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 June 30, 2014
OR
| o | 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 (State or Other Jurisdiction of Incorporation or Organization) | 27-3270121 (I.R.S. Employer Identification No.) |
59 West 100 South 2nd Floor Salt Lake City, Utah (Address of Principal Executive Offices) | 84101 (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
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 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):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
(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
On August 19, 2014, 2014, 195,414,505 shares of the registrant’s common stock, $0.0001 par value, were outstanding.
GREEN ENDEAVORS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
June 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 92,091 | $ | 105,984 | ||||
| Accounts receivable | 11,729 | 16,534 | ||||||
| Inventory | 137,430 | 144,317 | ||||||
| Total current assets | 241,250 | 266,835 | ||||||
| Property, plant, and equipment, net | 413,945 | 460,503 | ||||||
| Other assets | 81,886 | 63,359 | ||||||
| Total Assets | $ | 737,081 | $ | 790,697 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 370,088 | $ | 485,780 | ||||
| Deferred revenue | 53,580 | 63,830 | ||||||
| Deferred rent | 110,883 | 113,500 | ||||||
| Due to related parties | 121,566 | 109,373 | ||||||
| Derivative liability | 23,079 | 55,099 | ||||||
| Current portion of notes payable | 50,239 | 225,191 | ||||||
| Current portion of related party notes payable | 52,250 | 45,488 | ||||||
| Current portion of capital leases payable | 20,956 | 18,367 | ||||||
| Convertible notes payable, net of debt discount | 107,699 | 99,021 | ||||||
| Total current liabilities | 910,340 | 1,215,649 | ||||||
| Long-Term Liabilities: | ||||||||
| Notes payable related party | - | 6,762 | ||||||
| Notes payable | 48,744 | 59,670 | ||||||
| Capital lease obligations | 23,262 | 34,650 | ||||||
| Convertible debentures related party, net of debt discount | 2,165,589 | 2,197,723 | ||||||
| Convertible debentures, net of debt discount | - | 489,148 | ||||||
| Total long-term liabilities | 2,237,595 | 2,787,953 | ||||||
| Total Liabilities | 3,147,935 | 4,003,602 | ||||||
| Stockholders’ Deficit: | ||||||||
| Convertible supervoting preferred stock, $0.001 par value, 10,000,000 shares authorized; 10,000,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively; no liquidation value | 10,000 | 10,000 | ||||||
| Convertible preferred series B stock - $0.001 par value, 2,000,000 shares authorized, 760,488 and 561,704 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively | 761 | 562 | ||||||
| Preferred, undesignated stock - $0.001 par value 3,000,000 shares authorized, no shares issued and outstanding at June 30, 2014 and December 31, 2013 | - | - | ||||||
| Common stock, $0.0001 par value, 10,000,000,000 shares authorized; 195,414,505 and 166,572,135 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively | 19,541 | 16,657 | ||||||
| Additional paid-in capital | 610,011 | (116,841 | ) | |||||
| Accumulated deficit | (3,051,167 | ) | (3,123,283 | ) | ||||
| Total stockholders’ deficit | (2,410,854 | ) | (3,212,905 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 737,081 | $ | 790,697 | ||||
| The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
| Condensed Consolidated Statements of Operations | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | |||||||||||||
| Revenue: | ||||||||||||||||
| Services, net of discounts | $ | 628,859 | $ | 687,481 | $ | 1,245,426 | $ | 1,308,963 | ||||||||
| Product, net of discounts | 217,550 | 227,003 | 438,448 | 459,834 | ||||||||||||
| Total revenue | 846,409 | 914,484 | 1,683,874 | 1,768,797 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of services | 342,817 | 400,471 | 713,301 | 751,432 | ||||||||||||
| Cost of product | 136,704 | 104,774 | 265,507 | 242,024 | ||||||||||||
| Depreciation | 33,105 | 32,386 | 66,031 | 64,953 | ||||||||||||
| General and administrative | 313,426 | 331,747 | 668,688 | 668,561 | ||||||||||||
| Total costs and expenses | 826,052 | 869,378 | 1,713,527 | 1,726,970 | ||||||||||||
| Income (loss) from operations | 20,357 | 45,106 | (29,653 | ) | 41,827 | |||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income | 210 | 205 | 417 | 409 | ||||||||||||
| Interest expense | (11,011 | ) | (23,597 | ) | (42,105 | ) | (59,054 | ) | ||||||||
| Interest expense, related parties | (48,595 | ) | (51,983 | ) | (98,360 | ) | (102,898 | ) | ||||||||
| Gain on derivative fair value adjustment | 24,254 | 11,113 | 32,020 | 5,480 | ||||||||||||
| Gain on settlement of debt | 205,200 | - | 212,194 | - | ||||||||||||
| Other income (expense) | (1,141 | ) | 76 | (2,397 | ) | 1,232 | ||||||||||
| Total other income (expenses) | 168,917 | (64,186 | ) | 101,769 | (154,831 | ) | ||||||||||
