| UNITED STATES | |
| SECURITIES AND EXCHANGE COMMISSION | |
| Washington, D.C. 20549 | |
| _____________________ | |
| FORM 10-Q | |
| (Mark One) | |
| X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2012 | |
| OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from __________ to __________ | |
| Commission file number 000-54018 | |
| ______________________ | |
| GREEN ENDEAVORS, INC. | |
| (Exact Name of Registrant as Specified in Its Charter) | |
| ______________________ | |
| Utah | 27-3270121 |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
59 W 100 S, 2nd Floor, Salt Lake City, UT | 84101 |
| (Address of Principal Executive Offices) | (Zip Code) |
| (801) 575-8073 | |
| Registrant’s Telephone Number, including Area Code | |
| ______________________ | |
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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No | |
| 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. (Check one): | |
Smaller reporting company X | Non-accelerated filer |
| (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X | |
| On April 2, 2013, approximately 4,453,039,148 shares of the registrant’s common stock, $0.001 par value, were outstanding. | |
| INDEX | |||
| PAGE | |||
| PART I. | FINANCIAL INFORMATION | ||
| PART II. | OTHER INFORMATION | ||
| Item 1. Condensed Consolidated Financial Statements |
| Condensed Consolidated Statements of Operations | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | |||||||||||||
| Revenue: | ||||||||||||||||
| Services, net of discounts | $ | 582,206 | $ | 549,357 | $ | 1,720,496 | $ | 1,567,357 | ||||||||
| Product, net of discounts | 198,391 | 158,406 | 552,770 | 490,798 | ||||||||||||
| Total revenue | 780,597 | 707,763 | 2,273,266 | 2,058,155 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| 345,870 | 248,329 | 1,004,640 | 856,794 | |||||||||||||
| Cost of product | 118,503 | 74,743 | 303,451 | 252,024 | ||||||||||||
| Depreciation | 32,977 | 22,330 | 90,512 | 69,644 | ||||||||||||
| General and administrative | 367,573 | 252,969 | 1,059,932 | 764,467 | ||||||||||||
| Total costs and expenses | 864,923 | 598,371 | 2,458,535 | 1,942,929 | ||||||||||||
| Income (loss) from operations | (84,326 | ) | 109,392 | (185,269 | ) | 115,226 | ||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income | 204 | - | 609 | - | ||||||||||||
| Interest expense | (77,731 | ) | (67,190 | ) | (195,890 | ) | (148,569 | ) | ||||||||
| Interest expense, related parties | (52,028 | ) | (49,049 | ) | (155,047 | ) | (146,324 | ) | ||||||||
| 54,631 | 18,493 | 57,532 | 28,359 | |||||||||||||
| Other income (expense) | 19,212 | 3,312 | (49,239 | ) | (2,827 | ) | ||||||||||
| Total other expenses | (55,712 | ) | (94,434 | ) | (342,035 | ) | (269,361 | ) | ||||||||
| Net income (loss) | $ | (140,038 | ) | $ | 14,958 | $ | (527,304 | ) | $ | (154,135 | ) | |||||
| Net income (loss) per common share – basic and diluted | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | |||||
| Weighted average common shares outstanding – basic and diluted | 3,802,164,973 | 454,348,797 | 2,261,177,900 | 449,125,246 | ||||||||||||
| The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||||||||||
Green Endeavors, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (Unaudited) | ||||||||
| Nine Months Ended | ||||||||
| September 30, 2012 | September 30, 2011 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (527,304 | ) | $ | (154,135 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | 90,512 | 69,644 | ||||||
| Debt discount amortization | 99,521 | 74,575 | ||||||
| Interest expense on value of derivatives | 50,127 | 37,995 | ||||||
| Stock-based compensation | 71,774 | - | ||||||
| Loss contingency | 52,997 | - | ||||||
| Non-cash professional fees from issuance of convertible note | 75,000 | - | ||||||
| Gain on derivative liability fair value adjustment | (57,532 | ) | (28,359 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (16,954 | ) | - | |||||
| Inventory | (22,152 | ) | (25,279 | ) | ||||
| Prepaid expenses | 5,459 | 2,985 | ||||||
| Other assets | (17,311 | ) | 5,316 | |||||
| Accounts payable and accrued expenses | 311,556 | (4,684 | ) | |||||
| 83,191 | (759 | ) | ||||||
| Deferred revenue | (6,348 | ) | 3,672 | |||||
| Net cash provided by (used in) operating activities | 192,536 | (19,029 | ) | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property, plant, and equipment | (198,300 | ) | (12,042 | ) | ||||
| Net cash used in investing activities | (198,300 | ) | (12,042 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments made on notes payable | (25,379 | ) | (145,988 | ) | ||||
| Payments made on related party notes payable | (104,644 | ) | - | |||||
| Payments made on capital lease obligations | (4,509 | ) | - | |||||
| Proceeds from issuance of notes payable | 100,176 | 132,500 | ||||||
| Proceeds from issuance of convertible notes payable | 62,500 | - | ||||||
| Proceeds from exercising of stock options | 23,985 | - | ||||||
| Proceeds from issuance of preferred stock | - | 65,000 | ||||||
| Net cash provided by financing activities | 52,129 | 51,512 | ||||||
| Increase in cash | 46,365 | 20,441 | ||||||
| Cash at beginning of period | 97,983 | 67,593 | ||||||
| Cash at end of period | $ | 144,348 | $ | 88,034 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 15,340 | $ | 5,955 | ||||
| Non-cash investing and financing activities: | ||||||||
| Reduction of convertible debt due to conversions | $ | 93,000 | $ | - | ||||
| Equipment purchased under capital lease | $ | 70,056 | $ | - | ||||
| Debt discount on derivative liability, convertible notes | $ | 77,500 | $ | 170,495 | ||||
| Related party exchange of receivable and payable | $ | 105,000 | $ | - | ||||
| Conversion of series B preferred shares to common stock | $ | 621,714 | $ | - | ||||
| Debt discount on convertible note | $ | 32,143 | $ | - | ||||
| Cancelation of Series B stock used as collateral | $ | 250,000 | $ | - | ||||
| Cashless exercise of stock options | $ | 153,894 | $ | - | ||||
| Account payable conversion to note payable | $ | 15,000 | $ | - | ||||
| Conversion of related party debt to supervoting preferred stock | $ | 144,558 | $ | - | ||||
| Conversion of related party debt to common stock | $ | 2,105,263 | $ | - | ||||
| The accompanying notes are an integral part of these condensed consolidated financial Statements. | ||||||||
Notes to Condensed Consolidated Financial Statements
September 30, 2012 (Unaudited)
Note 1 – Organization and Basis of Financial Statement Presentation
Business Description
Green Endeavors, Inc., (“Green”) owns and operates two hair salons carrying the Aveda™ product line through its wholly-owned subsidiaries Landis Salons, Inc. (“Landis”) and Landis Salons II, Inc. (“Landis II”) in Salt Lake City, Utah. Green also owns and operates Landis Experience Center LLC (“LEC”), an Aveda retail store in Salt Lake City, Utah.
Organization
Green Endeavors, Inc. was incorporated under the laws of the State of Delaware on April 25, 2002 as Jasper Holdings.com, Inc. During the year ended December 2004, Green changed its name to Net2Auction, Inc. In July of 2007, Green changed its name to Green Endeavors, Ltd. On August 23, 2010, Green changed its name to Green Endeavors, Inc. and moved the corporate domicile from Delaware to Utah. Green has four classes of stock as follows: common with 10,000,000,000 shares authorized; preferred with 3,000,000 shares authorized; convertible preferred with 2,000,000 shares authorized; and, convertible supervoting preferred with 10,000,000 shares authorized. Green is quoted on the Pink Sheets as an OTCQB issuer under the symbol GRNE.
Green is a more than 50% controlled subsidiary of Nexia Holdings, Inc. (“Nexia”). Nexia is quoted on the Pink Sheets under the symbol NXHD and is not currently a reporting company.
Landis Salons, Inc., a Utah corporation, was organized on May 4, 2005 for the purpose of operating an Aveda Lifestyle Salon. Landis Salons, Inc. is a wholly-owned subsidiary of Green.
Landis Salons II, Inc., a Utah corporation was organized on March 17, 2010 as a wholly-owned subsidiary of Green for the purpose of opening a second Aveda Lifestyle Salon.
Landis Experience Center, LLC (“LEC”), a Utah limited liability company, was organized on January 23, 2012 as a wholly-owned subsidiary of Green for the purpose of operating an Aveda retail store in the City Creek Mall in Salt Lake City, Utah. LEC opened its doors August 16, 2012.
Basis of Financial Statement Presentation
The condensed consolidated financial statements include the accounts of Green and its subsidiaries after elimination of intercompany accounts and transactions. All consolidated subsidiaries are wholly-owned by Green.
In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included. These condensed consolidated financial statements are unaudited. They should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2011 as filed with the SEC. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that can be expected for the year ending December 31, 2012.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates 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 the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying values of all financial instruments are deemed to approximate fair value due to the short maturity of these instruments and interest rates that approximate current market rates.
Cash and Cash Equivalents
Investments with original maturities of three months or less at the time of purchase are considered cash equivalents. As of September 30, 2012 and December 31, 2011, Green had no cash equivalents.
Inventory
Inventory consists of items held for resale and is carried at the lower of cost or market. Cost is determined using the first in, first out (“FIFO”) method.
Property, Plant, and Equipment
Property, plant, and equipment is stated at historical cost. Depreciation is generally provided over the estimated useful lives, using the straight-line method, as follows:
| Leasehold improvements | Shorter of the lease term or the estimated useful life |
| Computer equipment and related software | 3 years |
| Furniture and fixtures | 3-10 years |
| Equipment | 3-10 years |
| Vehicle | 7 years |
| Signage | 10 years |
For the three month periods ended September 30, 2012 and 2011, Green recorded depreciation expense of $32,977 and $22,330, respectively. For the nine month periods ended September 30, 2012 and 3011, Green recorded depreciation expense of $90,512 and $69,644, respectively.
The following is a summary of Green’s Property, plant, and equipment by major category as of September 30, 2012:
| Cost | Accumulated depreciation | Net | ||||||||||
| $ | 26,361 | $ | 15,099 | $ | 11,262 | |||||||
| Leasehold improvements | 624,155 | 243,680 | 380,475 | |||||||||
| Furniture and fixtures | 25,347 | 15,387 | 9,960 | |||||||||
| Equipment | 282,161 | 136,935 | 145,226 | |||||||||
| Vehicle | 48,193 | 17,212 | 30,981 | |||||||||
| Signage | 25,154 | 5,122 | 20,032 | |||||||||
| Total | $ | 1,031,371 | $ | 433,435 | $ | 597,936 | ||||||
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
The following is a summary of Green’s Property, plant, and equipment by major category as of December 31, 2011:
| Cost | Accumulated depreciation | Net | ||||||||||
| Computer equipment and related software | $ | 18,992 | $ | 11,733 | $ | 7,259 | ||||||
| Leasehold improvements | 443,579 | 204,377 | 239,202 | |||||||||
| Furniture and fixtures | 21,504 | 11,652 | 9,852 | |||||||||
| Equipment | 205,593 | 107,431 | 98,162 | |||||||||
| Vehicle | 48,193 | 4,590 | 43,603 | |||||||||
| Signage | 25,154 | 3,139 | 22,015 | |||||||||
| Total | $ | 763,015 | $ | 342,922 | $ | 420,093 | ||||||
Series B Preferred Stock
Each share of Green’s Series B Preferred Stock has one vote per share and is convertible into $5.00 worth of common stock. The number of common shares received is based on the average market price for the five days before conversion notice date by the shareholder. Series B Preferred Stock shareholders, at the option of Green, can receive cash or common stock upon conversion. The Preferred Stock is classified as equity as long as there are sufficient shares available to effect the conversion. In some instances certain contracts may pass the option to receive cash or common stock to the shareholder. In this case, it is assumed that a cash settlement will occur and balance sheet classification of the affected Preferred Stock and related preferred paid-in capital as a liability.
