GENOIL INC.
September 30, 2020
FORM 6-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |
Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 | F-2 |
Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 | F-3 |
Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2020 and 2019 | F-4 |
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 | F-5 |
Notes to Consolidated Financial Statements | F-6 |
F-1
GENOIL INC.
Consolidated Balance Sheets
(Expressed in US Dollars)
ASSETS | ||
September 30, | December 31, | |
2020 | 2019 | |
(Unaudited) | ||
CURRENT ASSETS | ||
Cash and cash equivalents | $3,922 | $1,359 |
Due from related-parties | 175,700 | 1,675,625 |
Total Current Assets | 179,622 | 1,676,984 |
Land located in Alberta Canada | 43,163 | 43,163 |
OTHER ASSETS | ||
Intangible assets, net | 1 | 1 |
TOTAL ASSETS | $222,786 | $1,720,148 |
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||
CURRENT LIABILITIES | ||
Trade and other payables | $70,086 | $60,167 |
Accrued interest payable, to related parties | 2,074,650 | 1,782,472 |
Convertible notes, current portion | - | 2,513,748 |
Due to related parties | 46,875 | 3,875,000 |
Total Current Liabilities | 2,191,611 | 8,231,387 |
NON-CURRENT LIABILITIES | ||
Convertible notes, non current portion | 4,711,764 | - |
Total Non-Current Liabilities | 4,711,764 | - |
TOTAL LIABILITIES | 6,903,375 | 8,231,387 |
STOCKHOLDERS' DEFICIT | ||
Common Stock, no par value; issued and outstanding 591,078,029 and 547,303,029 shares , respectively | 50,409,604 | 49,847,884 |
Contributed surplus | 32,651,934 | 32,114,075 |
Accumulated other | ||
comprehensive income (loss) | (221,860) | (221,860) |
Accumulated deficit | (89,520,267) | (88,251,338) |
Total Stockholders' Deficit | (6,680,589) | (6,511,239) |
TOTAL LIABILITIES AND | ||
STOCKHOLDERS' DEFICIT | $222,786 | $1,720,148 |
The accompanying notes are an intergral part of these consolidated financial statements
F-2
GENOIL INC.
Consolidated Statements of Operations
(Expressed in US Dollars)
(Unaudited)
For the Nine Months Ended | For the Three Months Ended | |||
September 30, | September 30, | September 30, | September 30, | |
2020 | 2019 | 2020 | 2019 | |
REVENUES | $0.00 | $0.00 | $0.00 | $0.00 |
COST OF SALES | - | - | - | - |
GROSS PROFIT | - | - | - | - |
OPERATING EXPENSES | ||||
Stock based compensation to officers, directors, and consultants | 729,109 | 246,548 | 578,679 | 27,500 |
Occupancy Arrangements with related parties | 46,875 | 46,875 | 15,625 | 15,625 |
Other Operating Expenses | 200,767 | 157,391 | 110,896 | 38,901 |
Total Operating Expenses | 976,751 | 450,814 | 705,200 | 82,026 |
LOSS FROM OPERATIONS | (976,751) | (450,814) | (705,200) | (82,026) |
Other Income (Expense) | ||||
Finance expense | (292,178) | (253,386) | (141,354) | (84,462) |
Total Other Income (Expense) - Net | (292,178) | (253,386) | (141,354) | (84,462) |
INCOME (LOSS) BEFORE INCOME TAXES | (1,268,929) | (704,200) | (846,554) | (166,488) |
PROVISION FOR INCOME TAXES | - | - | - | - |
NET INCOME (LOSS) | $(1,268,929) | $(704,200) | $(846,554) | $(166,488) |
Weighted average shares outstanding - Basic and Diluted | 571,000,839 | 536,487,524 | 581,864,986 | 540,512,377 |
NET LOSS PER SHAE - Basic and Diluted | $0.00 | $0.00 | $0.00 | $0.00 |
The accompanying notes are an intergral part of these consolidated financial statements
F-3
GENOIL INC.