| Net income (loss) | $ | 189,274 | $ | (19,080 | ) | $ | 72,116 | $ | (113,004 | ) | ||||||
| Net income (loss) per common share – basic and diluted | ||||||||||||||||
| Basic: | ||||||||||||||||
| Basic earnings per common share | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
| Weighted-average common shares outstanding | 195,355,209 | 25,016,498 | 184,266,206 | 23,648,448 | ||||||||||||
| Diluted: | ||||||||||||||||
| Diluted earnings per common share | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
| Weighted-average common shares outstanding | 2,106,065,006 | 25,016,498 | 2,094,976,002 | 23,648,448 | ||||||||||||
| The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| June 30, 2014 | June 30, 2013 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | 72,116 | $ | (113,004 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | 66,031 | 64,953 | ||||||
| Debt discount amortization | 25,791 | 25,818 | ||||||
| Gain on settlement of debt | (212,194 | ) | - | |||||
| Gain on derivative liability fair value adjustment | (32,020 | ) | (5,480 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 4,805 | (17,949 | ) | |||||
| Inventory | 6,887 | (13,507 | ) | |||||
| Prepaid expenses | - | 6,968 | ||||||
| Other assets | (18,527 | ) | (399 | ) | ||||
| Accounts payable and accrued expenses | 80,437 | 6,584 | ||||||
| Due to related parties | 12,193 | 69,673 | ||||||
| Deferred rent | (2,617 | ) | 78,182 | |||||
| Deferred revenue | (10,250 | ) | (4,018 | ) | ||||
| Net cash provided by (used in) operating activities | (7,348 | ) | 97,821 | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property, plant, and equipment | (19,473 | ) | (4,508 | ) | ||||
| Net cash used in investing activities | (19,473 | ) | (4,508 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments made on notes payable | (26,899 | ) | (38,808 | ) | ||||
| Payments made on related party notes payable | (38,395 | ) | (74,191 | ) | ||||
| Payments made on capital lease obligations | (8,799 | ) | (7,433 | ) | ||||
| Proceeds from issuance of notes payable | 12,021 | 38,160 | ||||||
| Proceeds from issuance of related party notes payable | - | 37,400 | ||||||
| Proceeds from issuance of convertible series B preferred stock | 75,000 | - | ||||||
| Net cash provided by (used in) financing activities | 12,928 | (44,872 | ) | |||||
| Increase (decrease) in cash | (13,893 | ) | 48,441 | |||||
| Cash at beginning of period | 105,984 | 105,984 | ||||||
| Cash at end of period | $ | 92,091 | $ | 154,425 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 11,120 | $ | 23,324 | ||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of debt | $ | - | $ | 24,675 | ||||
| Equipment purchased under capital lease | $ | - | $ | 6,042 | ||||
| Conversion of series B preferred shares to common stock | $ | 2,850 | $ | 539 | ||||
| Issuance of series B preferred shares for settlement of related party debt | $ | - | $ | 160,000 | ||||
| The accompanying notes are an integral part of these condensed consolidated financial Statements. | ||||||||
Notes to Condensed Consolidated Financial Statements
June 30, 2014 (Unaudited)
Note 1 – Nature of Operations and Basis of 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.
Principles of Consolidation
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.
Use of Estimates in the Preparation of the Financial Statements
The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
Note 2 – Summary of Significant Accounting Policies
Cash and Cash Equivalents
Investments with original maturities of three months or less at the time of purchase are considered cash equivalents. As of June 30, 2014 and December 31, 2013, 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.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014 (Unaudited)
Property, Plant, and Equipment
Property, plant, and equipment are 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 June 30, 2014 and 2013, Green recorded depreciation expense of $33,105 and $32,386, respectively. For the six month periods ended June 30, 2014 and 2013, Green recorded depreciation expense of $66,031 and $64,953, respectively.
Long-Lived Assets
We periodically review the carrying amount of our long-lived assets for impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. There were no impairments of long-lived assets during the three and six month periods ended June 30, 2014 and 2013.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Revenue Recognition
There are primary two types of revenue for the Company: 1) providing hair salon services, and 2) selling hair salon products. Revenue is recognized at the time the service is performed or the product is delivered. All revenue sources are domestic. In some cases, such as the sale of gift cards, revenue is deferred until the gift card is redeemed.