Deferred Revenue
Deferred revenue arises when customers pay for products and/or services in advance of revenue recognition. Green’s deferred revenue consists solely of unearned revenue associated with the purchase of gift certificates for which revenue is recognized only when the service is performed or the product is delivered.
Revenue Recognition
Revenue is recognized at the time the service is performed or the product is delivered.
Stock-Based Compensation
Green recognizes the cost of employee services received in exchange for awards of equity instruments as stock-based compensation expense. Stock-based compensation expense is measured at the grant date based on the fair value of the restricted stock award, option, or purchase right and is recognized as expense, less expected forfeitures, over the requisite service period, which typically equals the vesting period. Because the employee is expected to and has historically received shares of common stock on or about the date of the employee stock option grant date as part of the exercise process, the fair value of each stock issuance is determined using the fair value of Green’s common stock on the grant date.
During the nine month period ended September 30, 2012, Green issued 146,000,000 shares of common stock to four employees for services with a fair value of $71,774. There was no stock based compensation for the nine month period ended September 30, 2011. See Note 9 to these financial statements for additional disclosures regarding the Company’s stock-based compensation.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the nine months ended September 30, 2012, potential common shares are not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 23,216,120,134 such potentially dilutive shares excluded as of September 30, 2012.
Reclassification of Financial Statement Accounts
Certain amounts in the December 31, 2011 financial statements have been reclassified to conform to the presentation in the September 30, 2012 financial statements.
Recent Accounting Pronouncements
Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on Green’s consolidated financial position, results of operations or cash flows upon adoption.
Note 3 – Inventory
Green’s inventory consists of items held for resale and product that is used in services by the Landis and Landis II salons. Inventory is carried at the lower of cost or market. As of September 30, 2012 and December 31, 2011, inventory amounted to $131,622 and $109,470, respectively.
Note 4 – Other Assets
The following table shows other assets as of September 30, 2012 and December 31, 2011:
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Green Series B Preferred shares pledged as collateral for the Landis II facility lease (1) | $ | - | $ | 250,000 | ||||
| Note receivable pledged as collateral for the Landis II facility lease (2) | - | 105,000 | ||||||
| Lease and utility deposits | 38,126 | 21,403 | ||||||
| Certificate of deposit (3) | 26,814 | 26,226 | ||||||
| Total other assets | $ | 64,940 | $ | 402,629 | ||||
| (1) | On July 9, 2010, the Board of Directors approved the issuance of 50,000 shares of restricted Series B Preferred shares to Landis Salons II, Inc., a subsidiary of Green, to be used as collateral for a lease entered into by Landis Salons II to serve as the location for a new Landis Lifestyle Salon. These shares were then assigned to the landlord of Landis II as a security deposit with a related value of $250,000. On September 28, 2012, the landlord returned the shares back to Landis II and terminated the requirements of the Stock Pledge Agreement. As of September 30, 2012, the shares have been cancelled and are no longer considered issued and outstanding. |
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 4 – Other Assets (continued)
| (2) | On July 12, 2010, Landis Salons II, Inc. issued a promissory note in the principal amount of $105,000 payable to Wasatch Capital Corporation, a subsidiary of Nexia. Principal and interest, accruing at the rate of 5% per year, will be due on or before November 10, 2018. The note was issued to Wasatch in consideration of Wasatch assigning its interest in a trust deed note in the amount of $105,000 and has been recorded as a note receivable. Landis II then pledged as collateral the trust deed note as a material inducement for Landis II to be able to enter into a lease agreement for the opening of a salon in Salt Lake City. On September 28, 2012, the landlord terminated and canceled the Note Pledge Agreement and released its interest in the trust deed note back to Landis II. As of September 30, 2012 and December 31, 2011, there was $11,661 and $7,724 of accrued interest on the promissory note, respectively. |
| (3) | The certificate of deposit is considered restricted because it is collateral for the June 18, 2010, note payable to the Division of Economic Development of Salt Lake City Corporation as shown in Note 7 below. |
Note 5 – Derivative Liability
As of September 30, 2012 the Company had a $186,504 derivative liability balance on the balance sheet, and for the nine months ended September 30. 2012, the Company recorded a $57,532 gain from derivative liability fair value adjustment. The derivative liability activity comes from convertible notes payable as follows:
Asher Enterprises, Inc.
As discussed in Note 7 – “Notes Payable”, during 2011 and 2012, Green issued an aggregate of $197,500 Convertible Promissory Notes to Asher Enterprises, Inc. (“Asher Notes”) that mature from January 9, 2012 to November 6, 2012. The Asher Notes bear interest at a rate of 8% per annum and can be convertible into Green’s common shares, at the holder’s option, at the conversion rates of 56% to 61% discount to the market price of the lowest three trading prices of Green’s common shares during the ten-day period ending one trading day prior to the date of the conversion. Green analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the Asher Notes is carried on Green’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. Green fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception dates of the Asher Notes was $269,507. Of the total, $197,500 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $72,007 was charged to operations as non-cash interest expense. The fair value of $269,507 was recorded as a derivative liability on the balance sheet.
The debt discount for the Asher Notes is amortized over the life of the notes (approximately nine months each). On September 30, 2012, Green marked-to-market the fair value of the derivative liabilities related to the Asher Notes and determined an aggregate fair value of $115,936 and recorded a $64,464 gain from change in fair value of derivatives for the nine months ended September 30, 2012. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 463%, (3) risk-free interest rate of 0.06%, (4) expected life of 0.1 to 0.3 of a year, and (5) estimated fair value of Green’s common stock of $0.00005 to $.00008 per share.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 5 – Derivative Liability (continued)
Eastshore Enterprises, Inc.
As discussed in Note 7 – “Notes Payable”, on August 17, 2012, Green issued a $35,000 Convertible Promissory Note to Eastshore Enterprises, Inc. (“Eastshore Note”) that matures August 17, 2014. The Eastshore Note bears interest at a rate of 8% per annum and can be convertible into Green’s common shares, at the holder’s option, at the conversion rates of 54% discount to the market price of the lowest trading price of Green’s common shares during the ten-day period ending one trading day prior to the date of the conversion. Green analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the Eastshore Note is carried on Green’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. Green fair values the embedded derivative using the Black-Scholes option pricing model. The fair value of the derivative at the inception date of the Eastshore Note was $63,636. Of the total, $35,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the note. $28,636 was charged to operations as non-cash interest expense. The fair value of $63,636 was recorded as a derivative liability on the balance sheet.
The debt discount for the Eastshore Note is amortized over the life of the note (approximately two year). On September 30, 2012, Green marked-to-market the fair value of the derivative liabilities related to the Eastshore Note and determined an aggregate fair value of $70,568 and recorded a $6,932 loss from change in fair value of derivative for the nine months ended September 30, 2012. The fair value of the embedded derivative for the note was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 463%, (3) risk-free interest rate of 0.23%, (4) expected life of 1.9 years, and (5) estimated fair value of Green’s common stock of $0.0001 per share.
Note 6 – Related Party Transactions
On April 30, 2008, Green entered into a stock transfer agreement with its parent company Nexia and Nexia’s wholly-owned subsidiary DHI whereby they would each sell their holdings in Landis and Newby in exchange for an 8% Series A Senior Subordinated Convertible Debenture with a face amount of $3,000,000. Interest on the debenture commenced on December 30, 2008. DHI has the option, at any time, to convert all or any amount over $10,000 of principal face amount and accrued interest into shares of Common stock, $0.001 par value per share, at a conversion price equal to 95% of the average closing bid price of the Common stock three days prior to the date notice is received by Green. Green determined that there is a beneficial conversion feature for the debt and recorded a debt discount of $150,000 on April 30, 2008, which is being amortized for 10 years to the maturity date of the debenture. In December 2009, Nexia converted $125,000 of the debenture into common stock of Green and during 2010 Green paid $15,200 of principal on the debenture. During 2010, Nexia sold $500,000 of its holdings of the debenture to unrelated parties for cash thus leaving the related and unrelated party portions of the debenture at $2,359,800 and $500,000, respectively for a total amount of $2,859,800. As of September 30, 2012 and December 31, 2011, the entire amount is considered long-term. The following table shows the related and unrelated party amounts of the debenture and their respective amortized debt discount amounts:
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 6 – Related Party Transactions (continued)
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Convertible Debenture - Related Party | ||||||||
| Principal amount | $ | 2,359,800 | $ | 2,359,800 | ||||
| Debt discount | (69,915 | ) | (79,307 | ) | ||||
| Convertible debenture, net of debt discount | $ | 2,289,885 | $ | 2,280,493 | ||||
| Convertible Debenture - Unrelated Party | ||||||||
| Principal amount | $ | 500,000 | $ | 500,000 | ||||
| Debt discount | (13,983 | ) | (15,861 | ) | ||||
| Convertible debenture, net of debt discount | $ | 486,017 | $ | 484,139 | ||||
| Convertible Debenture - Totals | ||||||||
| Principal amount | $ | 2,859,800 | $ | 2,859,800 | ||||
| Debt discount | (83,898 | ) | 95,168 | |||||
| Convertible debenture, net of debt discount | $ | 2,775,902 | $ | 2,764,632 | ||||
The following table summarizes the related party amounts of principal and accrued interest on the Convertible Debentures as of September 30, 2012 and December 31, 2011:
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Principal balance | $ | 2,359,800 | $ | 2,359,800 | ||||
| Accrued interest | 119,621 | 627,106 | ||||||
| Total | $ | 2,479,421 | $ | 2,986,906 | ||||
As of September 30, 2012 and December 31, 2011, amounts due to related parties are $279,986 and $845,997, respectively. The $279,986 consists of $119,621 of accrued interest from the convertible debenture as shown in the table above and $160,365 from various amounts owed to Nexia and its subsidiaries. The $845,997 consists of $627,106 of accrued interest from the convertible debenture as shown in the table above and $218,891 from various amounts owed to Nexia and its subsidiaries.
On January 6, 2011, the Board of Directors approved the conversion of 12,866 Series B Preferred shares into 12,866,000 shares of Common stock for Richard Surber, President, CEO and Director of Green. The shares were converted at $0.005 per share which was the quoted closing price on the date the conversion letter was received from Mr. Surber.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 6 – Related Party Transactions (continued)
On April 27, 2012, Nexia Holdings Inc., converted $144,558 of debt into 4,150,000 shares of convertible preferred supervoting stock of the Company. The transaction was valued at $144,558 as per the conversion provisions of the convertible debt. The shares were issued with a restrictive legend to Nexia, the parent corporation of the Company. The issuance of the shares took place on May 4, 2012. The issuance results in Nexia holding 100% of the 10 million shares of Supervoting Preferred Stock authorized for the Company, resulting in Nexia holding 1 billion votes in any shareholder action. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.