Consolidated Statements of Stockholders' Deficit
(Expressed in US Dollars)
(Unaudited)
Accumulated Other | ||||||
Comprehensive | Total | |||||
Common Shares | Share Capital | Contributed Surplus | Income (Loss) | Accumulated Deficit | Stockholders' Deficit | |
Balance as of January 1, 2019 | 532,312,029 | $49,463,347 | $29,209,720 | $(221,860) | $(84,619,176) | $(6,167,969) |
Sale of common shares (and warrants) in private placements | 5,316,667 | 171,500 | - | - | - | 171,500 |
Issuance of common shares for services | 4,579,333 | 118,547 | - | - | - | 118,547 |
Stock based compensation | - | - | 128,001 | - | - | 128,001 |
Net loss for the nine-months ended September 30, 2019 | - | - | - | - | (704,200) | (704,200) |
Balance as of September 30 , 2019 | 542,208,029 | 49,753,394 | 29,337,721 | (221,860) | (85,323,376) | (6,454,121) |
Balance as of July 1, 2019 | 539,158,029 | $49,650,894 | $29,337,721 | $(221,860) | $(85,156,888) | $(6,390,133) |
Sale of common shares (and warrants) in private placements | 2,000,000 | 75,000 | - | - | - | 75,000 |
Issuance of common shares for services | 1,050,000 | 27,500 | - | - | - | 27,500 |
Stock based compensation | - | - | - | - | - | - |
Net loss for the three-months ended September 30, 2019 | - | - | - | - | (166,488) | (166,488) |
Balance as of September 30 , 2019 | 542,208,029 | 49,753,394 | 29,337,721 | (221,860) | (85,323,376) | (6,454,121) |
Balance as of January 1, 2020 | 547,303,029 | $49,847,884 | $32,114,075 | $(221,860) | $(88,251,338) | $(6,511,239) |
Sale of common shares (and warrants) in private placements | 37,450,000 | 370,470 | - | - | - | 370,470 |
Issuance of common shares for services | 6,325,000 | 191,250 | - | - | - | 191,250 |
Stock based compensation | - | - | 537,859 | - | - | 537,859 |
Net loss for the nine-months ended September 30, 2020 | - | - | - | - | (1,268,929) | (1,268,929) |
Balance as of September 30 , 2020 | 591,078,029 | $50,409,604 | $32,651,934 | $(221,860) | $(89,520,267) | (6,680,589) |
Balance as of July 1, 2020 | 580,328,029 | $50,214,104 | $32,193,255 | $(221,860) | $(88,673,713) | $(6,488,214) |
Sale of common shares (and warrants) in private placements | 7,950,000 | 75,500 | - | - | - | 75,500 |
Issuance of common shares for services | 2,800,000 | 120,000 | - | - | - | 120,000 |
Stock based compensation | - | - | 458,679 | - | - | 458,679 |
Net loss for the three-months ended September 30, 2020 | - | - | - | - | (846,554) | (846,554) |
Balance as of September 30 , 2020 | 591,078,029 | $50,409,604 | $32,651,934 | $(221,860) | $(89,520,267) | (6,680,589) |
The accompanying notes are an intergral part of these consolidated financial statements
F-4
GENOIL INC.
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
(Unaudited)
For the Nine Months Ended | ||
September 30, | ||
2020 | 2019 | |
OPERATING ACTIVITIES | ||
Net income (loss) | $(1,268,929) | $(704,200) |
Adjustments to reconcile loss | ||
to cash flows from operating activities: | ||
Stock based compensation | 729,109 | 246,548 |
Changes in operating assets and liabilities | ||
Accrued interest payable | 292,178 | 253,387 |
Trade and other payables | 9,919 | - |
Net Cash Used in Operating Activities | (237,723) | (204,264) |
FINANCING ACTIVITIES | ||
Net change in related party receivables | (177,059) | (14,216) |
Net change in related party payables | 46,875 | 46,875 |
Cash received from equity investors | 370,470 | 171,500 |
Net cash provided by Financing Activities | 240,286 | 204,159 |
Increase (Decrease) in Cash | 2,563 | (105) |
Cash at beginning of year | 1,359 | 1,557 |
Cash at end of period | $3,922 | $1,452 |
Supplemental disclosure of cash flow information | ||
Interest Paid | - | - |
Income taxes paid | - | - |
Non - Cash financing activities: | ||
Satisfaction of amounts due to David Lifschultz and Bruce Abbott ($3,875,000). Reduction of amounts due from David Lifschultz and Bruce Abbott | $1,676,984 | $- |
Issuance of new convertible debentures to David Lifschultz and bruce Abbott | 2,198,016 | - |
Total satification of amounts due to David Lifschultz and Bruce Abbott | $3,875,000 | $- |
The accompanying notes are an intergral part of these consolidated financial statements
F-5
Genoil INC.