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.
Advertising
The Company expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. For the three month period ended June 30, 2014 and 2013, advertising costs amounted to $26,117 and $19,280, respectively. For the six month period ended June 30, 2014 and 2013, advertising costs amounted to $45,589 and $32,682, respectively.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014 (Unaudited)
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.
Income Taxes
Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Also, Green's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Green is 100% consolidated into its parent company, Nexia, and therefore does not file an income tax return. Its financial amounts are consolidated into the Nexia income tax returns. As of June 30, 2014 and December 31, 2013, a 100% valuation allowance has been placed against the deferred tax asset and therefore is not reflected on the balance sheets.
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income (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 three and six months ended June 30, 2014, diluted earnings per common share amounted to $.0000899 and $.0000344. For the three and six months ended June 30, 2013, 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 1,910,709,796 such potentially dilutive shares excluded as of June 30, 2013.
The following table shows the calculation of diluted common shares as of June 30, 2014:
| Diluted Shares | ||||
| Potential shares issued due to conversion of Series B Preferred Stock | 556,471,020 | |||
| Potential shares issued due to conversion of convertible debt | 354,238,776 | |||
| Potential shares issued due to conversion of Supervoting shares | 1,000,000,000 | |||
| Total potentially dilutive shares | 1,910,709,796 | |||
| Common shares outstanding | 195,414,505 | |||
| Total diluted shares | 2,106,124,301 | |||
Reclassification of Financial Statement Accounts
Certain amounts in the December 31, 2013 financial statements have been reclassified to conform to the presentation in the June 30, 2014 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.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014 (Unaudited)
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 June 30, 2014 and December 31, 2013, inventory amounted to $137,430 and $144,317, respectively.
Note 4 – Fair Value Measurements
Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of June 30, 2014 and December 31, 2013, consisted of the following:
| Total fair | Quoted prices | Significant other | Significant | |||||||||||||
| value at | in active | observable | unobservable | |||||||||||||
| June 30, | markets | inputs | inputs | |||||||||||||
| Description | 2014 | (Level) | (Level 2) | (Level) | ||||||||||||
| Derivative liability (1) | $ | (23,079 | ) | $ | - | $ | (23,079 | ) | $ | - | ||||||
| Total fair | Quoted prices | Significant other | Significant | |||||||||||||
| value at | in active | observable | unobservable | |||||||||||||
| December 31, | markets | inputs | inputs | |||||||||||||
| Description | 2013 | (Level) | (Level 2) | (Level) | ||||||||||||
| Derivative liability (1) | $ | (55,099 | ) | $ | - | $ | (55,099 | ) | $ | - | ||||||
Note 5 – Derivative Liability
As of June 30, 2014, the Company had a $23,079 derivative liability balance on the balance sheet, and for the six months ended June 30, 2014, the Company recorded a $32,020 gain from derivative liability fair value adjustment. The derivative liability activity comes from convertible notes payable as follows:
Eastshore Enterprises, Inc.
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 rate of 54% of the market price (a 46% discount) 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 years). On June 30, 2014, Green marked-to-market the fair value of the derivative liabilities related to the Eastshore Note and determined an aggregate fair value of $23,079 and recorded a $32,020 gain from change in fair value of derivative for the six month period ended June 30, 2014. 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 223%, (3) risk-free interest rate of 0.04%, (4) expected life of .13 years, and (5) estimated fair value of Green’s common stock of $0.002 per share.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014 (Unaudited)
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, $0.0001 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 June 30, 2014 and December 31, 2013, 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 as of June 30, 2013 and December 31, 2013:
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Convertible Debenture - Related Party | ||||||||
| Principal amount | $ | 2,213,591 | $ | 2,251,986 | ||||
| Debt discount | (48,002 | ) | (54,263 | ) | ||||
| Convertible debenture, net of debt discount | $ | 2,165,589 | $ | 2,197,723 | ||||
| Convertible Debenture - Unrelated Party | ||||||||
| Principal amount | $ | - | $ | 500,000 | ||||
| Debt discount | - | (10,852 | ) | |||||
| Convertible debenture, net of debt discount | $ | - | $ | 489,148 | ||||
| Convertible Debenture - Totals | ||||||||
| Principal amount | $ | 2,213,591 | $ | 2,751,986 | ||||
| Debt discount | (48,002 | ) | (65,115 | ) | ||||
| Convertible debenture, net of debt discount | $ | 2,165,589 | $ | 2,686,871 | ||||
The following table summarizes the related party amounts of principal and accrued interest on the Convertible Debentures as of June 30, 2014 and December 31, 2013:
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Principal balance | $ | 2,213,591 | $ | 2,251,986 | ||||
| Accrued interest | 44,151 | - | ||||||
| Total | $ | 2,257,742 | $ | 2,251,986 | ||||
As of June 30, 2014, amounts due to related parties are $121,566, which consists of $44,151 of accrued interest from the convertible debenture as shown in the table above, $1,722 of accrued interest for the note payable to Nexia, $75,147 owed to three subsidiaries of Nexia, $546 of accrued interest owed to Richard Surber.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014 (Unaudited)
Note 7 – Cancellation of Convertible Note Payable
On May 12, 2006, Green borrowed $171,000 from Xing Investment Corp with a convertible promissory note. The note had accrued interest of $34,200 as of June 2, 2014 for a total of principal and accrued interest of $205,200. Green has been advised by counsel that it is no longer obligated to pay the liability as a result of the passage of time pursuant to the statute of limitations. Therefore, Green recognized a $205,200 gain from the cancellation of the debt on June 2, 2014.