On May 23, 2012, Nexia Holdings Inc., converted $400,000 of debt into 2,105,263,158 shares of common stock. The transaction was valued at $400,000 as per the conversion provisions of the convertible debt. The shares were issued with a restrictive legend to Nexia, the parent corporation of the Company. The issuance of the shares took place on May 24, 2012. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.
On May 25, 2012, the Company and its parent company, Nexia Holdings, Inc., entered into a Security Agreement with Richard Surber, CEO of the Company. Mr. Surber has potential exposure created due to his serving as a guarantor of numerous debts and obligations of the Company and of Nexia, and the Company and Nexia have amounts owed to Mr. Surber personally. The total amount of these personal guarantees obligations owed to Mr. Surber is estimated to exceed $1.7 million. The Security Agreement provides that Mr. Surber is secured by assets of the Company, including the ownership of shares in the subsidiaries of the Company, to secure these debts and obligations of the Company that are owed to Mr. Surber.
On June 5, 2012, Green entered into a secured agreement with Richard Surber, President, CEO and Director of Green, to provide him a record lien (UCC-1 file number 413621201234, Utah) on certain assets of the company for the debts and obligations of the company for which Mr. Surber is providing a personal guaranty to lenders of the Company. The assets included in the secured interest include: all inventory, equipment fixtures, stock ownership, including but not limited to the shares held by Green Endeavors Inc. in Landis Salons, Inc., Landis Salons II, Inc., Landis Salons III, Inc. and ownership rights in Landis Experience Center LLC and any other intangible property and all tangible personal property held by, granted to or owned by Green or that is later acquired by Green subject only to purchase money liens held by sellers or grantor. Subsequent to September 30, 2012, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
During the nine months ended September 30, 2012, the Company reduced accounts payable and accrued expenses due to related parties from $218,891 to $160,365.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 7 – Notes Payable
A summary of notes payable and capital leases payable as of September 30, 2012 and December 31, 2011 is as follows:
| Interest | Maturity | September 30, | December 31, | |||||||||||
| Creditor | Rate | Date | 2012 | 2011 | ||||||||||
| Xing Investment Corp. (1) | 10.00 | % | 5/12/2008 | $ | 171,000 | $ | 171,000 | |||||||
| Chase Bank (3) | 7.24 | % | 2/13/2015 | - | 28,463 | |||||||||
| Salt Lake City Corporation (4) | 3.25 | % | 6/18/2015 | 58,650 | 73,294 | |||||||||
| William and Nina Wolfson (5) | 11.00 | % | 2/2/2016 | 44,944 | - | |||||||||
| Castleton Equipment (7) | 16.96 | % | 4/23/2016 | 49,206 | - | |||||||||
| Time Payment Corp (8) | 17.75 | % | 9/5/2016 | 16,341 | - | |||||||||
| Cyprus Credit Union (9) | 2.69 | % | 12/5/2014 | 22,959 | - | |||||||||
| Salt Lake City Corporation (10) | 5.00 | % | 9/1/2017 | 50,000 | - | |||||||||
| Total | 413,100 | 272,757 | ||||||||||||
| Less: Current portion | (235,300 | ) | (200,629 | ) | ||||||||||
| Long-term portion | $ | 177,800 | $ | 72,128 | ||||||||||
A summary of convertible notes payable as of September 30, 2012 and December 31, 2011 is as follows:
| Interest | Maturity | September 30, | December 31, | |||||||||||
| Creditor | Rate | Date | 2012 | 2011 | ||||||||||
| Asher Enterprises, Inc. (2)* | 22.00 | % | 1/9/2012 | $ | - | $ | 60,500 | |||||||
| Asher Enterprises, Inc. (2)* | 22.00 | % | 3/16/2012 | 3,000 | 32,500 | |||||||||
| Asher Enterprises, Inc. (2)* | 22.00 | % | 4/25/2012 | 25,000 | 25,000 | |||||||||
| Asher Enterprises, Inc. (2)* | 22.00 | % | 9/12/2012 | 22,500 | 22,500 | |||||||||
| Asher Enterprises, Inc. (2)* | 8.00 | % | 11/6/2012 | 42,500 | - | |||||||||
| Southridge Partners II, LP (11) | 0 | % | 2/28/2013 | 75,000 | - | |||||||||
| Eastshore Enterprises, Inc. (12) | 8.00 | % | 8/17/2014 | 35,000 | - | |||||||||
| Debt discount - convertible notes, net | (63,185 | ) | (41,793 | ) | ||||||||||
| Total, net | 139,815 | 98,707 | ||||||||||||
| Less: Current portion | (137,705 | ) | (98,707 | ) | ||||||||||
| Long-term portion | $ | 2,110 | $ | - | ||||||||||
| * | For all Asher notes payable, the interest rate increases from 8% to 22% after the maturity date. | |||||||||||||
A summary of the related party note payable as of September 30, 2012 and December 31, 2011 is as follows:
| Interest | Maturity | September 30, | December 31, | ||||||||||
| Creditor | Rate | Date | 2012 | 2011 | |||||||||
| Wasatch Capital Corp. (related party) (6) | 5.00 | % | 11/10/2018 | $ | - | $ | 105,000 | ||||||
| Total, net | - | 105,000 | |||||||||||
| Less: Current portion | - | - | |||||||||||
| Long-term portion | $ | - | $ | 105,000 | |||||||||
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 7 – Notes Payable (continued)
| (1) | On May 12, 2006, Green borrowed $171,000 from Xing Investment Corp with a convertible promissory note. The note is interest bearing at 10% per annum with no interest due until the note maturity date of May 12, 2008. Both principal and accrued interest, at the option of the note holder, may be converted into Common stock of Green at $0.01 per share. The note was not liquidated at the maturity date and is currently in default. No payments have been made on the obligation because Green is unable to locate Xing Investment Corp. or its representatives. As of September 30, 2012 and December 31, 2011, accrued interest reported in accounts payable and accrued expenses was $34,200. |
| (2) | During the period from April 5, 2011 through February 2, 2012, Green has issued a series of convertible promissory notes with an aggregate face amount of $197,500 to Asher Enterprises, Inc. that mature from January 9, 2012 to November 6, 2012. The transactions have been handled as a private sale exempt from registration under Rule 506 of the Securities Act of 1933. The notes mature in approximately 270 days from issuance and bear interest at a rate of 8% per annum. At the holder’s option, the notes can be converted into Green’s common shares at the conversion rates of 56% to 61% discount to the market price of the lowest three trading prices of Green’s common shares during the ten-day period ending one trading day prior to the date of the conversion. Upon maturity of a given note, the interest rate increases to 22%. As of September 30, 2012 $107,500 of principal and interest on the notes had been converted into 772,615,443 shares of common stock. As of September 30, 2012, the notes are considered in default. Accordingly, a loss contingency of $52,997 has been recorded, which is calculated by multiplying the September 30, 2012 principal balance on the notes of $93,000 plus $12,993 in accrued interest ($105,993 combined) by 50% per the terms of the notes thus bringing the amount owed to Asher as of September 30, 2012 $158,989. The Company is working on a cure for the default. The exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. As a result, the Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability (see Note 5). |
| (3) | On January 6, 2010, Landis Salons, Inc. received a loan in the amount of $51,930 from Chase Bank for the financing of a Company truck. The loan has a maturity date of February 13, 2015 and bears interest at the rate of 7.24% per annum. Principal and interest payments of $899 are made monthly over a five year term commencing February 2010. The loan is secured by a lien on the vehicle in addition to the corporate guarantee for the loan. Richard Surber, CEO of the Company has personally guaranteed the loan. The loan was refinanced and paid off on September 5, 2012. As of September 30, 2012, the note balance is $0. Principal payments made on the note during the nine months ended September 30, 2012 amounted to $28,463. See loan #9 below for details of the new, refinanced note. |
| (4) | On June 18, 2010, Landis Salons, Inc. received a loan in the amount of $100,000 from the Division of Economic Development of Salt Lake City Corporation. The loan includes a 1% origination fee and bears interest at the rate of 3.25% per annum. Principal and interest payments are made monthly over a five year term commencing June 2010. The loan is secured by a $25,000 certificate deposit held in the name of Landis Salons, Inc. and is personally guaranteed by Richard Surber, CEO of Green. The certificate of deposit is considered restricted because it is collateral for the loan. As of September 30, 2012, the note balance is $58,650. Principal payments made on the note during the nine months ended September 30, 2012 amounted to $14,643. |
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 7 – Notes Payable (continued)
| (5) | On February 27, 2012, Green and Landis Experience Center, LLC issued an 11% note payable in the principal face amount of $50,000 to William and Nina Wolfson in exchange for a cash payment of the same amount. The note has a due date of February 27, 2016. The note provides for monthly payments in the amount of $1,292.28 of principal and interest. In addition to the Company’s guarantee to the note, Richard Surber has personally guaranteed the note. As of September 30, 2012, the note balance is $44,944. Principal payments made on the note during the nine months ended September 30, 2012 amounted to $5,056. |
| (6) | On July 12, 2010, Landis Salons II, Inc. issued a promissory note in the principal amount of $105,000 payable to Wasatch Capital Corporation, a subsidiary of Nexia. The note bears 5% per year simple interest and accrues until the November 10, 2018 maturity date at which time accrued interest and principal are due in one payment. The note was issued to Wasatch in consideration of Wasatch assigning its interest in a trust deed note in the amount of $105,000. On September 28, 2012, Landis II entered into a Release and Termination of Note Pledge Agreement where in it was agreed that the trust deed that was pledged as collateral pursuant to the July 10, 2010 Note Pledge Agreement between Landis II and its landlord be cancelled, therefore the balance at September 30, 2012 was $0. Even though the note has been cancelled, accrued interest on the note as of September 30, 2012 was $11,661 and is still due. |
| (7) | On April 23, 2012, Landis Salons, Inc. entered into a capital lease financing agreement in the principal amount of $53,230 with Castleton Capital Corporation. The lease agreement requires 48 monthly payments of principal and interest in the amount of $1,535. Interest is at the rate of 16.96% per year and the maturity date is April 23, 2016. Landis has the option to purchase the leased salon equipment at maturity for a $1 bargain purchase amount. The Company applied the guidance of ASC 840 in its determination of the lease being a capital lease. In addition to the Company’s guarantee for the debt, Richard Surber is personal guarantor to the lease. As of September 30, 2012, the note balance is $49,206. Principal payments made on the note during the nine months ended September 30, 2012 amounted to $4,025. |
| (8) | On July 26, 2012, Landis Salons, Inc. entered into a capital lease financing agreement in the principal amount of $16,826 with Time Payment Corporation. The lease agreement requires 48 monthly payments of principal and interest in the amount of $485. Interest is at the rate of 17.75% per year and the maturity date is September 5, 2016. Landis has the option to purchase the leased salon equipment at maturity for $2,178 or less. The Company applied the guidance of ASC 840 in its determination of the lease being a capital lease. In addition to the Company’s guarantee for the debt, Richard Surber is personal guarantor to the lease. As of September 30, 2012, the note balance is $16,341. Principal payments made on the note during the nine months ended September 30, 2012 amounted to $485. |
| (9) | On September 5, 2012, Landis Salons, Inc. received a loan in the amount of $22,959 from Cyprus Credit Union for the refinancing of a Company truck. The loan replaced the loan for the truck to Chase bank (see loan #3 above). The loan has a maturity date of December 5, 2014 and bears interest at the rate of 2.69% per annum. Principal and interest payments of $899 are made monthly over 27 months commencing October 5, 2012. The loan is secured by a lien on the vehicle in addition to the corporate guarantee for the loan. Richard Surber, CEO of the Company has personally guaranteed the loan. As of September 30, 2012, the note balance is $22,959. No payments were made on the note during the nine months ended September 30, 2012. |
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2012 (Unaudited)
Note 7 – Notes Payable (continued)
