissory Note (the “Note”) to Adar Bays LLC (the “Holder”) in the original principal amount of $25,000 bearing a 8.00% annual interest rate, unsecured and maturing June 19, 2016. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price, which means the average of the three lowest closing trading price during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company recorded a debt discount in the amount of $25,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $30,158 based on the Black Scholes Merton pricing model.

As of September 30, 2015, $3,917 of the debt discount had been amortized. The fair value of the derivative liability at September 30, 2015 was $30,158 The Company recognized Derivative Expense of $5,158 for the three and nine months ended September 30, 2015. The Note is shown net of unamortized debt discount of $21,083 as of September 30, 2015. The balance sheet as of September 30, 2015 reflects accrued interest of $619.

 

Summary

 

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black Scholes pricing model. Amortization of debt discount amounted to $219,105$262,847 and $98,029$43,742 for the sixnine and three months ended JuneSeptember 30, 2015 respectively as compared to $841,408$735,142 and $223,827$193,734 for the sixnine and three months ended JuneSeptember 30, 2014 respectively. The derivative liability is revalued each reporting period using the Black Scholes model. Convertible debt as of JuneSeptember 30, 2015 and December 31, 2014 was $1,017,996$918,288 and $1,034,502, respectively, and is shown net of debt discount in the amounts of $146,950$154,708 and $152,101, respectively. As of JuneSeptember 30, 2015 and December 31, 2014, the derivative liability was $928,979$1,701,325 and $1,246,748, respectively.

The Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible note and at December 31, 2014:

 

Stock Price- The Stock Price was based on the average closing price of the Company’s stock as of the Valuation Date. Stock Price was $0.0071$0.0083 at JuneSeptember 30, 2015.

 

Variable Conversion Prices- The conversion price was based on 50% to 100% of the average closing price of the Company’s common stock for the previous 10 to 30 trading days prior to the conversion date, or $.0040$.0056 at JuneSeptember 30, 2015.

 

Time to Maturity -The time to maturity was determined based on the length of time between the Valuation Date and the maturity of the debt. Time to maturity was between 36 and 12 months for the outstanding derivatives.

 

Risk Free Rate- The risk free rate was based on the Treasury Note rate as of the Valuation Dates with a term commensurate with the remaining termof the debt. The risk free rate was .20% at JuneSeptember 30, 2015 based on one year.

 

Volatility- The volatility was based on the historical volatility of the Company stock. The average volatility was between 159%168% and 234%211% at JuneSeptember 30, 2015.

 

Note 8 – Notes Payable

 

Blue Atelier Promissory Note May 20, 2013

 

On May 20, 2013 the Company received funding pursuant to a promissory note in the amount of $150,000. The promissory note is secured by the break-up fee in the Asset Purchase Agreement and Bid Procedures agreement in relation to the purchase of the Davison Landfill, preferential payment from funding on any lending agreements related to the purchase of the Davison Landfill, and 10,000,000 shares of common stock. The promissory note bears interest at 6% interest, has a loan premium of $75,000 and matures on July 1, 2013.

On December 30, 2013, the $50,000 of cash proceeds received from the issuance of LG Capital Funding, LLC Promissory Note VIII (See Note 7) was used to pay Blue Atelier outstanding principal and interest. At December 31, 2013, $175,500 principal plus accrued interest of $8,332 is outstanding.

 

On January 21, 2014, the $30,000 of cash proceeds received from the issuance of the GEL Properties, LLC Promissory Note was used to pay Blue Atelier outstanding principal and interest.

 

On April 2, 2014, the $105,000 of cash proceeds received from the issuance of Union Capital, LLC Promissory Note was used to pay Blue Atelier outstanding principal and interest.

 

On June 27, 2014, the $53,771 of cash proceeds received from the issuance of Union Capital, LLC Promissory Note was used to pay Blue Atelier outstanding principal

 

As of JuneSeptember 30, 2015, and December 31, 2014, this note had an outstanding principal balance of $47,000 and accrued interest of $13,657$15,124 and $10,771 respectively.

E World Promissory Note February 2, 2014

 

On February 2, 2014, the Company issued a Convertible Promissory Note (the “Note”) to E World in the principal amount of $181,662 bearing a 6.00% annual interest rate, unsecured and maturing February 2, 2016. The Note was issued in exchange for an account payable in the same amount. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the holder’s option at a variable conversion price calculated at 60% of the market price, which means the lowest trading price during the ten trading day period ending on the latest complete trading day prior to the conversion date.

 

On July 31, 2014, the Company issued a note to Kodiak Capital Group, LLC (see Note 6 – Convertible Notes) for $52,500. Of this amount, $37,500 was used to repay principal on the E World Promissory Note February 2, 2014 and a $15,000 convertible note was issued to E World (see Note 6 –Convertible– Convertible Notes) to further reduce the principal on the E World Promissory Note dated February 2, 2014. The principal balance on this note at June 30,2015September 30, 2015 and December 31, 2014 was $130,923.

 

Blue Atelier April 23, 2014

 

On April 23, 2014, the Company entered into a Promissory Note (the “Note”) with E World (the “Holder”) in the principal amount of $75,000 bearing a 9.00% annual interest rate, unsecured and maturing May 31, 2014. The Note went into default for non-payment and, per the terms, an additional $37,500 was added to the principal amount and reflected in Interest Expense on the Consolidated Statements of Operations for the year ended December 31, 2014. The balance sheets as of JuneSeptember 30, 2015 and December 31, 2014 reflect outstanding principal of $112,500 and accrued interest of $8,008$9,709 and $4,660, respectively.

 

E World $71,500

 

On September 26, 2014, the Company entered into a Promissory Note (the “Note”) with E World (the “Holder”) in the principal amount of $71,500 bearing a 9% annual interest rate, unsecured and maturing November 10, 2014. Additionally, the Note calls for the issuance of a stock dividend equal to the loan amount. $71,250 was outstanding under this Note as of JuneSeptember 30, 2015 and December 31, 2014. The balance sheets as of March 31,September 30, 2015 and December 31, 2014 reflect accrued interest of $4,658$6,274 and $1,478, respectively.

 

O’Donnell 3

 

On January 16, 2015, the Company received $3,000 pursuant to a promissory note issued to Frank A. O’Donnell. The note is unsecured and bears interest at 6%. It matured on March 31, 2015 and required the issuance of $3,000 in shares of the Company’s common stock. $3,000 was outstanding under this Note as of JuneSeptember 30, 2015 and the balance sheets as of March 31,September 30, 2015 and December 31, 2014 reflect accrued interest of $81$127 and $0, respectively.