Note 8 – Stockholders’ Deficit
Preferred Stock
Green is authorized to issue 15,000,000 shares of preferred stock (par value $.001 per share). Green’s preferred stock may be divided into such series as may be established by the Board of Directors. As of June 30, 2014, Green has designated 12,000,000 of the preferred stock into two series as follows: 2,000,000 shares of Convertible Series B Preferred and 10,000,000 shares of Convertible Supervoting Preferred.
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.
Convertible Supervoting Preferred Stock
Each share of the Convertible 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.
During the six month period ended June 30, 2014, there were no issuances or conversions of Convertible Supervoting Preferred shares.
As of June 30, 2014 and December 31, 2013, Green had 10,000,000 and 10,000,000 shares of Convertible Supervoting Preferred stock issued and outstanding, respectively.
Convertible Series B Preferred Stock
Each share of Green’s Convertible 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 closing bid market price of Green's common stock for the five days before conversion notice date by the shareholder. Convertible Series B Preferred Stock shareholders, at the option of Green, can receive cash or common stock upon conversion.
During the six month period ended June 30, 2014, the Board of Directors approved the conversions of 33,672 shares of Convertible Series B Preferred Stock in to 28,842,370 shares of Common Stock of the Company. The shares were converted at prices ranging from $0.00340 to $0.00646 per share based on the conversion provisions for the Series B Preferred Stock designation.
During the six month period ended June 30, 2014, the Board of Directors approved the sale of 43,333 shares of Convertible Series B Preferred Stock to three investors for $75,000.
On March 28 2014, the Board of Directors approved the issuance of a total of 189,123 shares of the Company's Convertible Preferred Series B Stock in exchange for cancellation of the principal and accrued interest of the five, $100,000 each, 8% Series A Senior Subordinated Convertible Redeemable Debentures (the "Debentures"). The Debentures were held by two unrelated parties and amounted to $500,000 in principal and $161,929 of accrued interest for a total of $661,929. the Company recognized a gain of $6,994 on the transaction.
As of June 30, 2014 and December 31, 2013, Green had 760,488 and 561,704 shares of Convertible Series B Preferred stock issued and outstanding, respectively.
Common Stock
Green is authorized to issue 10,000,000,000 shares of common stock (par value $0.0001 per share).
As of June 30, 2014 and December 31, 2013, Green had 195,414,505 and 166,572,135 shares of common stock issued and outstanding, respectively.
Green Endeavors, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014 (Unaudited)
Note 9 – Concentration of Risk
Supplier Concentrations
The Company purchases most of its salon inventory that is used for service and product sales from Aveda. Aveda product purchases for the six months ended June 30, 2014 and 2013 accounted for approximately 99% and 99%, respectively, of salon products purchased.
Note 10 – 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 six months ended June 30, 2014, Green had negative working capital of $669,090 and net income of $72,116, 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 11 – Subsequent Events
In accordance with ASC 855-10 Company management reviewed all material events through the date of this report and there are no additional material subsequent events to report.
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 for the fiscal year ended December 31, 2013 and Form 10-Q for the quarter ended June 30, 2013. 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 June 30, 2013, 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 six months ended June 30, 2014 and 2013.
For the three and six months ended June 30, 2014 and June 30, 2014, 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.