| (10) | On August 20, 2012, the Board of Directors of LEC approved that LEC enter into a loan agreement with Salt Lake City Corporation in the amount of $50,000. Pursuant to the board approval, a note in the amount of $50,000 was issued on August 21, 2012. The note bears interest at 5% per annum and requires 60 monthly installments of $943.56 commencing October 1, 2012. In addition to corporate guarantees and the personal guarantee by Richard Surber, President, CEO, and Director of LEC, a certificate of deposit is being held as collateral for the loan. As of September 30, 2012, the note balance is $50,000. No payments were made on the note during the nine months ended September 30, 2012. |
| (11) | On August 15, 2012, the Green issued a $75,000 promissory convertible promissory note to Southridge Partners II, LP as a condition of Southridge entering into an Equity Purchase Agreement with the Company (see Note 10). The transaction has been handled as a private sale exempt from registration under Rule 506 of the Securities Act of 1933. The note bears no interest and matures on February 28, 2013 at which time a balloon payment of the entire principal amount is due. The holder of the note is entitled any time after the maturity date to convert the note into common stock of the Company at 70% of the average of the two lowest closing bid prices for the five day prior to the date of the conversion. The Company determined the note contained a beneficial conversion feature and therefore recorded a $32,143 debt discount. As of September 30, 2012, the balance of the note was $75,000 and the balance of the debt discount was $24,637. No payments were made on the note during the nine months ended September 30, 2012. |
| (12) | On August 17, 2012, Green issued a $35,000 convertible promissory note to Eastshore Enterprises, Inc. Green converted $15,000 of accounts payable to Eastshore to the note and also received $20,000 in cash for the loan. The transaction has been handled as a private sale exempt from registration under Rule 506 of the Securities Act of 1933. The note matures on August 17, 2014 and bear interest at a rate of 8% per annum. After one year from issuance, the holder can be convertible into Green’s common shares at the conversion rate of 54% of the market price of the lowest price of Green’s common shares during the ten-day period ending one trading day prior to the date of the conversion. As of September 30, 2012, none of the note had been converted into shares of common stock. As of September 30, 2012, the balance of the note was $35,000 and the balance of the debt discount was $32,890. No payments were made on the note during the nine months ended September 30, 2012. The exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. As a result, the Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability (see Note 5). |
Note 8 – Stockholders’ Deficit
Preferred Stock
On August 4, 2010, by Written Consent of the majority of the voting rights of the shareholders of Green, consent was given to authorize the Board of Directors to amend the designations of the Preferred Stock. The change in the designation of the Supervoting Preferred Stock increased its voting rights from 10 votes per share to 100 votes per share. Green is authorized to issue 15,000,000 shares of preferred stock. Green’s preferred stock may be divided into such series as may be established by the Board of Directors. Each share of the Supervoting preferred stock is convertible into 100 shares of Green’s Common stock and has the voting rights equal to 100 shares of Common stock. Each share of Green’s Series B Preferred Stock is convertible into $5.00 worth of Common stock and has one vote. The number of common shares received is based on the market value of the Common stock on the date of conversion. Series B Preferred Stock shareholders, at the option of Green, can receive cash.
| Green Endeavors, Inc. and Subsidiaries |
| Notes to Condensed Consolidated Financial Statements (continued) |
| September 30, 2012 (Unaudited) |
Note 8 – Stockholders’ Deficit (continued)
On April 27, 2012, Nexia Holdings Inc., converted $144,558 of debt into 4,150,000 shares of convertible preferred supervoting stock of the Company. The shares were issued with a restrictive legend to Nexia, the parent corporation of the Company. The issuance of the shares took place on May 4, 2012. The issuance results in Nexia holding 100% of the 10 million shares of Supervoting Preferred Stock authorized for the Company, resulting in Nexia holding 1 billion votes in any shareholder action. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.
On September 28, 2012, Landis II entered into a Release and Termination of Stock Pledge Agreement wherein it was agreed that the 50,000 shares of restricted Series B Preferred stock that was pledged as collateral pursuant to the July 16, 2010 Stock Pledge Agreement between Landis II and its landlord be returned and the pledge agreement be terminated. The shares have been cancelled and are no longer considered issued and outstanding.
As of September 30, 2012 and December 31, 2011, Green had 10,000,000 and 5,850,000 shares of Supervoting Preferred stock issued and outstanding, respectively; and, 553,494 and 630,732 shares of convertible Series B Preferred stock issued and outstanding, respectively.
During the nine months ended September 30, 2012, the Board of Directors approved the conversions of 27,238 shares of Series B Preferred shares into 621,713,333 shares of Common Stock. The shares were converted at prices per share of $.00012 to $.0002 based on the conversion provisions for the Series B Preferred Stock designation.
Common Stock
On March 29, 2012, the Company filed with the State of Utah an Amendment to its Articles of Incorporation that increased the number of authorized shares of common stock from 2,500,000,000 to 10,000,000,000. This action was taken after notice to the shareholders and having consent from a majority of the voting rights. The par value per share is $0.001. As of September 30, 2012, Green had 4,180,155,815 shares of Common stock issued and outstanding.
During the nine months ended September 30, 2012, the Board of Directors approved the conversions of $93,000 of the Convertible Notes held by Asher Enterprises, Inc. ($90,000 principal and $3,000 of interest) into 736,292,560 shares of Common Stock. The shares were converted at prices per share of $.00006 to $.00023 based on the conversion provisions of the convertible notes.
During the nine months ended September 30, 2012, 146,000,000 shares of common stock were issued to employees pursuant to the exercise of their stock options. Proceeds from the exercising of these stock options was $23,985.
During the nine months ended September 30, 2012, the Board of Directors approved the conversions of 27,238 shares of Series B Preferred shares into 621,713,333 shares of Common Stock. The shares were converted at prices per share of $.00012 to $.0002 based on the conversion provisions for the Series B Preferred Stock designation.
Note 9 – Stock-Based Compensation
On December 2, 2011, the Board of Directors approved a stock-based compensation program entitled The 2011 Benefit Plan of Green Endeavors, Inc. (the “Plan”) wherein common stock options are granted to employees. A total of 300,000,000 shares of the Green’s common stock (par $.001) are authorized to be issued or granted to employees (“Employees”) under the Plan. Employees include actual employees or certain non-employee, consultants and advisors of Green, its subsidiaries, and parent company. The Plan is designed to attract and retain employees.
| Green Endeavors, Inc. and Subsidiaries |
| Notes to Condensed Consolidated Financial Statements (continued) |
| September 30, 2012 (Unaudited) |
Note 9 – Stock-Based Compensation (continued)
Under the Plan and during the year ended December 31, 2011, the company granted 60,000,000 stock options to three employees (20,000,000 options each) for services of which all were exercised by the year ended December 31, 2011. For the year ended December 31, 2011, stock-based compensation expense was $25,364 and was accounted for under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant. The weighted average components used for the calculation of the fair value for the options granted were: $.0003 – exercise price, one year term, 422% volatility, and a .12% risk free rate. The income tax benefit related to the 2011 stock-based compensation expense was $0. Also, the aggregate intrinsic value of all options outstanding and exercisable at December 31, 2011, was $0. As of December 31, 2011, grants unexercised and shares available for future stock-based compensation grants were -0- and 240,000,000 shares, respectively.
Under the Plan and during the nine months ended September 30, 2012, the company granted 146,000,000 stock options to four employees for services. For the nine months ended September 30, 2012, stock-based compensation expense was $71,774 and was accounted for under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant. The weighted average components used for the calculation of the fair value for the options granted were approximately: $.0004 – exercise price, one year term, 502% volatility, and a .18% risk free rate. The income tax benefit related to the stock-based compensation expense during the period was $0. Also, the aggregate intrinsic value of all options outstanding and exercisable at September 30, 2012, was $0. As of September 30, 2012, 206,000,000 shares under the grants had been exercised and there were no unexercised grants. Shares available for future stock-based compensation grants were 94,000,000 as of September 30, 2012.
Note 10 – Equity Purchase Agreement
On August 15, 2012, Green Endeavors Inc. (the “Company”) entered into an Equity Purchase Agreement (“Agreement”) with Southridge Partners II, LP (“Southridge”) wherein Southridge has committed to purchase up to $10,000,000 of the Company’s common stock over 36 months. The Company may draw on the facility from time to time in the form of puts, as and when it determines appropriate up to a maximum of less than 4.99% of the issued and outstanding shares of common stock of the Company per put notice. Southridge’s purchase price for each put is set at 91% of the lowest closing bid price of the common stock of the Company during the pricing period as defined in the Agreement as the period beginning on the Put Notice Date and ending on and including the date that is five Trading Days after such Put Notice Date. The option to draw down on the equity line is at the sole direction of the company. The Company is obligated to file one or more registration statements with the SEC to register the sale to Southridge of shares of common stock issued or issuable under the Agreement. The Company has agreed to file with the SEC an initial registration statement of From S-1 in order to carry out the terms of the Agreement. Upon the execution of the Agreement the Company issued to Southridge a $75,000 convertible promissory note as a condition to Southridge entering into the Agreement, which included preparation of the Agreement (see Note 7).
Note 11 – Depository Trust Company
On August 24, 2012, the Company received a notice from The Depository Trust Company (“DTC”) that is imposing a deposit transaction restriction (“Deposit Chill”) on the common stock of the Company. The notice states that the DTC is imposing the Deposit Chill in order to prevent additional deposits of the Company’s common stock with the DTC. The DTC serves as the depository trust for shares held in the majority of brokerage accounts; therefore, this action has prevented many brokerages from accepting new deposits of the Company’s common stock. The notice sets forth the DTC’s position that the Deposit Chill was imposed as a result of various unusually large deposits of shares during the period from October 18, 2011 through June 19, 2012. The Company filed an objection to the Deposit Chill and has retained legal counsel that is working with the DTC to remove the Deposit Chill and any restrictions on the deposit of additional shares with the DTC.
| Green Endeavors, Inc. and Subsidiaries |
| Notes to Condensed Consolidated Financial Statements (continued) |
| September 30, 2012 (Unaudited) |
Note 12 – Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of Green as a going concern. As of and for the nine months ended September 30, 2012, Green had negative working capital of $1,229,678 and a net loss of $527,304, respectively, which raises substantial doubt about Green’s ability to continue as a going concern. Green’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to successfully fulfill its business plan. Management plans to attempt to raise additional funds to finance the operating and capital requirements of Green through a combination of equity and debt financings. While Green is making its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be sufficient for operations.
Note 13 – Subsequent Events
During the period from October 3, 2012 through October 19, 2012, investors converted 6,016 shares of Convertible Preferred Stock into 272,883,333 shares of Common Stock at per share prices ranging from $.0001 to $.00012 based on the conversion provisions for the Series B Preferred Stock designation.