 

Note 9 – Stockholders’ Equity

 

The Company is authorized to issue an aggregate of 900,000,000 shares of common stock with a par value of $0.001. The Company is also authorized to issue 20,000,000 shares of “blank check” preferred stock with a par value of $0.001 per share of which 13,420 shares of Class A preferred stock (“Class A”) with a stated value of $10.00 are authorized and 13,420 shares were issued and outstanding at JuneSeptember 30, 2015 and December 31, 2014; 100,000 shares of Class B (“Class B”) preferred stock with a stated value of $10.00 are authorized and 99,997 and 38,193 shares were issued and outstanding at JuneSeptember 30, 2015 and December 31, 2014, respectively; 100,000 shares of Class C (“Class C”) preferred stock with a stated value of $10.00 are authorized and 24,340 were issued and outstanding at JuneSeptember 30, 2015 and December 31, 2014; 100,000 shares of Class D preferred stock (“Class D”) with a stated value of $10.00 are authorized and 12,500 and 0 shares were issued and outstanding at JuneSeptember 30, 2015 and December 31, 2014, respectively.

The preference term of the Class A and Class B is five years with conversion rights to common shares at any time after six months. Each Class A, Class B, and Class C share is convertible into 2,857.14, 690 and 592 shares of common stock, respectively. Each Class A, Class B and Class C share is entitled to 2,857.14, 3,450 and 592 votes, respectively, on any matter that is brought to a vote of the common stockholders. The preference term of the Class D shares is 24 months. Class D shares require a quarterly dividend payment equal to 8% per annum and are convertible into shares of the Company’s common stock at 50% of the average closing price for the ten-day trading period immediately prior to conversion.

 

Other Stock Issuances

 

On January 26, 2012, FINRA approved the 5-for-1 reverse stock split of our issued and outstanding common stock. The stock split has been retroactively applied to these financial statements resulting in a decrease in the number of shares of common stock outstanding with a corresponding increase in additional paid-in capital. All share amounts have been retroactively restated to reflect this reverse stock split.

 

On January 22, 2013, the Company entered into an assignment agreement with E World, an entity under common control, whereby E World agreed to purchase from GERS the Stock Purchase Agreement with Diamond Transport Ltd. for $75,000 payable in three equal monthly cash payments of $25,000, with the last payment due March 22, 2013. As of December 31, 2013, the Company had received $75,000 cash from E World. The Company recorded the cash receipt of $75,000 as additional paid-in capital as of December 31, 2013, due to the related party relationship. The $150,000 stock payable to Diamond Transport Ltd. was reversed and any further liability to Diamond Transport Ltd. was assumed by E World.

 

On April 22, 2013, the Board of Directors approved the issue of 6,880 Class A Preferred Shares at $10 stated value to Frank A. O’Donnell and 6,540 Class A Preferred Shares at $10 stated value to Joseph L. DuRant for the conversion of debt totaling $134,200. The fair value of the shares issued was $134,200 based on the quoted market price of the shares on the date of approval on an as converted basis.

 

On January 20, 2014, the Board of Directors approved the issue of 38,194 of Class B Preferred Shares at $10 stated value as described in Note 4.

 

On April 2, 2014, pursuant to an agreement, the Board of Directors approved the issue of 8,783 of Class C Preferred Shares at $10 stated value to Joseph L. DuRant in exchange for the voluntary surrender of 5,200,000 shares of common stock.

 

On April 3, 2014, pursuant to an agreement, the Board of Directors approved the issue of 15,557 of Class C Preferred Shares at $10 stated value to Green Renewable Energy Solutions, Inc. in exchange for the voluntary surrender of 9,209,334 shares of common stock. Green Renewable Energy Solutions, Inc. is wholly owned by the Estate of Joseph L. DuRant, president of the Company.DuRant.

 

On February 13, 2014, pursuant to an agreement, Carmel Advisors LLC was issued 5,000,000 shares of common stock as payment for consulting services to be provided by Carmel Advisors LLC. The services shall include, but are not limited to, the development, implementation and maintenance of an ongoing program to increase the investment community’s awareness of the Company’s activities and to stimulate the investment community’s interest in the Company.

 

On May 2, 2014, pursuant to an agreement, the Board of Directors approved the issue of 15,000,000 shares of common stock as partial payment for an Equity Purchase Agreement with Kodiak Capital Group, LLC. The final terms of the agreement were met by the Company on October 20, 2014. The Equity Purchase Agreement with Kodiak Capital Group, LLC, provides the Company the right to sell up to $5,000,000 of the Company’s common stock, subject to conditions the Company must satisfy as set forth in the Agreement.

 

Stock issued during the quarter to date ending June 30, 2014 was valued at the closing market price of the shares on either the date approved by the Board of Directors, the date of settlement, or the date the services have been deemed rendered.

 

On February 17, 2015, the Company sold 11,000 of its Class D Convertible Shares for $110,000. These shares have a par value of $1 per share, a stated value of $10 per share, and call for the payment of a quarterly dividend at an annual rate of 8.00%. The shares and any accrued and unpaid dividends are convertible by the investors at any time during the first 24 months after investment into shares of the Company’s common stock at 50% of the average closing price of the Company’s common stock during the ten trading days immediately prior to conversion. At its option, the Company may redeem the shares after the 24 month holding period by repaying the initial investment and any unpaid dividends. Such redemption calls for the investors to receive a number of common shares equal to the initial investment divided by the daily average closing price of the Company’s common stock during the ten trading days immediately prior to redemption.

On March 4, 2015, the Company sold 1,000 of its Class D Convertible Shares for $10,000. These shares have a par value of $1 per share, a stated value of $10 per share, and call for the payment of a quarterly dividend at an annual rate of 8.00%. The shares and any accrued and unpaid dividends are convertible by the investors at any time during the first 24 months after investment into shares of the Company’s common stock at 50% of the average closing price of the Company’s common stock during the ten trading days immediately prior to conversion. At its option, the Company may redeem the shares after the 24 month holding period by repaying the initial investment and any unpaid dividends. Such redemption calls for the investors to receive a number of common shares equal to the initial investment divided by the daily average closing price of the Company’s common stock during the ten trading days immediately prior to redemption.

 

On March 9, 2015, the Company sold 500 of its Class D Convertible Shares for $5,000. These shares have a par value of $1 per share, a stated value of $10 per share, and call for the payment of a quarterly dividend at an annual rate of 8.00%. The shares and any accrued and unpaid dividends are convertible by the investors at any time during the first 24 months after investment into shares of the Company’s common stock at 50% of the average closing price of the Company’s common stock during the ten trading days immediately prior to conversion. At its option, the Company may redeem the shares after the 24 month holding period by repaying the initial investment and any unpaid dividends. Such redemption calls for the investors to receive a number of common shares equal to the initial investment divided by the daily average closing price of the Company’s common stock during the ten trading days immediately prior to redemption.