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
(Expressed in US Dollars)
(Unaudited)
1. REPORTING ENTITY AND GOING CONCERN
Genoil Inc. (“Genoil”) was incorporated under the Canada Business Corporations Act in September 1996. The consolidated financial statements of Genoil Inc. comprise Genoil Inc. and its subsidiaries, Genoil USA Inc., Genoil Emirates LLC (“Emirates LLC”) and Two Hills Environmental Inc. (“Two Hills”) (collectively the “Company”). The Company is a technology development company focused on providing innovative solutions to the oil and gas industry through the use of proprietary technologies. The Company’s business activities are primarily directed to the development and commercialization of its upgrader technology, which is designed to economically convert heavy crude oil into light synthetic crude. The Company is quoted on the OTC Markets under the symbol GNOLF. The Company’s registered address is care of Bennett Jones LLP, Suite 4500, 855 - 2nd Street SW, Calgary, Alberta.
These consolidated financial statements have been presented on a going concern basis. The Company reported net losses of $1,268,929 for the nine months ended September 30, 2020. The Company used funds in operating activities of $237,723 for the nine months ended September 30, 2020. The Company had a net working capital deficiency of $2,011,989 on September 30, 2020. The Company had a stockholder deficit of $6,680,589 on September 30, 2020. These factors indicate material uncertainties that cast substantial doubt about to the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on commercializing its technologies, achieving profitable operations and obtaining the necessary financing in order to develop these technologies further. The outcome of these matters cannot be predicted at this time. The Company will continue to review the prospects of raising additional debt and equity financing to support its operations until such time that its operations become self-sustaining, to fund its research and development activities and to ensure the realization of its assets and discharge of its liabilities. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for future operations.
The Company is not expected to be profitable during the ensuing twelve months and therefore must rely on securing additional funds from either issuance of debt or equity financing for cash consideration. During the nine months ended September 30, 2020 the Company received net proceeds of $370,470 pursuant to financing activities.
Management, utilizing close personal relationships, has been successful in raising capital through periodic private placements of the Company’s common shares. Although these shares are subject to a “hold” period on the United States stock markets, the investors’ confidence in the undertakings of management, with respect to future positive market performance of the Company’s common stock, permits this avenue of financing to exist. External sources of debt financing are not available to the Company due to its precarious financial position.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue its operations. Such adjustments could be material.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(a)
Principles of Consolidation:
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and incorporate the financial statements of Genoil and entities controlled by it. Control is achieved where Genoil has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
F-6
Genoil has the following subsidiaries:
●
Genoil USA Inc., incorporated in Delaware, United States, which is a wholly owned subsidiary of Genoil.
●
Genoil Emirates LLC, incorporated in the United Arab Emirates, which will focus upon the fields of oil and water processing and treatment in the United Arab Emirates. Genoil Emirates LLC is jointly owned by S.B.K. Commercial Business Group LLC and Genoil. As of September 30, 2020, Emirates LLC had not yet commenced operations and holds no assets.
●
Two Hills Environmental Inc., incorporated in Canada and registered in Alberta, which is a wholly owned subsidiary of Genoil. Two Hills was formed to enter into the oilfield waste disposal industry by capitalizing upon its current undeveloped asset base. The asset base comprises a site under which three salt caverns have been formed in the Lotsberg Formation beneath the earth's surface. Such caverns are used in the oilfield disposal industry as a destination for oilfield wastes.
The financial results of Genoil’s subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by Genoil.
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign currency translation
The reporting currency of the Company is the United Sates Dollar. The functional currency of Genoil and its subsidiaries is the United States Dollar. Transactions denominated in currencies other than the functional currency are translated at the exchange rates prevailing at the dates of the transactions. Exchange gains and losses are reflected in inco
(c) Use of estimates and judgments
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. By their nature, judgments, estimates and assumptions are subject to measurement uncertainty and changes in such judgments, estimates and assumptions in future periods could result in a material change in future financial statements. Actual results may differ from these estimates.
Judgment is used in situations where there is a choice or assessment required by management. Estimates and underlying assumptions are required on an ongoing basis and revisions are recognized in the year in which such estimates are revised.
(d) Cash and cash equivalents
The Company considers all short term investments with original maturities of three months or less to be cash equivalents.