On November 5, 2012, Landis Salons II, Inc. entered into a Promissory Note with Richard Surber, President, CEO and Director of Green, for the sum of $25,000 for funds loaned. The note bears interest at the rate of 20% per annum, with a term of five years and monthly payments of $662.35 and a demand feature by which the note can be called upon the demand of Mr. Surber. Landis Salons II as security for the note pledged all of its assets, stock in trade, inventory, furniture, fixtures, supplies, any intangible property and all tangible personal property of Landis Salons II and all and any other assets to which Landis Salons II holds title or claims ownership or that is hereafter acquired by Landis Salons II, subject only to purchase money liens held by sellers or grantors. Mr. Surber is also providing his personal guaranty for several lines of credit and credit cards that are being utilized by the company and its operating subsidiaries. In addition to the above, Mr. Surber is a personal guarantor to notes payable by the Company with remaining principal balances of $242,100. Subsequent to September 30, 2012, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q, or this Quarterly Report, and in conjunction with our Form 10-K/A for the fiscal year ended December 31, 2011 and Form 10-Q/A for the quarter ended September 30, 2011. Certain of these statements, including, without limitation, statements regarding the extent and timing of future revenues and expenses, customer demand and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecast,” “intends,” “may,” “plans,” “projects,” “should,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon management’s best judgment at the time they are made about future events that are not historical facts. Actual results could vary materially as a result of certain factors, including but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Results of Operations,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and undertake no obligation, to update these forward-looking statements.
Overview
Green Endeavors, Inc. (“Green”) is a Utah corporation originally formed on April 25, 2002. Our fiscal year ends on December 31. We have never filed bankruptcy nor been through any similar financial reorganization.
As of September 30, 2012, we operate two high-quality hair care salons that feature Aveda™ products for retail sale. Landis Salons, Inc. (“Landis I”) operates its business within a 4,000 square foot space located in the Liberty Heights District of Salt Lake City, Utah as an Aveda Lifestyle Salon. Landis Salons II, Inc. (“Landis II”) operates within a 3,024 square foot space located in the Marmalade District of Salt Lake City, Utah under the Landis Lifestyle Salon brand as an Aveda Lifestyle Salon. A third location opened August 16, 2012, and operates as an Aveda Experience Center ("LEC") in the newly developed City Creek Mall in Salt lake City, Utah.
Aveda Lifestyle Salons can be distinguished from Aveda Concept Salons in that Aveda Lifestyle Salons are required to carry all of Aveda’s products and must meet a higher threshold for product sales than Aveda Concept Salons. An Aveda Lifestyle Salon is the highest level within the Aveda hierarchy of salons which is classified by higher purchasing volume, location, array of products carried and size of retail space.
Salon operations consist of three major components, an Aveda™ retail store, an advanced hair salon, and a training academy, which educates and prepares future staff about the culture, services, and products provided by the salon. The design of the salons is intended to look modern and feel comfortable, appealing to both genders, and all age groups.
Additional information on Landis can be found on its website at: www.landissalons.com
Additional information on Green can be found on its website at: www.green-endeavors.com
Critical Accounting Estimates
In preparing our Condensed Consolidated Financial Statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our Consolidated Balance Sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates and make changes accordingly. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results.
Results of Operations
The following discussion examines our results of operations and financial condition based on our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2012 and 2011.
For the three and nine months ended September 30, 2012, we operated three wholly owned subsidiaries. Two of the subsidiaries, Landis Salons, Inc. and Landis Salons II, Inc., operate as full-service hair and retail salons featuring the Aveda™ line of products. The third subsidiary, Landis Experience Center, LLC, is a retail Aveda experience center.
For the three and nine months ended September 30, 2011, we owned and operated two wholly owned subsidiaries. Two of the subsidiaries, Landis Salons, Inc. and Landis Salons II, Inc., operate as full-service hair and retail salons featuring the Aveda™ line of products. The third subsidiary, Landis Experience Center, LLC, is a retail Aveda experience center.
Revenue
We generate revenue through the sale of services and products in the hair salon industry. As compared to the respective prior fiscal year, revenues increased 10.3% to $780,597 during the three months ended September 30, 2012 and increased 10.5% to $2,273,266 during the nine months ended September 30, 2012.
Three months ended September 30, 2012 and 2011
The following table shows the increase in revenues by type for the three months ended September 30, 2012 compared to September 30, 2011. This increase in revenues is primarily because of the continued growth of the newer Landis Salons II, Inc. salon and the addition of the LEC.
| Three Months Ended | |||||||||||||
| September 30, | September 30, | ||||||||||||
| 2012 | 2011 | Change | |||||||||||
| Services | $ | 582,206 | $ | 549,357 | $ | 32,849 | |||||||
| Product | 198,391 | 158,406 | 39,985 | ||||||||||
| Total revenue | $ | 780,597 | $ | 707,763 | $ | 72,834 | |||||||
Nine months ended September 30, 2012 and 2011
The following table shows the increase in revenues by type for the nine months ended September 30, 2012 compared to September 30, 2011. This increase in revenues is primarily because of the continued growth of the newer Landis Salons II, Inc. salon and the addition of the LEC.
| Nine Months Ended | |||||||||||
| September 30, | September 30, | ||||||||||
| 2012 | 2011 | Change | |||||||||
| Services | $ | 1,720,496 | $ | 1,567,357 | $ | 153,139 | |||||
| Product | 552,770 | 490,798 | 61,972 | ||||||||
| Total revenue | $ | 2,273,266 | $ | 2,058,155 | $ | 215,111 | |||||
Costs of Revenue
Three months ended September 30, 2012 and 2011
Costs of service and product revenue for the three months ended September 30, 2012, increased to $464,373 as compared to 323,072 for the three months ended September 30, 2011, an increase of 44%. This increase over the comparable quarterly periods is primarily attributable to the addition of the new LEC store that was not present in 2011. The LEC store is primarily a product sales store and there are more costs associated with the operation of this store.
Cost of services revenue for the three months ended September 30, 2012, increased to $345,870 as compared to $248,329 for the three months ended September 30, 2011. Cost of product revenue for the three months ended September 30, 2012, increased to $118,503 as compared to $74,743 for the three months ended September 30, 2011.
The following table shows cost of revenue by type as a percentage of related revenue:
| Three Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2012 | 2011 | |||||||
| Services | 59.4% | 45.2% | ||||||
| Product | 59.7% | 47.2% | ||||||
The above table shows a cost of services revenue for the three month period ended September 30, 2012 at 14.2% higher as compared to the three month period ended September 30, 2011. This increased service cost is primary due to an increased cost of professional products used for services and also increased payroll and related costs. The 12.5% higher amount of product costs for the same comparable period is primarily due to an overall increased cost of retail product prices. Another significant increase of product costs is from the addition of the new retail product store and operations from Landis Experience Center, LLC. The product sales for this new store include payroll and related costs whereas in the prior period of 2011 the store was not in operation.
Nine months ended September 30, 2012 and 2011
Cost of service and product revenue for the nine months ended September 30, 2012, increased to $1,308,091 as compared to $1,108,818 for the nine months ended September 30, 2011, an increase of 18%. This increase over the comparable quarterly periods is primarily attributable to the addition of the new LEC store that was not present in 2011.
The following table shows cost of revenue by type as a percentage of related revenue:
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2012 | 2011 | |||||||
| Services | 58.4% | 54.7% | ||||||
| Product | 54.9% | 51.3% | ||||||
The above table shows a cost of services revenue for the nine month period ended September 30, 2012 at 3.7% higher as compared to the nine month period ended September 30, 2011. This increased service cost is primary due to an increased cost of professional products used for services and also increased payroll and related costs. The 3.5% higher amount of product costs for the same comparable period is primarily due to an overall increased cost of retail product prices. Another significant increase of product costs is from the addition of the new retail product store and operations from Landis Experience Center, LLC in the last three months of the nine month period ending September 30, 2012. The product sales for this new store include payroll and related costs whereas in the prior period of 2011 the store was not in operation.
Operating Expenses
Three months ended September 30, 2012 and 2011
The following table shows general and administrative expenses for the three months ended September 30, 2012 and 2011:
| Three Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
| 2012 | 2011 | Change | ||||||||||
| Salaries and wages | $ | 104,727 | $ | 90,796 | $ | 13,931 | ||||||
| Rent | 60,351 | 38,891 | 21,460 | |||||||||
| Advertising | 14,310 | 29,826 | (15,516 | ) | ||||||||
| Credit card merchant fees | 15,112 | 13,890 | 1,222 | |||||||||
| Insurance | 14,817 | 12,095 | 2,722 | |||||||||
| Utilities and telephone | 13,383 | 10,650 | 2,733 | |||||||||
| Professional services | 103,858 | 23,547 | 80,311 | |||||||||
| Repairs and maintenance | 8,617 | 5,551 | 3,066 | |||||||||
| Dues and subscriptions | 5,968 | 3,604 | 2,364 | |||||||||
| Office expense | 8,668 | 7,888 | 780 | |||||||||
| Travel | 12,417 | 4,135 | 8,282 | |||||||||
| Investor relations and company promotion | 1,453 | - | 1,453 | |||||||||
| Other | 3,892 | 12,096 | (8,204 | ) | ||||||||
| Total general and administrative expenses | $ | 367,573 | $ | 252,969 | $ | 114,604 | ||||||
The increase in general and administrative expenses over the comparable quarterly period is primarily due to increases in salaries and wages and professional services. While salaries and wages increased partially due to additional personnel, most of the increase in general and administrative expenses is due to an $80,311 increase of professional services. This increase was primarily due to the $75,000 fee for entering into and preparation of an Equity Purchase Agreement with Southridge Partners II, LP during the three months ended September 30, 2012 that was not present for the same period in 2011. There was also a $21,460 and a $13,931 increase in rent and salaries and wages, respectively, primarily from the opening of the LEC store for the three months ended September 30, 2012.
Depreciation expense for the three months ended September 30, 2012, increased to $32,977 from $22,330 for the three months ended September 30, 2011. The increase is primarily due to an increase in leasehold improvements of the new LEC store during the three months ended September 30, 2012.
Nine months ended September 30, 2012 and 2011
The following table shows general and administrative expenses for the nine months ended September 30, 2012 and 2011:
| Nine Months Ended | ||||||||||||
| September 30, | September 30, | Change | ||||||||||
| 2012 | 2011 | |||||||||||
| Salaries and wages | $ | 386,078 | $ | 250,493 | $ | 135,585 | ||||||
| Rent | 139,958 | 117,201 | 22,757 | |||||||||
| Advertising | 54,417 | 85,175 | (30,758 | ) | ||||||||
| Credit card merchant fees | 39,511 | 34,871 | 4,640 | |||||||||
| Insurance | 41,818 | 34,704 | 7,114 | |||||||||
| Utilities and telephone | 35,642 | 32,610 | 3,032 | |||||||||
| Professional services | 192,258 | 118,182 | 74,076 | |||||||||
| Repairs and maintenance | 18,572 | 11,945 | 6,627 | |||||||||
| Dues and subscriptions | 14,854 | 12,537 | 2,317 | |||||||||
| Office expense | 34,692 | 20,059 | 14,633 | |||||||||
| Travel | 21,429 | 9,262 | 12,167 | |||||||||
| Investor relations and company promotion | 62,691 | - | 62,691 | |||||||||
| Other | 18,012 | 37,428 | (19,416 | ) | ||||||||
| Total General and administrative expenses | $ | 1,059,932 | $ | 764,467 | $ | 295,465 | ||||||
The increase in general and administrative expenses over the comparable period is primarily due to increases in salaries and wages, professional services, and investor relations and company promotion. Salaries and wages increased primarily due to additional personnel and also $71,774 of employee stock option compensation expense that was not present in the prior comparative period. Professional services increased primarily due to the $75,000 fee for entering into and preparation of an Equity Purchase Agreement with Southridge Partners II, LP during the nine months ended September 30, 2012 that was not present for the same period in 2011. The Company also decreased advertising by $30,758 to put more effort into investor relations and company promotion, which increased by $62,691. Office expense and rent also increased by $14,637 and $22,757, respectively, primarily due to an increase in related expenses including the additional initial expenses from the addition of the LEC store.