 

On May 13, 2015, the Board of Directors approved the issuance of 39,850 shares of Series B Preferred Shares to the following officers and directors:

 

     In settlement
 Shares Value of Shares Value In settlement of
Roger W. Silverthorn, CEO  17,210  $95,000  Stock payable  17,210  $95,000  Stock payable
Richard L. Fosgitt, EVP  17,210  $95,000  Stock payable  17,210  $95,000  Stock payable
David W. Morgan, CFO  4,529  $25,000  Accrued salary  4,529  $25,000  Accrued salary
Thomas G. Cote, Director  901  $5,000  Stock payable  901  $5,000  Stock payable
  39,850  $220,000    39,850  $220,000  

On June 29, 2015, the Board of Directors approved the issuance of 21,948 shares of Series B Preferred Shares to the following officers and directors:

 

        In settlement
  Shares  Value  of
 Frank O’Donnell, Director and former COO  13,508  $88,542   Accrued salary
 Roger W. Silverthorn, CEO  4,220  $27,662   Accrued salary
 Richard L. Fosgitt, EVP  4,220  $27,662   Accrued salary
   21,948  $143,866   

  Shares  Value  In settlement of
Frank O’Donnell, Director and former COO  13,508  $88,542   Accrued salary
Roger W. Silverthorn, CEO  4,220  $27,662   Accrued salary
Richard L. Fosgitt, EVP  4,220  $27,662   Accrued salary
   21,948  $143,866   

Stock Issued for Settlement of Convertible Notes Payable

 

Date of Issue Stock Issues for
year ended
December 31, 2015
 Number of
Shares issued
 Purpose of Issue Price on date of
issue
 Market value of
shares issued
  Stock Issues
for year ended
December 31, 2015
 Number of Shares
issued
 Purpose of Issue Price on
date of issue
 Market value
of shares issued
 
February 10, 2015  LG Capital  2,405,369   Debt conversion $0.0170  $40,891  LG Capital  2,405,369  Debt conversion $0.0170  $40,891 
February 12, 2015  Union Capital  718,283   Debt conversion $0.0175  $12,570  Union Capital  718,283  Debt conversion $0.0175  $12,570 
February 12, 2015  Union Capital  619,209   Debt conversion $0.0175  $10,836  Union Capital  619,209  Debt conversion $0.0175  $10,836 
February 23, 2015  LG Capital  2,485,891   Debt conversion $0.0120  $29,831  LG Capital  2,485,891  Debt conversion $0.0120  $29,831 
February 25, 2015  GEL Capital  402,299   Debt conversion $0.0087  $3,500  GEL Capital  402,299  Debt conversion $0.0087  $3,500 
February 26, 2015  GEL Capital  436,508   Debt conversion $0.0086  $3,754  GEL Capital  436,508  Debt conversion $0.0086  $3,754 
March 2, 2015  GEL Capital  213,675   Debt conversion $0.0082  $1,752  GEL Capital  213,675  Debt conversion $0.0082  $1,752 
March 3, 2015  GEL Capital  694,444   Debt conversion $0.0079  $5,486  GEL Capital  694,444  Debt conversion $0.0079  $5,486 
March 9, 2015  GEL Capital  845,070   Debt conversion $0.0089  $7,521  GEL Capital  845,070  Debt conversion $0.0089  $7,521 
March 10, 2015  LG Capital  3,500,000   Debt conversion $0.0082  $28,700  LG Capital  3,500,000  Debt conversion $0.0082  $28,700 
March 11, 2015  Union Capital  2,137,628   Debt conversion $0.0080  $17,101  Union Capital  2,137,628  Debt conversion $0.0080  $17,101 
March 11, 2015  GEL Capital  1,173,709   Debt conversion $0.0080  $9,390  GEL Capital  1,173,709  Debt conversion $0.0080  $9,390 
March 13, 2015  GEL Capital  216,450   Debt conversion $0.0080  $1,732  GEL Capital  216,450  Debt conversion $0.0080  $1,732 
March 16, 2015  GEL Capital  456,621   Debt conversion $0.0079  $3,607  GEL Capital  456,621  Debt conversion $0.0079  $3,607 
March 17, 2015  GEL Capital  561,224   Debt conversion $0.0071  $3,985  GEL Capital  561,224  Debt conversion $0.0071  $3,985 
March 17, 2015  Typenex  5,000,000   Debt conversion $0.0071  $35,500  Typenex  5,000,000  Debt conversion $0.0071  $35,500 
March 25, 2015  LG Capital  5,251,423   Debt conversion $0.0078  $40,961  LG Capital  5,251,423  Debt conversion $0.0078  $40,961 
March 27, 2015  Union Capital  4,662,974   Debt conversion $0.0083  $38,703  Union Capital  4,662,974  Debt conversion $0.0083  $38,703 
March 26, 2015  GEL Capital  714,286   Debt conversion $0.0071  $5,071  GEL Capital  714,286  Debt conversion $0.0071  $5,071 
April 2, 2015  GEL  320,513   Debt conversion $0.0051  $1,635  GEL  320,513  Debt conversion $0.0051  $1,635 
April 9, 2015  Matt Morris  5,000,000   Debt conversion $0.0073  $36,500  Matt Morris  5,000,000  Debt conversion $0.0073  $36,500 
April 13, 2015  Typenex 1  5,000,000   Debt conversion $0.0070  $35,000  Typenex 1  5,000,000  Debt conversion $0.0070  $35,000 
April 15, 2015  GEL  849,673   Debt conversion $0.0052  $4,418  GEL  849,673  Debt conversion $0.0052  $4,418 
April 20, 2015  GEL  844,646   Debt conversion $0.0057  $4,814  GEL  844,646  Debt conversion $0.0057  $4,814 
April 21, 2015  GEL  961,538   Debt conversion $0.0050  $4,808  GEL  961,538  Debt conversion $0.0050  $4,808 
April 23, 2015  GEL  1,688,555   Debt conversion $0.0047  $7,936  GEL  1,688,555  Debt conversion $0.0047  $7,936 
April 27, 2015  GEL  2,620,792   Debt conversion $0.0052  $13,628  GEL  2,620,792  Debt conversion $0.0052  $13,628 
April 28, 2015  GEL  391,134   Debt conversion $0.0043  $1,682  GEL  391,134  Debt conversion $0.0043  $1,682 
May 5, 2015  Union 1  5,354,361   Debt conversion $0.0069  $36,945  Union 1  5,354,361  Debt conversion $0.0069  $36,945 
May 7, 2015  GEL  560,663   Debt conversion $0.0085  $4,766  GEL  560,663  Debt conversion $0.0085  $4,766 
May 11, 2015  GEL  757,750   Debt conversion $0.0090  $6,820  GEL  757,750  Debt conversion $0.0090  $6,820 
May 13, 2015  GEL  688,863   Debt conversion $0.0080  $5,511  GEL  688,863  Debt conversion $0.0080  $5,511 
May 19, 2015  GEL  216,685   Debt conversion $0.0080  $1,733  GEL  216,685  Debt conversion $0.0080  $1,733 
May 20, 2015  GEL  238,353   Debt conversion $0.0075  $1,788  GEL  238,353  Debt conversion $0.0075  $1,788 
May 21, 2015  Union 1  4,577,540   Debt conversion $0.0088  $40,282  Union 1  4,577,540  Debt conversion $0.0088  $40,282 
June 3, 2015  Kodiak  2,439,025   Debt conversion $0.0043  $10,488  Kodiak  2,439,025  Debt conversion $0.0043  $10,488 
June 16, 2015  Kodiak  4,878,049   Debt conversion $0.0110  $53,659  Kodiak  4,878,049  Debt conversion $0.0110  $53,659 
June 19, 2015  Kodiak  4,878,049   Debt conversion $0.0112  $54,634  Kodiak  4,878,049  Debt conversion $0.0112  $54,634 
June 23, 2015  Union 1  1,321,102   Debt conversion $0.0100  $13,211  Union 1  1,321,102  Debt conversion $0.0100  $13,211 
June 24, 2015  Union 1  2,774,933   Debt conversion $0.0095  $26,362  Union 1  2,774,933  Debt conversion $0.0095  $26,362 
June 24, 2015  Matt Morris  13,000,000   Debt conversion $0.0100  $130,000  Matt Morris  13,000,000  Debt conversion $0.0100  $130,000 
June 25, 2015  GEL  1,685,155   Debt conversion $0.0083  $13,987  GEL  1,685,155  Debt conversion $0.0083  $13,987 
June 29, 2015  Kodiak  4,166,667   Debt conversion $0.0062  $25,750  Kodiak  4,166,667  Debt conversion $0.0062  $25,750 
June 30, 2015  Typenex 1  10,000,000   Debt conversion $0.0070  $70,000  Typenex 1  10,000,000  Debt conversion $0.0070  $70,000 
July 1, 2015 Union 1  3,585,329  Debt conversion $0.0079  $28,324 
July 6, 2015 Matt Morris  12,000,000  Debt conversion $0.0063  $75,600 
July 15, 2015 Union 1  4,646,463  Debt conversion $0.0046  $21,374 
July 24, 2015 Union 1  7,047,633  Debt conversion $0.0046  $32,419 
July 30, 2015 Typenex 1  8,064,516  Debt conversion $0.0043  $34,677 
August 5, 2015 Union 2  7,133,961  Debt conversion $0.0046  $32,816 
August 14, 2015 Union 3  460,714  Debt conversion $0.0041  $1,889 
    107,709,109        $907,247   150,647,725        $1,134,347 