Revenue
We generate revenue through the sale of services and products in the hair salon industry. For the three month periods ended June 30, 2014 and 2013, we had net sales of $846,409 and $914,484, respectively. For the six month periods ended June 30, 2014 and 2013, we had net sales of $1,683,874 and $1,768,797, respectively.
Three months ended June 30, 2014 and 2013
The following table shows the change in service revenue by salon for the three month periods ended June 30, 2014 and 2013:
| Three Months Ended | Increase (Decrease) | |||||||||||||||
| June 30, | June 30, | Over Prior Period | ||||||||||||||
| Salon | 2014 | 2013 | Dollar | Percentage | ||||||||||||
| Liberty Heights | $ | 431,617 | $ | 490,748 | $ | (59,131 | ) | -12.0 | % | |||||||
| Marmalade | 197,062 | 195,523 | 1,539 | 0.8 | % | |||||||||||
| City Creek | 180 | 1,210 | (1,030 | ) | -85.1 | % | ||||||||||
| Total Service Revenue | $ | 628,859 | $ | 687,481 | $ | (58,622 | ) | -8.5 | % | |||||||
As can be seen from the above table for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013, there was an over all 8.5% decline in service revenues. This drop in revenue is almost all due to companywide changes in staffing wherein several of the of the senior stylists who produce more revenue have been performing other non-revenue producing activities, such as training new artists in the Landis II salon as well as employee attrition and vacations.
The following table shows the change in product revenue by salon for the three month periods ended June 30, 2014 and 2013:
| Three Months Ended | Increase (Decrease) | |||||||||||||||
| June 30, | June 30, | Over Prior Period | ||||||||||||||
| Salon | 2014 | 2013 | Dollar | Percentage | ||||||||||||
| Liberty Heights | $ | 118,758 | $ | 125,992 | $ | (7,234 | ) | -5.7 | % | |||||||
| Marmalade | 50,277 | 52,682 | (2,405 | ) | -4.6 | % | ||||||||||
| City Creek | 48,515 | 48,329 | 186 | 0.4 | % | |||||||||||
| Total Product Revenue | $ | 217,550 | $ | 227,003 | $ | (9,453 | ) | -4.2 | % | |||||||
As can be seen from the above table for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013, there was an over-all 4.2% decline in product revenues. This drop in revenue is almost all due to companywide changes in staffing wherein several of the of the senior stylists who produce more revenue have been performing other non-revenue producing activities, such as training new artists in the Landis II salon as well as employee attrition and vacations.
Six months ended June 30, 2014 and 2013
The following table shows the change in service revenue by salon for the six month periods ended June 30, 2014 and 2013:
| Six Months Ended | Increase (Decrease) | |||||||||||||||
| June 30, | June 30, | Over Prior Period | ||||||||||||||
| Salon | 2014 | 2013 | Dollar | Percentage | ||||||||||||
| Liberty Heights | $ | 869,208 | $ | 934,526 | $ | (65,318 | ) | -7.0 | % | |||||||
| Marmalade | 375,783 | 371,593 | 4,190 | 1.1 | % | |||||||||||
| City Creek | 435 | 2,844 | (2,409 | ) | -84.7 | % | ||||||||||
| Total Service Revenue | $ | 1,245,426 | $ | 1,308,963 | $ | (63,537 | ) | -4.9 | % | |||||||
As can be seen from the above table for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, there was an over all 4.9% decline in service revenues. This drop in revenue is almost all due to companywide changes in staffing wherein several of the of the senior stylists who produce more revenue have been performing other non-revenue producing activities, such as training new artists in the Landis II salon as well as employee attrition and vacations.
The following table shows the change in product revenue by salon for the six month periods ended June 30, 2014 and 2013:
| Six Months Ended | Increase (Decrease) | |||||||||||||||
| June 30, | June 30, | Over Prior Period | ||||||||||||||
| Salon | 2014 | 2013 | Dollar | Percentage | ||||||||||||
| Liberty Heights | $ | 241,933 | $ | 259,977 | $ | (18,044 | ) | -6.9 | % | |||||||
| Marmalade | 99,757 | 105,519 | (5,762 | ) | -5.5 | % | ||||||||||
| City Creek | 96,758 | 94,338 | 2,420 | 2.6 | % | |||||||||||
| Total Product Revenue | $ | 438,448 | $ | 459,834 | $ | (21,386 | ) | -4.7 | % | |||||||
As can be seen from the above table for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, there was an over all 4.7% decline in product revenues. This drop in revenue is almost all due to companywide changes in staffing wherein several of the of the senior stylists who produce more revenue have been performing other non-revenue producing activities, such as training new artists in the Landis II salon as well as employee attrition and vacations.