Depreciation expense for the nine months ended September 30, 2012, increased to $90,512 from $69,644 for the nine months ended September 30, 2011. The increase is primarily due to an increase in property, plant, and equipment and the leasehold improvements of the new LEC store during the nine months ended September 30, 2012.
Other Expense
Three months ended September 30, 2012 and 2011
Other expense for the three months ended September 30, 2012, decreased to $55,712 from $94,434 for the three months ended September 30, 2011, a decrease of $38,722. This decrease over the comparable quarterly period is primarily due to a $36,138 increase in the gain on derivative fair value adjustment and a $17,185 increase in the gain on the adjustment of the default of convertible notes for the period.
Nine months ended September 30, 2012 and 2011
Other expense for the nine months ended September 30, 2012, increased to $342,035 from $269,361 for the nine months ended September 30, 2011, an increase of $72,674. This increase over the comparable quarterly periods is primarily due to an increase of $52,997 in the loss on the default of convertible notes payable and a $47,321 increase in interest expense primarily due to the interest expense associated with amortization of debt discounts and increased debt.
Liquidity and Capital Resources
As of September 30, 2012 and December 31, 2011
We had a working capital deficit of $1,229,678 as of September 30, 2012. Our current assets were $293,852, which consisted of $144,348 in cash, $17,097 in accounts receivable, $131,622 in inventory, and $785 in prepaid expenses. Our total assets were $956,728, which included $597,936 in property and equipment (net), and $64,940 in other assets. Our current liabilities were $1,523,530, including $632,560 in accounts payable and accrued expenses, $279,986 in amounts due to related parties, $235,300 in the current portion of notes and capital leases payable, $51,475 in deferred revenue, and a $186,504 derivative liability. Our long-term liabilities were $2,955,812. Our total stockholders’ deficit at September 30, 2012 was $3,522,614.
We had a working capital deficit of $1,399,631 as of December 31, 2011. Our current assets were $213,840, which consisted of $97,983 in cash, $109,470 in inventory, $6,244 in prepaid expenses and $143 in accounts receivable. Our total assets were $1,036,562, which included $420,093 in property and equipment (net), and $402,629 in other assets. Our current liabilities were $1,613,471, including $293,906 in accounts payable and accrued expenses, $845,997 in amounts due to related parties, $200,629 in the current portion of notes payable, $57,823 in deferred revenue, and a $116,409 derivative liability. Our long-term liabilities were $2,941,760. Our total stockholders’ deficit at December 31, 2011, was $3,518,669.
Cash Flows from Operating Activities
Cash flows from operating activities include net loss, adjusted for certain non-cash charges, as well as changes in the balances of certain assets and liabilities.
Nine months ended September 30, 2012 and 2011
Cash flows from operating activities include net loss, adjusted for certain non-cash charges, as well as changes in the balances of certain assets and liabilities. Net cash provided by operating activities for the nine months ended September 30, 2012 was $192,536 as compared to $(19,029) used in operating activities for the nine months ended September 30, 2011. This $211,565 change in cash provided by operating activities over the comparable period is primarily due to a $316,240 change in accounts payable and accrued expenses and an $83,950 net change in related party debt activities. The Company's net loss for the same comparable period increased by $373,169, which is partially offset by $71,774 of stock based compensation, $52,997 of loss contingency, and $75,000 of professional fees that were not present all of which were present in the current year that were not present in the prior year.
We expect that our cash provided by operating activities will decrease over the next twelve months as we purchase inventory and increase operating expenses as a result of opening one additional salon during the next 12 months.
Cash Flows from Investing Activities
Nine months ended September 30, 2012 and 2011
Cash flow used in investing activities for the nine months ended September 30, 2012 was $198,300 as compared to $12,042 for the nine months ended September 30, 2011. The increase in cash flow used in investing activities is primarily due to purchase of salon equipment and increased leasehold improvements due to the opening of the new LEC store.
We expect to continue our investing activities, including purchasing both property and equipment and making both short and long-term equity investments.
Cash Flows from Financing Activities
Nine months ended September 30, 2012 and 2011
Cash flow provided by financing activities for the nine months ended September 30, 2012 was $52,129 as compared to $51,512 that was provided by financing activities for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, the Company paid $104,644 of related party debt, received $62,500 in convertible notes payable, and received $23,985 from the exercising of stock options. for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2012, the Company paid $120,609 more in notes payable and received 65,000 more in proceeds from the sale of preferred stock.
We expect to continue to use cash flow from financing activities in the near term as necessary to expand operations.
Other Factors Affecting Liquidity and Capital Resources
We have insufficient current assets to meet our current liabilities due to negative working capital of $1,229,678 as of September 30, 2012. Historically, we have funded our cash needs from a combination of revenues, carried payables, sales of equity, and debt transactions. Since we are not currently realizing net cash flows from our business, we may need to seek financing to continue our operations. Prospective sources of funding could include shareholder loans, equity sales or loans from other sources though no assurance can be given that such sources would be available or that any commitment of support is forthcoming to date.
On October 27, 2008, we adopted The 2008 Benefit Plan of Green Endeavors, Inc. (the “Plan”) pursuant to which we may issue stock, or grant options to acquire our Voting Common Stock, par value $0.001 or our Series B Preferred Stock, par value $0.001(the “Stock”), to our employees or employees of our subsidiaries, on the terms and conditions set forth in the Plan (“Benefits”). The Plan is intended to aid us in maintaining and developing a management team, attracting qualified officers and employees capable of contributing to our future success. In addition, at the discretion of the Board of Directors, Benefits may be granted under this Plan to other individuals, including consultants or advisors, who contribute to our success or to the success of our subsidiaries, provided that bona fide services are rendered and such services are not in connection with the offer or sale of securities in a capital-raising transaction. No Stock may be issued, or options granted under the Plan to consultants, advisors, or other persons who directly or indirectly promote or maintain a market for our securities. We have issued 191,000 shares of Series B Preferred stock pursuant to the Plan as of September 30, 2012.
On April 30, 2008, we entered into a stock transfer agreement with our parent company Nexia and Nexia’s wholly-owned subsidiary DHI whereby they would each sell their holdings in Landis and Newby in exchange for an 8% Series A Senior Subordinated Convertible Debenture with a face amount of $3,000,000. Interest on the debenture commenced on December 30, 2008. DHI has the option, at any time, to convert all or any amount over $10,000 of principal face amount and accrued interest into shares of Common stock, $0.001 par value per share, at a conversion price equal to 95% of the average closing bid price of the common stock three days prior to the date we receive notice. In February of 2011, DHI transferred the Debenture to Nexia in exchange for the release of debt obligations owed to Nexia by DHI and Nexia is the current holder of the Debenture.
On June 5, 2012, Green entered into a secured agreement with Richard Surber, President, CEO and Director of Green, to provide him a record lien (UCC-1 file number 413621201234, Utah) on certain assets of the company for the debts and obligations of the company for which Mr. Surber is providing a personal guaranty to lenders of the Company. The assets included in the secured interest include: all inventory, equipment fixtures, stock ownership, including but not limited to the shares held by Green Endeavors Inc. in Landis Salons, Inc., Landis Salons II, Inc., Landis Salons III, Inc. and ownership rights in Landis Experience Center LLC and any other intangible property and all tangible personal property held by, granted to or owned by Green or that is later acquired by Green subject only to purchase money liens held by sellers or grantor. Subsequent to September 30, 2012, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
On November 5, 2012 Landis Salons II, Inc. entered into a Promissory Note with Richard Surber, President, CEO and Director of Green, for the sum of $25,000 for funds loaned. The note bears interest at the rate of 20% per annum, with a term of five years and monthly payments of $662.35 and a demand feature by which the note can be called upon the demand of Mr. Surber. Landis Salons II as security for the note pledged all of its assets, stock in trade, inventory, furniture, fixtures, supplies, any intangible property and all tangible personal property of Landis Salons II and all and any other assets to which Landis Salons II holds title or claims ownership or that is hereafter acquired by Landis Salons II, subject only to purchase money liens held by sellers or grantors. Mr. Surber is also providing his personal guaranty for several lines of credit and credit cards that are being utilized by the company and its operating subsidiaries. In addition to the above, Mr. Surber is a personal guarantor to notes payable by the Company with remaining principal balances of $242,100. Subsequent to September 30, 2012, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
We do not intend to pay cash dividends in the foreseeable future.
We expect to purchase property or equipment as part of our normal ongoing operations.
Going Concern
Our audit opinion for the year ended December 31, 2011 expressed substantial doubt as to our ability to continue as a going concern as a result of recurring losses and negative working capital. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans to address our ability to continue as a going concern include raising additional funds to finance the operating and capital requirements through a combination of equity and debt financings. While we are making our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations.
Impact of Inflation
We compensate some of our salon employees with percentage commissions based on sales they generate. Accordingly, this provides us certain protection against inflationary increases, as payroll expense is a variable cost of sales. In addition, we may increase pricing in our salons to offset any significant increases in wages and cost of services provided. Therefore, we do not believe inflation has had a significant impact on the results of our operations.
Off-Balance Sheet Arrangements
As of September 30, 2012 and December 31, 2011, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Not required for smaller reporting companies pursuant to Item 305 of Regulation S-K.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and the Chief Financial Officer, or CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2012.
The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures, to determine whether we had identified any acts of fraud involving personnel who have a significant role in our disclosure controls and procedures, and to confirm that any necessary corrective action, including process improvements, was taken. This type of evaluation is done every fiscal quarter so that our conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and to make modifications as necessary. We intend to maintain these disclosure controls and procedures, modifying them as circumstances warrant.
Based on his evaluation as of September 30, 2012, our CEO / CFO has concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control are met. Further, the design of internal control must reflect the fact that there are resource constraints, and the benefits of the control must be considered relative to their costs. While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Green Endeavors, Inc. have been detected.
No material change in any legal matter, as reported in the Annual Report on Form 10-K for the years ended December 31, 2011 and 2010, occurred during the nine months ended September 30, 2012.
Our business faces many risks. Described below are what we believe to be the material risks that we face. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer.
Our ability to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.
We have limited capital. Because we do not have sufficient working capital for continued operations for at least the next 12 months our continued existence is dependent upon us sustaining operating profitability or obtaining the necessary capital to meet our expenditures. Our operating capital requirements, in excess of what is generated from operations, for the next 12 months are approximately $150,000. This primarily consists of the costs associated with our financial statement reporting obligations. At this time, we are still in the process of identifying additional salon locations within the Salt Lake valley. The funding for our operations will primarily come from private investors purchasing our Preferred stock, making loans secured by convertible promissory notes, as well as obtaining traditional lines of credit and loans to finance equipment, furniture, leasehold improvements and operations. We cannot assure you that we will be able to generate sufficient sales or raise adequate capital to meet our future working capital needs.