During the sixnine months ended JuneSeptember 30, 2015, the Company issued a total of 107,709,109150,647,725 shares of common stock for debt conversion for an aggregate fair value of $907,247$1,134,347 based on the closing price the date the stock was issued. The difference between the fair value of the shares of common stock issued of $907,247$1,134,347 and the principal and interest converted of $418,834$508,731 is recorded as a loss on settlement of promissory notes and interest of $488,413$625,616 in the consolidated statements of operations.

 

As of JuneSeptember 30, 2015 and December 31, 2014, the Company had 300,241,514343,180,130 and 192,532,405 shares of common stock issued and outstanding, respectively.

 

Stock Payable

 

On August 14, 2012, the Company entered into 6 month professional services agreement, whereby the Company pays the consultant $5,000 cash and $5,000 worth of common stock each month. As of JuneSeptember 30, 2015 and December 31, 2014, the Company has recorded $30,000 in stock payable related to this contract.

 

On July 1, 2012, the Company entered into a nine month professional services agreement, whereby the Company pays the consultant 250,000 shares of common stock. As of JuneSeptember 30, 2015 and December 31, 2014, the Company has recorded $30,000 in stock payable related to this contract.

 

On November 1, 2012, the Company entered into a professional services agreement, whereby the Company agreed to pay the consultant $50,000 for services for the Company’s common stock. As of JuneSeptember 30, 2015 and December 31, 2014, the Company has recorded $30,000 in stock payable related to this contract.

 

On September 20, 2012, the Company entered into an employment agreement whereby the Company agreed to issue 50,000 shares of common stock valued at $6,995 as a commencement bonus. As of JuneSeptember 30, 2015 and December 31, 2014, the Company has recorded $30,000 in stock payable related to this contract.

 

On April 22, 2013, the Board of Directors approved the issue of 5,714,286 shares of common stock to E World and 1,941,714 shares of common stock to Blue Atelier for settlement of accounts payable totaling $26,796. The fair value of the shares to be issued is $22,968 based on the quoted market price of the shares on the date of approval. The excess of the accounts payable settled over the fair value of the shares issue of $3,828 is recorded as additional paid-in capital due to the related party relationship. As of JuneSeptember 30, 2015 and December 31, 2014, no shares were issued and the $22,968 for this obligation was recorded as stock payable.

 

On January 10, 2014, the Board of Directors approved the issuance of capital stock as additional compensation for the officers and Board of Director members. The amount of dollars authorized, to whom they are authorized, and the dollar amount of shares each represent is shown in the chart below. As of JuneSeptember 30, 2015, $283,125$360,625 was recorded as stock payable.