Costs of Revenue
Three months ended June 30, 2014 and 2013
The following table shows cost of revenue by type as a percentage of related revenue for the three month periods ended June 30, 2014 and 2013:
| Three Months Ended | ||||||||
| June 30, | June 30, | |||||||
| 2014 | 2013 | |||||||
| Services | 54.5% | 58.3% | ||||||
| Product | 62.8% | 46.2% | ||||||
The above table shows the cost of services revenue being 3.7% less for the three month period ended June 30, 2014 as compared to the three month period ended June 30, 2013. This decrease in service cost is primarily due to decreased professional products used for services. The 16.7% increase in product costs for the same comparable period is primarily due to shrinkage adjustments in inventory and a decrease in the Aveda rebate during the three month period ended June 30, 2014 as compared to the comparable period ended June 30, 2013, respectively.
Six months ended June 30, 2014 and 2013
The following table shows cost of revenue by type as a percentage of related revenue for the six month periods ended June 30, 2014 and 2013:
| Six Months Ended | ||||||||
| June 30, | June 30, | |||||||
| 2014 | 2013 | |||||||
| Services | 57.3% | 57.4% | ||||||
| Product | 60.6% | 52.6% | ||||||
The above table shows the cost of services revenue being 0.1% less for the six month period ended June 30, 2014 as compared to the three month period ended June 30, 2013. This minor decrease in service cost is primary due to better efficiencies product used for services. The 7.9% decrease in product costs for the same comparable period is primarily due to shrinkage adjustments in inventory and a decrease in the Aveda rebate during the six month period ended June 30, 2014 as compared to the comparable period ended June 30, 2013, respectively.
Operating Expenses
Three months ended June 30, 2014 and 2013
The following table shows general and administrative expenses for the three months ended June 30, 2014 and 2013:
| Three Months Ended | ||||||||||||
| June 30, | June 30, | |||||||||||
| 2014 | 2013 | Change | ||||||||||
| Salaries and wages | $ | 106,944 | $ | 106,054 | $ | 890 | ||||||
| Rent | 52,905 | 56,682 | (3,777 | ) | ||||||||
| Advertising | 26,117 | 19,280 | 6,837 | |||||||||
| Credit card merchant fees | 5,988 | 21,959 | (15,971 | ) | ||||||||
| Insurance | 15,794 | 27,506 | (11,712 | ) | ||||||||
| Utilities and telephone | 14,585 | 13,046 | 1,539 | |||||||||
| Professional services | 51,057 | 44,033 | 7,024 | |||||||||
| Repairs and maintenance | 7,892 | 4,605 | 3,287 | |||||||||
| Dues and subscriptions | 6,106 | 5,904 | 202 | |||||||||
| Office expense | 13,598 | 9,671 | 3,927 | |||||||||
| Travel | 884 | 2,864 | (1,980 | ) | ||||||||
| Investor relations and company promotion | 975 | 9,375 | (8,400 | ) | ||||||||
| Other | 10,581 | 10,768 | (187 | ) | ||||||||
| Total general and administrative expenses | $ | 313,426 | $ | 331,747 | $ | (18,321 | ) | |||||
The above table shows a $18,321 decrease in general and administrative expenses. This is primarily due to decreases in expenses for credit card merchant fees, insurance, and investor relations / company promotion for the comparable period.
Depreciation expense for the three months ended June 30, 2014, was $33,105 as compared to $32,386 for the comparable three months ended June 30, 2013. This minor $719 increase is primarily due to a slight increase depreciable assets for the three months ended June 30, 2014 as compared to the three month period ended June 30, 2013.
Six months ended June 30, 2014 and 2013
The following table shows general and administrative expenses for the six months ended June 30, 2014 and 2013:
| Six Months Ended | ||||||||||||
| June 30, | June 30, | |||||||||||
| 2014 | 2013 | Change | ||||||||||
| Salaries and wages | $ | 219,324 | $ | 216,760 | $ | 2,564 | ||||||
| Rent | 105,643 | 115,396 | (9,753 | ) | ||||||||
| Advertising | 45,589 | 32,682 | 12,907 | |||||||||
| Credit card merchant fees | 21,025 | 38,893 | (17,868 | ) | ||||||||
| Insurance | 31,023 | 41,557 | (10,534 | ) | ||||||||
| Utilities and telephone | 29,734 | 28,366 | 1,368 | |||||||||
| Professional services | 129,666 | 116,204 | 13,462 | |||||||||
| Repairs and maintenance | 17,802 | 12,691 | 5,111 | |||||||||
| Dues and subscriptions | 12,740 | 11,277 | 1,463 | |||||||||
| Office expense | 22,808 | 20,325 | 2,483 | |||||||||
| Travel | 4,798 | 6,961 | (2,163 | ) | ||||||||
| Investor relations and company promotion | 9,240 | 9,869 | (629 | ) | ||||||||
| Other | 19,296 | 17,580 | 1,716 | |||||||||
Total General and administrative expenses | $ | 668,688 | $ | 668,561 | $ | 127 | ||||||
The $127 increase in general and administrative expenses over the comparable period is primarily due various changes in expenses that net to an insignificant amount.