The voting control held by Nexia Holdings Inc. creates an anti-takeover or change of control limitation. Nexia currently holds voting control of the Company through its ownership of Supervoting preferred stock.
The 10,000,000 shares of Supervoting Preferred Stock (100 votes for each share) currently held by Nexia combined with the 2,355,263,158 shares of common stock provide Nexia with voting control over any proposal requiring a vote of the shareholders. Through its ownership of the preferred voting shares and common stock it holds voting rights equal to 3,355,263,158 shares of common stock. This effectively gives Nexia a veto over any attempt to take over or change control of the Company. Such an event would include a vote by the Board of Directors to conduct a reverse or forward split of the common stock. The shares held by Nexia thus have a strong anti-takeover effect. The interests of Nexia may not always conform to the interests of the common stockholders, in general, and thus its voting rights may not always be exercised in the best interests of the common stockholders of the Company. Richard Surber is CEO of both the Company and Nexia and has voting control of the Company through his control of Nexia.
Our business and our industry are affected by cyclical factors in the State of Utah, including the risk of a prolonged recession.
Our financial results are substantially dependent upon overall economic conditions in the State of Utah. General economic factors that are beyond our control, such as interest rates, recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, and other matters that influence consumer confidence and spending, may impact our business. In particular, visitation patterns to our salons can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels.
A prolonged or a deepening recession in the United States, specifically in Utah, could substantially decrease the demand for our products and services below current levels and adversely affect our business. Our industry has historically been vulnerable to significant declines in consumption and product and service pricing during prolonged periods of economic downturn such as at present.
Recessions and other periods of economic dislocation typically result in a lower level of discretionary income for consumers. To the extent discretionary income declines, consumers may be more likely to reduce discretionary spending. This could result in our salon customers foregoing salon treatments or using home treatments as a substitute.
We believe that the economic downturn slightly affected our financial results for the fiscal years ended December 31, 2012 and 2011, with a small increase in sales from each of the previous years. However, we continue to have sales in the second quarter of 2012 increase from the comparable months of 2011. If economic conditions result in negative sales in future periods and we are unable to offset the impact with operational savings, our financial results may be further affected.
If we cannot improve same-store sales our business and results of operations may be affected.
Our success depends, in part, upon our ability to improve sales, as well as both gross margins and operating margins. A variety of factors affect comparable sales, including fashion trends, competition, current economic conditions, changes in our product assortment, the success of marketing programs and weather conditions. These factors may cause our comparable store sales results to differ materially from prior periods and from our expectations. If we are unable to improve our comparable sales on a long-term basis or offset the impact with operational savings, our financial results may be affected.
Changes in our key relationships may adversely affect our operating results.
We maintain key relationships with certain companies, including Aveda™. Termination or modification of any of these relationships could significantly reduce our revenues and have a material and adverse impact on our business, our operating results and our ability to expand.
Changes in fashion trends may impact our revenue.
Changes in consumer tastes and fashion trends can have an impact on our financial performance. For example, trends in wearing longer hair may reduce the number of visits to, and therefore, sales at our salons.
We are dependent on key personnel, specifically Richard Surber, our President, CEO, and CFO.
We are dependent on the services of Richard Surber, our President, CEO, CFO, and a Director. Green does not have an employment agreement with Mr. Surber, and losing his services would likely have an adverse effect on our ability to conduct business.
The salon operations are dependent on key personnel.
The operations of the two salons are dependent on the day to day management of current staff at those locations who work in the salons and train their personnel. Losing the services of these long term employees would likely have an adverse effect on the operations and business development of the salons.
Our success depends on our ability to attract and retain trained stylists in order to support our existing salon business and to staff future expansion.
The salons are actively recruiting qualified candidates to fill stylist positions. There is substantial competition for experienced personnel in this area, which we expect to continue. We will compete for experienced candidates with companies who have substantially greater financial resources than we do. If we fail to attract, motivate and retain qualified stylists, it could harm our business and limit our ability to be successful and hamper expansion plans. For example, we will depend upon the expertise and training abilities of our current staff and management at the salons. Since we do not maintain insurance policies on any of our employees, if we lose the services of any key officers or employees it could harm our business and results of operations.
Changes in regulatory and statutory laws may result in increased costs to our business.
Our financial results can be adversely impacted by regulatory or statutory changes in laws. Due to the number of people we employ, laws that increase costs to provide employee benefits may result in additional costs to our business. Compliance with new, complex and changing laws may cause our expenses to increase. In addition, any non-compliance with these laws could result in fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products, which could adversely affect our business, financial condition and results of operations.
If we are not able to successfully compete in our business segments, our financial results may be affected.
Competition on a market by market basis remains strong. Therefore, our ability to raise prices in certain markets can be adversely impacted by this competition. If we are not able to raise prices, our ability to grow same-store sales and increase our revenue and earnings may be impaired.
We face significant competition in the salon business, which could harm our sales and profitability.
The primary competition to our operations comes from salons offering excellent customer service in the Salt Lake Area market. We have identified our main competitors as Lunatic Fringe, Salon Zazou and Salon RZ. We are also in competition with large scale hair cutting operations such as Great Clips, Supercuts, and Fantastic Sams, though these operations do not compete in offering the high-end services and products of our salons.
The loss of the Aveda™ line of products would damage the operation of our salons and have a significant and negative impact on our ability to operate and generate revenues.
Our salons offer the Aveda™ line of products, which are used exclusively in the services provided to customers of the salon and offered for retail sale at the salon location. Loss of the Aveda™ product line would have a significant and negative impact on the operation of the salons and their ability to generate revenues from either retail sales of health and beauty products or from providing services to consumers at the salon. We believe that the high quality and reputation of this line of products is key to our current operations and future success.
Changes in manufacturers' choice of distribution channels may negatively affect our revenues.
The retail products that we sell are licensed to be carried exclusively by professional salons. The products we purchase for sale in our salons are purchased pursuant to purchase orders, as opposed to long-term contracts, and generally can be terminated by the producer without much advance notice. Should the various product manufacturers decide to utilize other distribution channels, such as large discount retailers, it could negatively impact the revenue earned from product sales.
If we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer.
The nature of our business involves processing, transmission and storage of personal information about our customers. If we experience a data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to stop visiting our salons altogether. Such events could lead to lost future sales and adversely affect our results of operations.
Our stock price may be volatile.
The market price of our common stock is highly volatile and fluctuates widely in price in response to various factors, many of which are beyond our control, including the following:
· significant dilution; | |
· our services or our competitors; | |
· additions or departures of key personnel; | |
· our ability to execute our business plan; | |
· operating results that fall below expectations; | |
· loss of any strategic relationship; | |
· economic and other external factors; and, | |
· period-to-period fluctuations in our financial results. | |
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Investors bear a risk that a liquid market may never develop and as a result, you may not be able to buy or sell our securities at the times you may wish and market liquidity may be limited.
Even though our securities are quoted on the OTC Markets, that may not permit our investors to sell securities when and in the manner that they wish. There is not currently a significant volume of shares trading in the Company’s common stock and there may never be sufficient volume to create a liquid market such as to allow all shareholders to sell or buy shares whenever they desire. A liquid market for the sale of shares of the Companies securities may never develop.
Our common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares.
Our common stock is and will be subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 11, 2012, the Board of Directors approved the conversion of $4,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 21,052,632 shares of Common Stock. The shares were converted at $0.00019 per share which was the conversion price provided for by the terms of the note.
On January 13, 2012, the Board of Directors approved the conversion of $5,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 26,315,789 shares of Common Stock. The shares were converted at $0.00019 per share which was the conversion price provided for by the terms of the note.
On January 24, 2012, the Board of Directors approved the conversion of $6,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 27,272,727 shares of Common Stock. The shares were converted at $0.00019 per share which was the conversion price provided for by the terms of the note.
On February 17, 2012, the Board of Directors approved the conversion of $3,500 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 29,666,667 shares of Common Stock. The shares were converted at $0.00012 per share which was the conversion price provided for by the terms of the note.
On February 23, 2012, the Board of Directors approved the conversion of $3,500 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 28,666,667 shares of Common Stock. The shares were converted at $0.00012 per share which was the conversion price provided for by the terms of the note.
On February 29, 2012, the Board of Directors received a request from a shareholder to convert of 3,500 Series B Preferred shares into 35,000,000 shares of Common Stock. The shares were converted at $0.0005 per share which was the quoted closing price on the date the conversion request.
On March 2, 2012, the Board of Directors approved the conversion of $6,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 31,578,947 shares of Common Stock. The shares were converted at $0.00019 per share which was the conversion price provided for by the terms of the note.
On March 14, 2012, the Board of Directors approved the conversion of $7,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 30,434,783 shares of Common Stock. The shares were converted at $0.00023 per share which was the conversion price provided for by the terms of the note.
On March 16, 2012, the Board of Directors approved the conversion of 3,888 Series B Preferred shares into 38,880,000 shares of Common Stock for an investor. The shares were converted at $0.0005 per share which was the quoted closing price on the date the conversion request was received from the shareholder.
On March 29, 2012, the Board of Directors approved the conversion of 2,400 Series B Preferred shares into 40,000,000 shares of Common Stock for an investor. The shares were converted at $0.0003 per share which was the quoted closing price on the date the conversion request was received from the shareholder.
On March 29, 2012, the Board of Directors approved the conversion of 2,400 Series B Preferred shares into 40,000,000 shares of Common Stock for an investor. The shares were converted at $0.0003 per share which was the quoted closing price on the date the conversion request was received from the shareholder.
On March 30, 2012, the Board of Directors approved the conversion of 2,400 Series B Preferred shares into 40,000,000 shares of Common Stock for an investor. The shares were converted at $0.0003 per share which was the quoted closing price on the date the conversion request was received from the shareholder.
During nine month period ended September 30, 2012, 146,000,000 shares of common stock were issued to four employees pursuant to the exercise of their stock options.
On April 17, 2012, the Board of Directors approved the conversion of $9,500 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 41,304,348 shares of Common Stock. The shares were converted at $0.00023 per shares which was the conversion price provided for by the terms of the note.
On April 27, 2012, the Board of Directors approved the conversion of $8,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 50,000,000 shares of Common Stock. The shares were converted at $0.00016 per shares which was the conversion price provided for by the terms of the note.
On April 27, 2012, the Company authorized the issuance of 4,150,000 shares of Supervoting Preferred Stock to Nexia Holdings Inc. in exchange for $144,558 in debt settlement of related party obligations owed to Nexia by the Company that will be removed from the Company’s liabilities. The shares were issued with a restrictive legend to Nexia, the parent corporation of the Company. The issuance of the shares took place on May 4, 2012. The issuance results in Nexia holding 100% of the 10 million shares of Supervoting Preferred Stock authorized for the Company, resulting in Nexia holding 1 billion votes in any shareholder action. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.
On May 22, 2012, the Company entered into a Security Agreement with Richard Surber, CEO of the Company. The agreement provides that Mr. Surber is secured by the assets of the company, including the ownership of shares in the subsidiaries of the Company, to secure the debts and obligations of the Company owed to Mr. Surber and to compensate him for serving as a guarantor of numerous debts and obligations of the Company to third parties. The total amount of the potential exposure created through the guaranties and the obligations owed by the Company and its parent Nexia Holdings, Inc. to Mr. Surber is estimated at this time to exceed $1.7 million.