 

  Accrued Compensation
to be issued in Capital
Stock
  Accrued Board of
Director Fee to be
issued in Capital
Stock
  Total  Shares of Common
Stock to be issued
at June 30, 2015
Market Price
 
Joe DuRant: CEO, Director $101,875  $25,000  $126,875   17,869,718 
Roger W. Silverthorn: CFO, Director $45,000  $5,000  $50,000   7,042,254 
Richard L. Fosgitt: EVP, Director $56,250  $25,000  $81,250   11,443,662 
Thomas G. Cote’: Director  -  $25,000  $25,000   3,521,127 
  $203,125  $80,000  $283,125   39,876,761 

  Accrued
Compensation to be
issued in Capital Stock
  Accrued Board of
Director Fee to be
issued in Capital
Stock
  Total  Shares of
Common Stock to
be issued at
September 30, 2015
Market Price
 
 Joe DuRant: CEO, Director $101,875  $25,000  $126,875   15,286,145 
 Roger Silverthorn: CFO, Director  76,250   10,000   86,250   10,391,566 
 Richard Fosgitt, Director  87,500   30,000   117,500   14,156,627 
 Thomas Cote’: Director  -   30,000   30,000   3,614,458 
  $265,625  $95,000  $360,625   43,448,796 

On March 12, 2014 two shareholders loaned their shares to the Company in exchange for a note. The note is payable when shares are available and will be paid at a 50% premium. The total shares returned to treasury were 9,500,000 shares and will be repaid with 14,250,000 shares when available and are recorded as stock payable for $213,750. The premium has been expensed as other financing costs. The shares were valued at the fair value on the day of the transaction.

On September 26, 2014, the Company entered into a Promissory Note (the “Note”) with E World (the “Holder”) in the principal amount of $71,500 bearing a 9% annual interest rate, unsecured and maturing November 10, 2014. Additionally, the Note provides for the issuance of common stock having a value equal to the loan amount. $71,250 was outstanding under this Note as of March 31, 2015. $71,500 is reflected in Stock Payable at JuneSeptember 30, 2015 and December 31, 2014. See also Note 7 – Notes Payable. Shares of common stock to be issued under this Note at JuneSeptember 30, 2015 market prices totaled 10,070,422.

 

On December 18, 2014, the Company received $20,000 in exchange for the issuance of restricted common shares to Typenex. On June 18, 2015 the Company will issue $20,000 in unrestricted shares to Typenex, the number of which will equal $20,000 divided by the closing price of the Company’s stock on June 17, 2015.

 

On January 16, 2015, the Company received $3,000 pursuant to a promissory note issued to Frank A. O’Donnell. The note is unsecured and bears interest at 6%. It matured on March 31, 2015 and required the issuance of $3,000 in shares of the Company’s common stock. Shares of common stock to be issued under this Note at JuneSeptember 30, 2015 market prices totaled 422,535.

 

Warrants

 

On May 13, 2014, the Company issued warrants to Typenex Co-Investment LLC for 1,500,000 shares of the Company’s common stock exercisable at $.05 per share. The warrants expire on February 13, 2019. The warrants were issued in conjunction with an advance on a promissory note issued to that entity. See also Typenex Co-Investment, LLC Promissory Note I February 13, 2014 in Note 6 – Convertible Notes.

 

Stock Options

 

On July 1, 2014, the Company issued options to David W. Morgan, the Company’s Chief Financial Officer to purchase 1,000,000 shares of the Company’s common stock at the closing price on July 1, 2014. The closing price on that date was $0.024 per share. 500,000 of the options vest on July 1, 2015 and the remaining 500,000 options vest on July 1, 2016 in accordance with an employment agreement executed on July 1, 2014 between Morgan and the Company. See also Note 4 – Related Party Transactions.

 

Note 10 – Fair Value Measurements

 

FASB ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and prescribes disclosures about fair value measurements.

 

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability i nin an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level l measurement) and the lowest priority to unobservable inputs (level 3 measurement).

 

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level l primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The valuation techniques that may be used to measure fair value are as follows:

 

Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 

Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method.

 

Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)

 

The carrying value of the Company’s borrowings is a reasonable estimate of its fair value as borrowings under the Company’s credit facility have variable rates that reflect currently available terms and conditions for similar debt.

 

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

 

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of JuneSeptember 30, 2015 and December 31, 2014. As required by FASB ASC 820, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

June 30, 2015 Level I Level II Level III Total 
September 30, 2015 Level I Level II Level III Total 
                  
Derivative liability $-  $928,979  $-  $928,979  $-  $1,701,325  $-  $1,701,325 
Total liabilities $-  $928,979  $-  $928,979  $- $1,701,325 $- $1,701,325 
                         
December 31, 2014 Level I  Level II  Level III  Total  Level I Level II Level III Total 
                         
Derivative liability $-  $1,246,748  $-  $1,246,748  $- $1,246,748 $- $1,246,748 
Total liabilities $-  $1,246,748  $-  $1,246,748  $- $1,246,748 $- $1,246,748 

 

In addition, the FASB issued, “The Fair Value Option for Financial Assets and Financial Liabilities.” This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments.

Note 11 – Subsequent Events

 

On May 16, 2013, the Company and Cirque Energy II, LLC announced the entry into a contribution agreement. The Members of the Cirque Energy II, LLC will receive 43,359,487 shares of the Company’s common stock at closing and another 43,359,487 shares of common stock at such time as the stock price reaches $0.50 per share. The agreement has not yet been consummated.

On July 1, 2015, Union Capital, LLC converted $10,000 in principal and $1,114 in accrued interest owing them under the Note dated April 3, 2014 into 3,585,329 shares of the Company’s common stock.

On July 6, 2015, Matt Morris converted $24,480 in principal owing them under the Note dated November 8, 2013 into 12,000,000 shares of the Company’s common stock.

On July 15, 2015, Union Capital, LLC converted $10,000 in principal and $1,152 in accrued interest owing them under the Note dated April 3, 2014 into 4,646,463 shares of the Company’s common stock.

On July 23, 2015, Union Capital, LLC converted $13,248 in principal and $1,552 in accrued interest owing them under the Note dated April 3, 2014 into 7,047,633 shares of the Company’s common stock.

On July 30, 2015, Typenex Co-Investment, LLC converted $20,000 in principal owing them under the Note dated February 2, 2014 into 8,064,516 shares of the Company’s common stock.

On August 4, 2015, Union Capital, LLC converted $15,000 in principal and $1,479 in accrued interest owing them under the Note dated June 27, 2014 into 7,133,961 shares of the Company’s common stock.

On August 13, 2015, Union Capital, LLC converted $1,000 in principal and $122 in accrued interest owing them under the Note dated May 17, 2013 into 460,714 shares of the Company’s common stock.

On August 10, 2015, the Company entered into a forbearance agreement with Matthew Morris regarding the Asher note that he purchased. He had declared an event of default on August 4, 2015 due to the Company’s inability to deliver common shares in response to a conversion notice that he’d delivered on July 16, 2015. Under the terms of the forbearance agreement, he agreed to rescind the default notice and forbear on all remedies available to him. The forbearance agreement expired on September 10, 2015.