(e) Stock-based compensation
The Company grants common stock, stock options, and Price Appreciation Certificates to employees, directors, and consultants for various services rendered to the company. Share-based payments to these individuals are measured at the fair value of the securities issued and amortized over the vesting periods. The amount recognized as a share-based payment expense during a reporting period is adjusted to reflect the number of awards expected to vest. The offset to this recorded cost is to contributed surplus. A forfeiture rate is estimated on the grant date and is subsequently adjusted to reflect the actual number of options that vest. At the time of exercise, the consideration and related contributed surplus recognized to the exercise date are credited to share capital.
(f) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
F-7
Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(g) Loss per share
Basic earnings (loss) per share is calculated by dividing the income (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as stock options and warrants. The calculation assumes the proceeds on exercise of options are used to repurchase shares at the current market price. All options and warrants are anti-dilutive when the Company is in a loss position.
(h) Recent accounting pronouncements:
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or operations.
3. DETERMINATION OF FAIR VALUES
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. The Company is required to classify fair value measurements using a hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy is as follows:
▪
Level 1 – quoted prices in active markets for identical assets or liabilities;
▪
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and,
▪
Level 3 – inputs for the asset or liability that are not based on observable market data.
Cash and cash equivalents have been measured using level 1 inputs.
The fair value of cash and cash equivalents, due from related parties, trade and other payables, accrued interest payable, convertible notes, and due to related parties approximates their carrying value due to their short term to maturity.
The fair values of stock options and Price Appreciation Certificates are measured using the Black-Scholes pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected forfeiture rate (based on historic forfeitures), expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate.
4. DUE FROM RELATED PARTIES
Due from related parties consist of:
September, 30 | December, 31 | |
Borrower | 2020 | 2019 |
Lifschultz Enterprise Company LLC (an entity controlled by David Lifschultz, Genoil chief executive officer, and Bruce Abbott, Genoil chief operating officer) | $175,700 | $100 |
David Lifschultz | - | 837,763 |
Bruce Abbott | - | 837,762 |
Totals | $175,700 | $1,675,625 |
F-8
On July 7, 2020, the Company agreed to satisfy a total of $3,875,000 then owed to David Lifschultz and Bruce Abbott through (1) Company reduction of a total of $1,676,984 of the Company’s receivable balances from David Lifschultz and Bruce Abbott (see above) and (2) Company issuance of new convertible debentures totaling $2,198,016 to David Lifschultz ($1,099,008) and Bruce Abbott ($1,099,008). (see Note 6)
The receivables are non-interest bearing and are due on demand.
5. ACCRUED INTEREST PAYABLE TO RELATED PARTIES
Accrued interest payable to related parties consist of:
September, 30 | December, 31 | |
Lender | 2020 | 2019 |
Lifeschultz Enterprise Company LLC | $1,197,855 | $1,062,943 |
Sidney B. Lifschultz 1992 Family Trust (an entity controlled by David Lifschultz) | 432,590 | 383,868 |
David Lifschultz | 222,107 | 167,835 |
Bruce Abbott | 222,098 | 167,826 |
Totals | $2,074,650 | $1,782,472 |
The accrued interest payable relates to the convertible notes outstanding (see Note 6).
6. CONVERTIBLE NOTES
Convertible notes consist of:
September, 30 | December, 31 | |
Lender | 2020 | 2019 |
Lifeschultz Enterprise Company LLC | $1,499,026 | $1,499,026 |
Sidney B. Lifschultz 1992 Family Trust | 541,353 | 541,353 |
David Lifschultz | 1,335,699 | 236,691 |
Bruce Abbott | 1,335,686 | 236,678 |
Totals | $4,711,764 | $2,513,748 |
On July 7, 2020, the Company agreed to satisfy a total of $3,875,000 then owed to David Lifschultz and Bruce Abbott through (1) Company reduction of a total of $1,676,984 of the Company’s receivable balances from David Lifschultz and Bruce Abbott (see Note 4) and (2) Company issuance of new convertible debentures totaling $2,198,016 to David Lifschultz ($1,099,008) and Bruce Abbott ($1,099,008).
The notes bear interest at 12% and their maturity was extended on April 27, 2020 to August 27, 2022. The notes are convertible into shares of Genoil common stock at a price of $0.01 per share ($0.015 per share prior to April 27, 2020).