On May 22, 2012, the Company received a notice of Default from Asher Enterprises Inc. (“Asher”) based upon the failure of the Company to have remained in full compliance with its reporting requirements of the Exchange Act due to the late filing of its first quarter 10-Q. The demand is for payment of all principal, interest, and penalties due under the five notes between the Company and Asher. The notice of default demands a payment of $296,250 as of May 22, 2012. On September 30, 2012, as a result of the default notice, the Company recorded a contingency loss of $52,997, which is calculated by multiplying the September 30, 2012 principal balance on the notes of $93,000 plus $12,993 in accrued interest ($105,993 combined) by 50% per the terms of the notes thus bringing the amount owed to Asher as of September 30, 2012 $158,989. The Company is working on a cure for the default.
On May 23, 2012, the Company authorized the issuance of 2,105,263,158 shares of common stock to Nexia Holdings Inc. in exchange for $400,000 in debt settlement of related party obligations owed to Nexia by the Company that will be removed from the Company’s liabilities. The shares were issue with a restrictive legend to Nexia, the parent corporation of the Company. The issuance of the shares took place on May 24, 2012. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.
On May 30, 2012, the Board of Directors approved the conversion of $6,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 50,000,000 shares of Common Stock. The shares were converted at $0.00012 per shares which was the conversion price provided for by the terms of the note.
On June 5, 2012, Green entered into a secured agreement with Richard Surber, President, CEO and Director of Green, to provide him a record lien (UCC-1 file number 413621201234, Utah) on certain assets of the company for the debts and obligations of the company for which Mr. Surber is providing a personal guaranty to lenders of the Company. The assets included in the secured interest include: inventory, equipment fixtures, stock ownership, including but not limited to the shares held by Green Endeavors Inc. in Landis Salons, Inc., Landis Salons II, Inc., Landis Salons III, Inc. and ownership rights in Landis Experience Center LLC and any other intangible property and all tangible personal property held by, granted to or owned by Green or that is later acquired by Green subject only to purchase money liens held by sellers or grantor. Subsequent to September 30, 2012, Mr. Surber is continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
On June 6, 2012, the Board of Directors approved the conversion of 10,400 shares of Series B Preferred Stock held by two investors into 260,000,000 shares of Common Stock. The shares were converted at $0.0002 per share based on the conversion provisions for the Series B Preferred Stock designation.
On July 12, 2012, the Board of Directors approved the conversion of $3,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 50,000,000 shares of Common Stock. The shares were converted at $0.00006 per shares which was the conversion price provided for by the terms of the note.
On August 15, 2012 Green Endeavors Inc. (the “Company”) entered into an Investment Agreement (“Agreement”) with Southridge Partners II, LP (“Southridge”) wherein Southridge has committed to purchase up to $10,000,000 of the Company’s common stock over 36 months. The Company may draw on the facility from time to time in the form of puts, as and when it determines appropriate up to a maximum of less than 4.99% of the issued and outstanding shares of common stock of the Company per put notice. Southridge’s purchase price for each put is set at 91% of the lowest closing bid price of the common stock of the Company during the pricing period as defined in the Agreement as the period beginning on the Put Notice Date and ending on and including the date that is 5 Trading Days after such Put Notice Date. The option to draw down on the equity line is at the sole direction of the company. The Company is obligated to file one or more registration statements with the SEC to register the sale to Southridge of shares of common stock issued or issuable under the Agreement. The Company has agreed to file with the SEC an initial registration statement of From S-1 in order to carry out the terms of the Agreement. Upon the execution of the Agreement the Company paid to Southridge a $75,000 document preparation fee for preparation of the agreements referred to herein in the form of a promissory note.
On August 16, 2012, the Board of Directors approved the conversion of $2,000 of the April 5, 2011 Convertible Note held by Asher Enterprises, Inc. into 16,666,667 shares of Common Stock. The shares were converted at $0.00012 per shares which was the conversion price provided for by the terms of the note.
On August 16, 2012, the Board of Directors approved the conversion of $19,000 of the June 14, 2011 Convertible Note held by Asher Enterprises, Inc. into 158,333,333 shares of Common Stock. The shares were converted at $0.00012 per shares which was the conversion price provided for by the terms of the note.
On August 20, 2012, the Board of Directors approved the Directors approved the conversion of 1,690 shares of Series B Preferred Stock held by Southridge Partners II, LP into 42,250,000 shares of Common Stock. The shares were converted at $0.0002 per share based on the conversion provisions for the Series B Preferred Stock designation.
On September 7, 2012, the Board of Directors approved the Directors approved the conversion of 2,960 shares of Series B Preferred Stock held by Southridge Partners II, LP into 123,333,333 shares of Common Stock. The shares were converted at $0.00012 per share based on the conversion provisions for the Series B Preferred Stock designation.
On September 7, 2012, Green received a Reset Notice from Southridge Partners II LP wherein, per the terms of reset provision of the August 10, 2012 Securities Transfer Agreement, Green is obligated to issue 42,250,000 shares to Southridge. The Board of Directors approved the Reset Notice for issuance of the 42,250,000 shares on September 13, 2012. The shares were converted at $0.0001 per share based on the conversion provisions for the Series B Preferred Stock designation.
On September 10, 2012, the Board of Directors approved the conversion of $10,500 of the June 14, 2011 Convertible Note held by Asher Enterprises, Inc. into 175,000,000 shares of Common Stock. The shares were converted at $0.0006 per shares which was the conversion price provided for by the terms of the note.
On September 28, 2012, Landis II entered into a Release and Termination of Stock Pledge Agreement wherein it was agreed that the 50,000 shares of restricted Series B Preferred stock that was pledged as collateral pursuant to the July 16, 2010 Stock Pledge Agreement between Landis II and its landlord be returned and the pledge agreement be terminated. The shares have been cancelled and are no longer considered issued and outstanding.
On September 28, 2012, Landis II entered into a Release and Termination of Note Pledge Agreement where in it was agreed that the trust deed that was pledged as collateral pursuant to the July 10, 2010 Note Pledge Agreement between Landis II and its landlord be returned to Landis II.
Subsequent Events
On October 3, 2012, the Board of Directors approved the conversion of 3,350 shares of Series B Preferred Stock held by an investor into 139,583,333 shares of Common Stock. The shares were converted at $0.00012 per share based on the conversion provisions for the Series B Preferred Stock designation.
On October 19, 2012, the Board of Directors approved the conversion of 2,666 shares of Series B Preferred Stock held by an investor into 133,300,000 shares of Common Stock. The shares were converted at $0.0001 per share based on the conversion provisions for the Series B Preferred Stock designation.
On November 5, 2012 Landis Salons II, Inc. entered into a Promissory Note with Richard Surber, President, CEO and Director of Green, for the sum of $25,000 for funds loaned. The note bears interest at the rate of 20% per annum, with a term of five years and monthly payments of $662.35 and a demand feature by which the note can be called upon the demand of Mr. Surber. Landis Salons II as security for the note pledged all of its assets, stock in trade, inventory, furniture, fixtures, supplies, any intangible property and all tangible personal property of Landis Salons II and all and any other assets to which Landis Salons II holds title or claims ownership or that is hereafter acquired by Landis Salons II, subject only to purchase money liens held by sellers or grantors. Mr. Surber is also providing his personal guaranty for several lines of credit and credit cards that are being utilized by the company and its operating subsidiaries. In addition to the above, Mr. Surber is a personal guarantor to notes payable by the Company with remaining principal balances of $242,100. Subsequent to September 30, 2012, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
Item 3. Defaults Upon Senior Securities
None.
None.
| (a) | The following exhibits are filed herewith or incorporated by reference as indicated in the table below: |
| Incorporated by Reference | ||||||
| Exhibit Number | Description | Form | File Number | Exhibit Number | Filing Date | Provided Herewith |
| 3(i) | Amended and Restated Certificate of Incorporation | 10-12G/A | 000-54018 | 3(i) | 8/23/2010 | |
| 3(ii) | Bylaws | 10-12G/A | 000-54018 | 3(ii) | 8/23/2010 | |
| 3(iii) | Plan of Merger | 8-K | 000-54018 | 3(iii) | 8/26/2010 | |
| 3(iv) | Plan of Merger and Share Exchange | 8-K | 000-54018 | 3(iv) | 8/31/2010 | |
| 3(v) | Utah Articles of Incorporation | 8-K | 000-54018 | 3(v) | 8/31/2010 | |
| 4(i) | Certificate of Designation for Series B Preferred Stock. | 10-12G/A | 000-54018 | 4(i) | 8/23/2010 | |
| 4(ii) | 8% Series A Senior Subordinated Convertible Redeemable Debenture issued to DHI dated April 30, 2008. | 10-12G/A | 000-54018 | 4(ii) | 8/23/2010 | |
| 4(iii) | 8% Series A Senior Subordinated Convertible Redeemable Debenture issued to Akron Associates, Inc. dated January 15, 2010. | 10-12G/A | 000-54018 | 4(iii) | 8/23/2010 | |
| 4(iv) | 8% Series A Senior Subordinated Convertible Redeemable Debenture issued to Desert Vista Capital, LLC. dated January 15, 2010. | 10-12G/A | 000-54018 | 4(iv) | 8/23/2010 | |
| 4(v) | 8% Series A Senior Subordinated Convertible Redeemable Debenture issued to Akron Associates, Inc. dated March 16, 2010. | 10-12G/A | 000-54018 | 4(v) | 8/23/2010 | |
| 4(vi) | 8% Series A Senior Subordinated Convertible Redeemable Debenture issued to Akron Associates dated May 11, 2010. | 10-12G/A | 000-54018 | 4(vi) | 8/23/2010 | |
| 4(vii) | 8% Series A Senior Subordinated Convertible Redeemable Debenture issued to Desert Vista Capital, LLC dated May 11, 2010. | 10-12G/A | 000-54018 | 4(vii) | 8/23/2010 | |
| 4(viii) | Amended Certificate of Designation for Series B Preferred Stock. | 10-12G/A | 000-54018 | 4(viii) | 9/22/2010 | |
| 10(i) | 8% Convertible Promissory Note issued February 2, 2012, to Asher Enterprises, Inc. | 10-K | 000-54018 | 10(i) | 4/16/2012 | |
| 10(ii) | 11% Promissory Note issued February 27, 2012 to William and Nina Wolfson | 10-K | 000-54018 | 10(ii) | 4/16/2012 | |
| 10(iii) | May 22, 2012 Security Agreement with Richard Surber, CEO of the Company | 10-Q | 000-54018 | 10(iii) | 1/30/2012 | |
| 31.01 | Certification of the Registrant’s Chief Executive Officer, Richard D. Surber, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. | X | ||||
| 31.02 | Certification of the Registrant’s Chief Financial Officer, Richard D. Surber, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. | X | ||||
| 32.01 | Certification of the Registrant’s Chief Executive Officer, Richard D. Surber, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||
| 32.02 | Certification of the Registrant’s Chief Financial Officer, Richard D. Surber, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X |
| Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | |||
| GREEN ENDEAVORS, INC. | |||
| (Registrant) | |||
| DATE: April 2, 2013 | By: /s/ Richard D. Surber | ||
| Richard D. Surber | |||
| President, Chief Executive Officer and Director | |||
| DATE: April 2, 2013 | By: /s/ Richard D. Surber | ||
| Richard D. Surber | |||
| Chief Financial Officer | |||
37