On August 27, 2015 the Company issued a convertible note in the amount of $25,000 to Adar Bays, LLC (the Holder). The Note bears interest at 8% per annum, matures on June 9, 2016, and can be converted, at the Holder’s discretion into shares of the Company’s common stock at a price equal to 60% of the average of the three lowest closing bids during the 20 days prior to conversion.

On August 27, 2015 the Company issued a convertible note in the amount of $26,500 to Union Capital (the Holder). The Note bears interest at 9% per annum, matures on August 27, 2016, and can be converted, at the Holder’s discretion into shares of the Company’s common stock at a price equal to 50% of the lowest closing bid during the 10 days prior to conversion.

 

On December 7, 2015 the Company issued a convertible note in the amount of $20,000 to Odyssey Research and Trading LLC (the Holder). The Note bears interest at 8% per annum, matures on December 7, 2016, and can be converted, at the Holder’s discretion into shares of the Company’s common stock at a price equal to 60% of the average of the three lowest closing bids during the 20 days prior to conversion.

 

On December 7, 2015 the Company issued a convertible note in the amount of $19,500 to Union Capital LLC (the Holder). The Note bears interest at 9% per annum, matures on December 7, 2017, and can be converted, at the Holder’s discretion into shares of the Company’s common stock at a price equal to 50% of the lowest closing bid during the 10 days prior to conversion.

 

On December 7, 2015, the Company, Union Capital LLC, and Odyssey Research and Trading, LLC entered into an escrow agreement under which $34,500 of proceeds from the sale of the convertible notes issued on December 7, 2015 and referenced immediately above are being held by an escrow agent for the benefit of and distribution to several key creditors of the Company. These creditors agreed to complete tasks and services associated with the preparation and filing of the Company’s Quarterly Reports to the SEC on Form 10-Q for the three and six month periods ended June 30, 2015 and for the three and nine month periods ended September 30, 2015 in consideration of being paid for said services from the escrowed funds.

On December 31, 2015, the Company and Union Capital LLC entered into an amendment to all then-outstanding Notes issued by the Company to Union Capital, LLC. The amendment calls for the conversion price on all such Notes to be equal to 50% of the lower of the (i) lowest closing bid price, or (ii) lowest trading price (in both cases, with a ceiling of $0.0075 per share) of the common stock of the Company for the 25 prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer agent.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Background

 

Cirque Energy, Inc. (“Cirque,” the “Company,” “we,” “us” or “our company”) was originally incorporated in Florida on July 16, 1998 under the name of Salty’s Warehouse, Inc. and was engaged in selling name-brand consumer products over the Internet. The Company focused on selling consumer electronics and audio-video equipment such as speakers, amplifiers, and tuners, though the Company also sold assorted other goods such as watches, sunglasses and sports games. On December 11, 2006, owners of an aggregate of 22,450,000 shares of common stock sold all of them to a group of approximately 54 investors. As a result of this transaction, a change of control in the Company occurred resulting in a change in its name to E World Interactive, Inc. (“E World”). At that time, E World was principally engaged in the sale of online game services and had a media production business in mainland China.

 

Having operated in this sector for some time, the Company then disposed of its subsidiaries Shanghai E World China Information Technologies Co., Ltd. and Mojo Media Works Ltd. in August 2008, and, following these sales, ceased all activities in the online game and media production businesses and became a shell company.

 

In March 2009, the Company entered into a stock purchase agreement with Blue Atelier, Inc. Blue Atelier acquired 25,000,000 newly issued common shares of E World after the Company had executed a forty-to-one reverse split of its issued and outstanding common stock and also entered into a series of agreements with various holders of convertible notes to convert its notes payable plus accumulated interest into 6,872,830 shares of E World’s common stock. As a result of this transaction, a change of control in E World occurred with Blue Atelier then owning 75% of the outstanding common stock of E World.

 

In May 2010, the Company acquired 100% of the outstanding common stock of Media and Technology Solutions, Inc. (“MTS”), a Nevada corporation with a variety of media and related interests and rights and emerged from shell status. The consideration for the purchase of MTS was 10,000,000 shares of E World common stock. Blue Atelier, the principal shareholder of MTS, was also the largest shareholder in E World. Following this acquisition, E World moved its principal office to Las Vegas, Nevada. The acquisition of MTS was accounted for in a manner similar to a pooling of interests in accordance with accounting principles generally accepted in the United States because the entities were under common control.

 

On September 17, 2011, E World entered into a letter of intent with Green Renewable Energy Solutions, Inc. (“GRES”), the purpose of which was to acquire the assets of GRES which included certain contracts for the acceptance, processing and disposal of construction and demolition waste and as part of this agreement, E World changed its name to Green Energy Renewable Solutions (“GERS”), effective December 12, 2011. On January 26, 2012, GERS completed a 1-for-5 reverse split and on February 4, 2012 E World, including its subsidiary, MTS, was spun out as a separate private company by way of a special share dividend with one E World share issued for every share held on the date of the approval of the reverse split. FINRA approved the name change and the reverse split on January 26, 2012.

 

On February 4, 2012 GRES executed an asset purchase agreement (the “Purchase Agreement”) with GERS. Under the terms of the Purchase Agreement, GERS acquired all of the assets of GRES for 6,209,334 shares of its common stock and a further 4,604,666 common shares of deferred consideration.

 

GERS is focused on the acquisition of waste streams and maximizing its value utilizing recycling, renewable energy production, and environmentally responsible disposal strategies. On June 27, 2012, the Company approved a 1-for-1 stock dividend for shares held on June 29, 2012 and the dividend shares were issued following FINRA approval on July 27, 2012.

 

On April 29, 2013, the Company formed Green Harvest Landfill, LLC as a Delaware limited liability company to be a wholly owned subsidiary for the sole purpose of acquiring the Davison Landfill. An offer was made and accepted by the bankruptcy trustee who was in possession of the Davison Landfill. Subsequently, the transaction did not close and the Green Harvest Landfill, LLC lies dormant.

 

On May 15, 2013 GERS entered into a contribution agreement with Cirque Energy II, LLC (“Cirque LLC”) whereby Cirque LLC would contribute all of its assets in exchange for common stock in the Company. Included in Cirque LLC’s assets were three subsidiary limited liability companies: The Prototype Company, LLC; Gaylord Power Station, LLC; and Midland Renewable Energy Station, LLC. This contribution agreement has not yet been consummated.

 

In July 2013, the Company changed its name to Cirque Energy, Inc. FINRA approval of the name change and a change in the Company’s trading symbol are pending.