Depreciation expense for the six months ended June 30, 2014, increased to $66,031 from $64,953 for the six months ended June 30, 2014. This minor $1,078 increase is primarily due to a slight increase depreciable assets for the six months ended June 30, 2014 as compared to the six month period ended June 30, 2013.
Other Income (Expense)
Three months ended June 30, 2014 and 2013
Other income (expense) for the six months ended June 30, 2014, was $101,769 as compared to expense of ($154,831) for the comparable six months ended June 30, 2013, an increase of $256,600. This increase over the comparable quarterly period is primarily due to a $212,194 gain on settlement of debt.
Liquidity and Capital Resources
Cash and Investments in marketable securities
Cash and Investments in marketable securities
As of June 30, 2014 and December 31, 2013, our principal source of liquidity was cash that consisted of $92,091 and $105,984, respectively. Our primary sources of cash are from customer payments for salon services and products and cash proceeds from the issuance of convertible notes payable and notes payable. Our primary uses of cash were for payments relating to salaries, benefits, rent, and other general operating expenses as well as payments of notes payable.
Working Capital
We had a working capital deficit of $669,090 as of June 30, 2014 compared to a deficit of $949,814 as of December 31, 2013. Our current assets were $241,250, which consisted of $92,091 in cash, $11,729 in accounts receivable, and $137,430 in inventory. Our total assets were $737,081, which included the $241,250 of current assets discussed above, $413,945 in property and equipment (net), and $81,886 in other assets. Our current liabilities were $910,340, including $370,088 in accounts payable and accrued expenses, $53,580 in deferred revenue, $110,883 in deferred rent, $121,566 in amounts due to related parties, $23,079 in a derivative liability, $71,195 in the current portion of notes and capital leases payable, $52,250 in the current portion of amounts due to related parties, and $107,699 in convertible notes payable, net. Our long-term liabilities were $2,237,595. Our total stockholders’ deficit at June 30, 2014 was $2,410,854.
Working capital increased by $279,724 as of June 30, 2014, as compared to December 31, 2013 primarily due to a $205,200 decrease of convertible debt in addition to the other various changes in current assets and current liabilities that net to the overall change in working capital for the six month period.
Cash Flows from Operating Activities
Cash flows from operating activities for the six months ended June 30, 2014 include net loss, adjusted for certain non-cash charges, as well as changes in the balances of certain assets and liabilities. Net cash used by operating activities for the six months ended June 30, 2014 was $7,348 as compared to $97,821 provided by operating activities for the six months ended June 30, 2013. For the six months ended June 30, 2014, net loss decreased by $185,120. For the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 significant changes include: $26,540 in the gain on derivative liability fair value adjustment, $57,480 in the amounts due to related parties, and $80,799 in the change of deferred rent.
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 twelve months.
Cash Flows from Investing Activities
Cash flow used in investing activities for the six months ended June 30, 2014 was $19,473 as compared to $4,508 for the six months ended June 30, 2013, a $14,965 difference due to the increased amount of salon equipment purchased during the six month period ended June 30, 2013.
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
Cash flow provided by financing activities for the six months ended June 30, 2014 was $12,928 as compared to $(44,872) used by financing activities for the six months ended June 30, 2013, for a difference of $57,800. The primary reason for this difference is that the Company received $75,000 from the issuance of convertible series B preferred stock during the six months ended June 30, 2014 and the corresponding amount was $0 for the six month period ending June 30, 2013.
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 $669,090 as of June 30, 2014. 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.
8% Series A Senior Subordinated Convertible Redeemable Debentures
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. The debenture holder 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, $0.0001 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.
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, 2013 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 June 30, 2014 and December 31, 2013, 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 June 30, 2014.
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 performed every fiscal quarter so that our conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. We intend to maintain these disclosure controls and procedures and to modifying them as circumstances warrant.