7. DUE TO RELATED PARTIES
Due to related parties consist of:
September 30, | December 31, | |
Creditor | 2020 | 2019 |
Occupancy costs payable to Estate of Sidney B. Lifschultz (an entity controlled by David Lifschultz) for use of Larchmont New York property from 2003 to 2017 | $- | $3,750,000 |
Occupancy costs payable to Bruce Abbott and David Lifschultz for use of Mamaroneck New York property in 2018, 2019, and 2020 | 46,875 | 125,000 |
Totals | $46,875 | $3,875,000 |
F-9
The payables are non-interest bearing and are due on demand.
On July 3, 2020, the Estate of Sidney B. Lifschultz distributed its $3,750,000 receivable from the Company to David Lifschultz ($1,875,000) and Bruce Abbot ($1,875,000).
On July 7, 2020, the Company agreed to satisfy a total of $3,875,000 then owed to David Lifschultz and Bruce Abbott through (1) Company reduction of a total of $1,676,984 of the Company’s receivable balances from David Lifschultz and Bruce Abbott (see Note 4) and (2) Company issuance of new convertible debentures totaling $2,198,016 to David Lifschultz ($1,099,008) and Bruce Abbott ($1,099,008) (see Note 6).
8. SHARE CAPITAL
Preferred Stock
There are 10,000,000 shares of Class A Preferred Stock authorized but none are outstanding.
Common Stock
There are an unlimited number of shares of common stock, no par value, authorized to be issued.
During the first quarter of 2020, the Company sold a total of 20,950,000 shares of common stock (and warrants) in private placements for total proceeds of $209,480.
During the first quarter of 2020, the Company issued a total of 3,375,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $69,750.
During the second quarter of 2020, the Company sold a total of 8,550,000 shares of common stock (and warrants) in private placements for total proceeds of $85,490.
During the second quarter of 2020, the Company issued a total of 150,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $1,500.
During the third quarter of 2020, the Company sold a total of 7,950,000 shares of common stock (and warrants) in private placements for total proceeds of $75,000.
During the third quarter of 2020, the Company issued a total of 2,800,000 shares of common stock as compensation for services. The fair value of the shares issued (at dates of issuance) totaled $120,000
Warrants
In conjunction with the private placements, the Company issued warrants to purchase common stock. The following is a summary of the warrants activity for the period December 31,2018 to September 30, 2020.
Number outstanding at December 31, 2018 | 79,282,171 |
Granted | 8,836,667 |
Cancelled | - |
Number outstanding at December 31, 2019 | 88,118,838 |
Granted | 37,450,000 |
Cancelled | - |
Number outstanding at September 30, 2020 | 125,568,838 |
At September 30, 2020, the 125,568,838 warrants outstanding had a weighted average exercise price of $0.05 per share, a weighted average remaining contractual life of 2.31 years, and an aggregate intrinsic value of $0.
F-10
9. STOCK-BASED COMPENSATION
Stock-based compensation consists of:
For the Nine Months Ended | September, 30 | September, 30 |
Type of Security | 2020 | 2019 |
Price Appreciation Certificates | $398,591 | $- |
Options issued to outside directors and consultants | 139,268 | 128,001 |
Common stock issued for services | 191,250 | 118,547 |
Totals | $729,109 | $246,548 |
For the Three Months Ended | September, 30 | September, 30 |
Type of Security | 2020 | 2019 |
Price Appreciation Certificates | $398,591 | $- |
Options issued to outside directors and consultants | 60,088 | - |
Common stock issued for services | 120,000 | 27,500 |
Totals | $578,679 | $27,500 |
The following is a summary of the compensatory securities activity for the period December 31, 2018 to September 30, 2020:
Common stock equivalent | Price Appreciation Certificates | Options | Total |
Number outstanding at December 31, 2018 | 362,400,000 | 33,140,000 | 395,540,000 |
Granted | 123,700,000 | 22,950,000 | 146,650,000 |
Cancelled | - | - | - |
Number outstanding at December 31, 2019 | 486,100,000 | 56,090,000 | 542,190,000 |
Granted | 20,000,000 | 9,500,000 | 29,500,000 |
Cancelled | (68,700,000) | (4,100,000) | (72,800,000) |
Number outstanding at September 30, 2020 | 437,400,000 | 61,490,000 | 498,890,000 |
PRICE APPRECIATION CERTIFICATES
In lieu of compensation the Company has entered into agreements (“Price Appreciation Certificates”) with David Lifschultz and Bruce Abbott whereby, at the request of the executives, the Company agrees to pay the equivalent sum of the rise in the Company’s stock price based on the agreed upon number of shares, from a fixed per share amount to the average of the last 10 trading days (volume weighted average price).