26

General

 

Cirque’s core business components include proprietary deployable gasification unit (“DGU”) technology and the delivery of clean energy generation solutions as an energy services company (“ESCO”).

 

DGU Business

 

 Under a contract with the Northrop Grumman Corporation, Cirque investigated and obtained research and technical data regarding the ability to produce a mobile, deployable gasification unit capable of producing field electricity for use by the U.S. military and other government users.
   
 The goal of this engagement was to determine the potential ability to develop, engineer and fabricate a DGU or other system capable of converting the currently available byproducts or wastes generated by the U.S. military in a typical forward operating base into electricity.
   
 The goal is to make systems simple to operate, highly transportable, reliable, and have minimal special training and maintenance requirements.
   
 Northrop Grumman and Cirque are committed to continue technology development for the DGU toward commercialization.
   
 Northrop Grumman, in partnership with Cirque, is producing the first working DGU prototypes for testing and demonstration for military, government, and commercial customers.
   
 We anticipate the deployment of the DGU prototypes.
   
 Under the agreement, Cirque will lead the development, manufacturing, and testing of the initial demonstration DGUs, with input from Northrop Grumman.
   
 Upon successful demonstration, Northrop Grumman will manufacture DGUs for exclusive sale by Northrop Grumman and Cirque.

 

Clean Energy Generation Solutions as Energy Services Company (“ESCO”)

 

Delivery of clean energy Combined Heat and Power (“CHP”) projects, to industrial, commercial, and municipalities, universities, schools, hospitals (“MUSH”) market customers as well as local, state, and federal governments.

 

 Projects to be developed and owned by Cirque.
   
 Energy sold to customers using various structures which required little or no capital outlay by customers:

 

 ESPC – energy savings performance contract; customer pays Cirque money which otherwise would have been paid to utility company in exchange for guaranteed savings.
   
 PPA – traditional power purchase agreement.
   
 Services contract – energy purchased as a service, thereby allowing a customer to treat a project as “off-credit.”
   
 Lease – Cirque to design, build, finance and lease system to a customer.

The Company anticipates acquiring Cirque II. Management expects that this acquisition will provide the Company the new entity with several benefits:

 

 Strengthen management team to successfully execute our business plan, including plant operations, project development, construction, start-up, commissioning, fuel procurement and transportation.
   
 Skill sets of the new team will mitigate execution risk.
   
 New and expanded pipeline of projects and programs in various stages of development.
   
 Expanded client relationships, large industrial clients, universities, hospitals, and utilities resulting in more opportunities.
   
 Expanded network of project finance relationships and contacts.
   
 Our team has experience in development, design, financing, construction, and operations, which positions us to successfully take a potential energy project from vision to completion.

 

Energy Services and Performance Contracting

 

Cirque is keenly aware of the impact U.S. shale oil and gas developments has had on natural gas markets and consumers. Because of the relativerelatively low prices of natural gas (which hashave ranged between $3.00$2.80 and $3.80 during the first sixnine months of 2015) and high electric utility prices, the opportunities for onsite combined heat and power projects have never been greater. Cirque sees many opportunities at facilities in the municipal, university, schools and hospital market and industries that burn natural gas. Typically, these facilities use natural gas boilers for heat and power. By replacing these facilities with CHP systems such as micro turbines, reciprocating engines, or gas turbines with heat recovery boilers, these facilities can benefit from dramatic energy cost savings.

 

Cirque plans to pursue projects as an energy services company to design, build, own, operate, and finance CHP projects in the MUSH and industrial markets. Under this model, Cirque intends to provide an initial energy audit or feasibility study for the customer in order to demonstrate the economic savings that can be realized by installing a CHP system. Further, using our strategic partners (Hannon Armstrong and Veolia Energy), Cirque can offer these customers an energy savings performance contract, whereby Cirque will capitalize the project for the customer, with payments from the customer coming from their current utility expense budget. Therefore, the customer can realize the energy savings without having to incur the capital expense of the project. Typically, the ESPC is expected to extend over a term of 10-20 years.

 

Energy Technology Development - Small Scale CHP Gasifier

 

In 2012, Northrop Grumman retained us to research the potential to develop a viable deployable gasification unit for the U.S. military. The objective of the unit design was to provide a cost-effective, reliable yet simple to operate system that would utilize garbage and other wastes generated by the military at its forward operating bases to generate energy. The system would be capable of operating in the 100kW to 500kW output range utilizing the military’s existing inventory of diesel generators, while using a diverse range of waste fuels comparable to those generated in the field.

 

Further, the Company determined that the potential for commercial deployment of the system in the private sector expands the system applications far beyond the original government/military market assumptions. The resulting conclusion that the concept design capabilities and market applications met and exceeded the established project parameters led to the Cirque/Northrop Grumman partnership.

 

The concept of the DGU is to take waste materials of up to 10 tons per day and use the material as fuel in a small gasifier to provide up to 1.0mW of electricity and thermal heat. The DGU as planned is small in size, occupying the space of approximately 2-3 standard 20-foot shipping containers. Power generation is accomplished by gasifying the waste (garbage) to generate a combustible syngas that is co-fired in a standard diesel or natural gas internal combustion engine. The engine runs constantly on the syngas, but the primary fuel can be utilized when no waste fuels are available.

 

In the commercial areas, Cirque envisions using the system for customers who are generating a waste material and have a constant electric demand. This could include industrial customers, wastewater treatment plants, big box stores, distribution centers, universities, schools, and large hospitals. These facilities can see substantial cost savings by avoiding paying for waste disposal, as well as by offsetting utility costs. Cirque plans to deliver these systems to customers using the ESCO business model.

 

Northrop Grumman has exclusive marketing rights to the U.S. military and government in addition to being one of the leading contract suppliers for the military and government. Their reputation and access insures rapid access and the highest probability of success for sales within these market sectors.

 

Cirque will maintain patents rights on certain key components of the DGU systems and will be responsible for the manufacturing and supply of these components to Northrop Grumman for inclusion in the complete DGU system, both for military and commercial units. The development of the two prototypes (one military unit and one commercial unit) is underway with completion of testing to be completed in the first quarter of 2015 and sales of both types to begin at that time.

Results of Operations

 

Below is a comparison of results of operations for the three months and sixnine months ended JuneSeptember 30, 2015 and JuneSeptember 30, 2014.

 

The Company reported a net loss of $1,100,132$1,314,993 for the three months ended JuneSeptember 30, 2015 versus a net loss of $1,347,334$608,166 for the three months ended JuneSeptember 30, 2014. The Company reported a net loss of $1,084,128$2,399,121 for the sixnine months ended JuneSeptember 30, 2015 versus a net loss of $1,977,651$2,585,815 for the sixnine months ended JuneSeptember 30, 2014.