Based on evaluation as of June 30, 2014, the CEO and CFO have 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 (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) 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
Based on management's most recent evaluation of our company's internal control over financial reporting, management determined that there were no changes in our company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting that occurred during the most recent fiscal quarter.
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.
Potential Causes of Action: Management has reported that they intend to file suit against Southridge Partners II, LP, the current holders of a Promissory Note in the amount of $75,000 dated August 15, 2012 for fraud in the inducement related to the creation of the note and the failure of Southridge to have provided any valuable consideration in exchange for the note. Suit would seek to have the note declared invalid and unenforceable as between the parties. Southridge has indicated that it intends to file suit to compel the company to convert 4,205 shares of its Series B preferred stock into common stock (with a value of $21,025.00) or the recovery of damages resulting from the refusal to convert. As of the filing of this report neither side has filed the discussed causes of action. The potential for settlement of the competing claims does not appear to be favorable at the current time.
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 $500,000. 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.
As of August 19, 2014, the 10,000,000 shares of Supervoting Preferred Stock (100 votes for each share) held by Nexia combined with the 96,493,181 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 1,096,493,181 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.
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 product and service sales results for the six month periods ended June 30, 2014 and 2013. When there is an economic downturn, customers tend to wait longer periods of time between visits. However, we continue to have sales increases subsequent to June 30, 2013. 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 a Director.
We are dependent on the services of Richard Surber, our President, CEO, 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 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 Keiji. 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 “Pink Sheets,” 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 six 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.
On February 12, 2014, the Board of Directors approved the issuance of 10,000 shares of Convertible Preferred Series B Stock in exchange for $20,000 in cash.
On February 14, 2014, the Board of Directors approved the conversion of 5,795 shares of Series B Preferred Stock held by an investor into 6,965,144 shares of Common Stock. The shares were converted at $0.00416 per share based on the conversion provisions for the Series B Preferred Stock designation.
On March 12, 2014, the Board of Directors approved the issuance of 10,000 shares of Convertible Preferred Series B Stock in exchange for $20,000 in cash.
On March 14, 2014, the Board of Directors approved the conversion of 11,245 shares of Series B Preferred Stock held by an investor into 8,650,000 shares of Common Stock. The shares were converted at $0.0065 per share based on the conversion provisions for the Series B Preferred Stock designation.
On March 17, 2014, the Board of Directors approved the conversion of 10,100 shares of Series B Preferred Stock held by an investor into 7,890,625 shares of Common Stock. The shares were converted at $0.0064 per share based on the conversion provisions for the Series B Preferred Stock designation.
On March 28 2014, the Board of Directors approved the issuance of a total of 189,123 shares of the Company's Convertible Preferred Series B Stock in exchange for cancellation of the principal and accrued interest of the five, $100,000 each, 8% Series A Senior Subordinated Convertible Redeemable Debentures (the "Debentures"). The Debentures were held by two unrelated parties and amounted to $500,000 in principal and $161,929 of accrued interest for a total of $661,929. The Company recognized a $6,994 gain on the transaction.
On April 2, 2014, the Board of Directors approved the conversion of 6,532 shares of Series B Preferred Stock held by an investor into 5,336,601 shares of Common Stock. The shares were converted at $0.00612 per share based on the conversion provisions for the Series B Preferred Stock designation.
On June 25, 2014, the Board of Directors approved the issuance of 10,000 shares of Convertible Preferred Series B Stock in exchange for $15,000 in cash.
On June 30, 2014, the Board of Directors approved the issuance of 13,333 shares of Convertible Preferred Series B Stock in exchange for $20,000 in cash.
Subsequent Events
None as of the date of filing.
In the above transactions, the Board of Directors relied upon Rule 506 of the Securities Act of 1933 in originally issuing the convertible notes or preferred stock and in the subsequent issuances resulting from conversions of the notes and preferred securities into common stock were done pursuant to Rule 4(2) of the Securities Act of 1933 and the resales by the holders were carried out in reliance on Rule 144.
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) | Agreement and General Release with Akron Associates, Inc. March 28, 2014 | 8-K | 4/2/2014 | |||
| 10(ii) | Agreement and General Release with Desert Vista Capital, LLC, March 28, 2014 | 8-K | 4/2/2014 | |||
| 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, Scott C. Coffman, 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, Scott C. Coffman, 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: August 19, 2014 By: /s/ Richard D. Surber
Richard D. Surber
President, Chief Executive Officer and Director
DATE: August 19, 2014 By: /s/ Scott C. Coffman
Scott C. Coffman
Chief Financial Officer and Director
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