The number of shares reflect a potential salary for the two executives that only exist if the price of the shares rise above the price appreciation base amount. The Company has no obligation to pay the two executives if the stock does not rise. The Company, at its exclusive option and benefit, can proceed with a private placement at the share price on the date of exercise and the executive will subscribe to this private placement for the entire sum advanced by the Company.
The Company accounts for these Price Appreciation Certificates as an equity instrument due to its exclusive option to require a subscription to the private placement as determined by the fair value of the instruments using a Black-Scholes pricing model.
At December 31, 2019 the 486,100,000 Price Appreciation Certificates outstanding had a weighted average exercise price of $0.04 per share, a weighted average remaining contractual life of 2.84 years, and an aggregate intrinsic value of $0.
At September 30, 2020 the 437,400,000 Price Appreciation Certificates outstanding had a weighted average exercise price of $0.04 per share, a weighted average remaining contractual life of 2.41 years, and an aggregate intrinsic value of $0.
F-11
OPTIONS
The Company has a stock option plan for directors, officers, employees and consultants. The term and vesting conditions of each option may be fixed by the Board of Directors when the option is granted, but the term cannot exceed 10 years. The maximum number of shares that may be reserved for issuance under the plan is fixed at 69,819,579. The maximum number of shares that may be optioned to any one person is 5% of the shares outstanding at the date of the grant. The options issued during the nine months ended September 30, 2020 all vested immediately.
The fair value of stock options granted during 2020 was estimated on the dates of grant using the Black-Scholes pricing model based on the following assumptions:
2020 | |
Volatility | 228.0-260.7% |
Expected life | 5 years |
Risk-free rate | 0.29-0.66% |
Dividend yield | - |
Forfeiture rate | 0% |
Stock Price at Valuation | 0.01-0.02 |
Exercise Price | $0.01 |
At December 31, 2019, the 56,090,000 stock options outstanding had a weighted average exercise price of $0.06 per share, a weighted average remaining contractual life of 2.68 years, and an aggregate intrinsic value of $0.
At September 30, 2020, the 61,490,000 stock options outstanding had a weighted average exercise price of $0.05 per share, a weighted average remaining contractual life of 2.56 years, and an aggregate intrinsic value of $0.
10. INCOME TAXES
Based on management’s present assessment, the Company has not yet determined that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of September 30, 2020 will be realized. Accordingly, the Company has maintained a 100% valuation allowance against the deferred tax asset in the financial statements at September 30, 2020. The Company will continue to review this valuation allowance and make adjustments as appropriate.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
All tax years remain subject to examination by major taxing jurisdictions.
11. COMMITMENTS AND CONTINGENCIES
From 2003 to 2017, the Company used a residential property in Larchmont New York owned by the Estate of Sidney B. Lifschultz (an entity controlled by CEO David Lifschultz) for office and marketing purposes. The agreed rental amount for such use was $250,000 per year, or a total of $3,750,000 for the 15 years. The $3,750,000 was unpaid and included in “Due to Related Parties” at December 31,2019 (see Note 7). On July 3, 2020, the Estate of Sidney B. Lifschultz distributed its $3,750,000 receivable from the Company to David Lifschultz ($1,875,000) and Bruce Abbot ($1,875,000).
On July 7, 2020, the Company agreed to satisfy a total of $3,875,000 then owed to David Lifschultz and Bruce Abbott through (1) Company reduction of a total of $1,676,984 of the Company’s receivable balances from David Lifschultz and Bruce Abbott (see Note 4) and (2) Company issuance of new convertible debentures totaling $2,198,016 to David Lifschultz ($1,099,008) and Bruce Abbott ($1,099,008) (see Note 6).
From January 1, 2018 to September 30, 2020 (and continuing), the Company used a residential property in Mamaroneck New York paid by COO Bruce Abbott and CEO David Lifschultz for office and marketing purposes. The agreed rental amount for such use is $62,500 per year, or a total of $171,875 for the 11 quarters. As of September 30, 2020, $46,875 is unpaid and included in “Due to Related Parties” (see Note 7).
12. SUBSEQUENT EVENTS
On October 13, 2020, the Company sold a total of 1,500,000 shares of common stock (and warrants) in private placements for total proceeds of $15,000.
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