 

For the three months ended JuneSeptember 30, 2015, the primary contributors to the net loss of $1,100,132$1,314,993 were a loss on derivative liability of $653,623, executive and directors’ compensation expense of $198,746, professional fees of $138,831, and a loss on settlement of promissory convertible notes of $332,199, executive and directors’ compensation of $238,793, interest expense of $142,546, amortization of debt discount of $98,029, professional fees of $91,811, and a loss on derivative liability of $75,314.$137,203. For the three months ended JuneSeptember 30, 2014, the primary contributors to the net loss of $1,347,334$608,166 were interestexecutive and directors’ compensation expense of $258,087, other financing costs of $253,500,$282,204, amortization of debt discount of $223,827, executive$193,734, and directors’ compensation of $209,033, derivativeinterest expense of $110,972, a loss on settlement of promissory convertible notes of $83,376, and a loss on derivate liability of $83,192.$124,837.

 

For the sixnine months ended JuneSeptember 30, 2015, the primary contributors to the net loss of $1,084,128$2,399,121 were executive and directors’ compensation expense of $507,611,$706,357, a loss on settlement of promissory convertible notes of $488,413,$625,616, professional fees of $333,069, amortization of debt discount of $219,105, professional fees of $194,238, and$262,847, interest expense of $119,907, which were only partially offset by a gain on$173,699, and derivative liabilityexpense of $599,715.$135,215. For the sixnine months ended JuneSeptember 30, 2014, the primary contributors to the net loss of $1,977,651$2,585,815 were amortization of debt discount of $541,408,$735,142, executive and directors’ compensation expense of $434,870,$717,073, interest expense of $392,611, other financing costs of $346,250, a loss on settlement of promissory convertible notes of $324,082, interest expense of $267,774, derivative expense of $191,921, loss on settlement of debt of $171,564, and professional fees of $142,997,$159,703, which were only partially offset by a gain on derivative liability of $677,082.$730,200.

 

Prior period comparisons of results are impacted by developing operations during the periods covered.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of the accompanying notes to the consolidated financial statements describe the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

 

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:

 

 We are required to make assumptions about matters that are highly uncertain at the time of the estimate; and
   
 Different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

 

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

 

a)Impairment of Long-Lived Assets and Intangible Assets
   
  Long-lived assets and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of the long-lived assets and intangible assets (other than goodwill) by comparing the carrying amount to the estimated future undiscounted cash flow associated with the related assets. The Company recognizes impairment of long-lived assets and intangible assets in the event that the net book value of such assets exceeds the estimated future undiscounted cash flow attributed to such assets. The Company uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.
   
 b)Share-based Payments
   
  The Company records stock-based compensation issued to non-employees or other external entities for goods and services at either the fair market value of the shares issued or the value of the services received, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30.

 

Liquidity and Capital Resources

 

During the sixnine months ended JuneSeptember 30, 2015, net cash used in operating activities totaled $(344,679)$(397,639). Cash provided by financing activities was $347,985,$396,485, resulting primarily from the issuance of convertible promissory notes and preferred stock, and cash used in investing activities was $2,002. Increase in cash for the period was $5,308.

During the six months ended June 30, 2014, net cash used in operating activities totaled $(694,576). Cash provided by financing activities was $698,057, resulting primarily from the issuance of convertible promissory notes and the addition to stock payables, and cash used in investing activities totaled $419. Increase in cash for the period was $12,741.

$848.

Cash Flow Requirements for Operations

 

As of JuneSeptember 30, 2015 the Company had available cash of $5,308.$848. Based on our historical cash needs and our business plan, we require approximately $1,500,000 for operations for the year ending December 31, 2015. We currently have payroll, legal, accounting, general and administrative expenses with no revenue generating operations. Until now we have relied on the issuance of convertible debt and the sale of our common and preferred shares to fund our operating cash requirements. However, these sources of cash are no longer available to us. As of December 18, 2015,January 6, 2016, the Company had available cash of $11. The Company is essentially insolvent.$(3).

 

Going Concern

 

Our continuation as a going concern is dependent upon obtaining additional working capital to sustain our current status. As shown in the accompanying financial statements, the Company had an accumulated deficit of $16,194,831$17,512,324 at JuneSeptember 30, 2015. At present, Management does not have any pending, realistic, or even plausible plans to obtain additional financing from any source. The Company is essentially insolvent. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements or financing activities with special purpose entities.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of JuneSeptember 30, 2015. This evaluation was carried out under the supervision of the Company’s Principal Executive Officer and its Principal Financial Officer. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of JuneSeptember 30, 2015, our disclosure controls and procedures were not effective.

 

We performed analysis and other post-closing procedures to ensure that our financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations, changes in stockholders’ deficit and cash flows for the periods presented.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure. Such disclosure controls and procedures are limited in their effect by the limitation of the numbers of staff available to allow for the desirable level of division of responsibilities and oversight of the controls and procedures.

 

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Inherent Limitations on the Effectiveness of Controls

 

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems 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. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

 

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

Changes in Internal Controls

 

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, performed an evaluation to determine whether any change in our internal controls over financial reporting occurred during the three-month period ended JuneSeptember 30, 2015. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that no change occurred in the Company’s internal control over financial reporting during the three months ended JuneSeptember 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

31

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

No legal proceedings were initiated or served uponOn September 22, 2015 Porter, LeVay & Rose, Inc., a provider of public relations services, filed a lawsuit against the Company in the quarterly period ended June 30, 2015. We are not currently involved in any material legal proceedings. We are not awareSupreme Court of any material legal proceedings pending against us.the State of New York, County of Westchester, claiming that it is owed $36,346.88, plus accrued interest, for unpaid goods and services that had allegedly been provided to the Company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
  
31.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act *Act*
  
32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
  
101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document*
101.LABXBRL Taxonomy Label Linkbase Document*
101.PREXBRL Taxonomy Presentation Linkbase Document*

 

* Filed herewith

** Furnished herewith

32

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 CIRQUE ENERGY, INC.
   

December 18, 2015

January 6, 2016
By:/s/ Roger W. Silverthorn
  Roger W. Silverthorn
  Chief Executive Officer
  (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

December 18, 2015January 6, 2016By:/s/ Roger W. Silverthorn
  Roger W. Silverthorn
  Chief Executive Officer, President and Director
  (Principal Executive Officer)
   
December 18, 2015January 6, 2016By:/s/ David W. Morgan
  David W. Morgan
  Chief Financial Officer
  (Principal Financial Officer)