GWTI Greenway Technologies Inc (PK)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

NOTE 1 – ORGANIZATION

Nature of Operations

Greenway Technologies, Inc. ("Greenway” or the "Company") was organized on March 13, 2002 under the laws of the State of Texas as Dynalyst Manufacturing Corporation.  On August 18, 2009, in connection with a merger with Universal Media Corporation, a privately held Nevada company, the Company changed its name to Universal Media Corporation ("UMC").  The company changed its name to Greenway Technologies, Inc. on March 23, 2011. 

The Company’s mission is to operate as a holding company through the acquisition of businesses as wholly-owned subsidiaries that meet some key requirements: (1) solid management that will not have to be replaced in the near future (2) the ability to grow with steady growth to follow and (3) an emphasis on emerging core industry markets, such as energy and metals.  It is the Company’s intention to add experienced personnel and select strategic partners to manage and operate the acquired business units.

In September 2010, the Company acquired 1,440 acres of placer mining claims on Bureau of Land Management land in Mohave County, Arizona. Due to the Company not producing any revenues from its BLM mining leases since its acquisition of the leases, achieving a position of producing cash flow levels to fund the development of its BLM mining leases in December 2010 and not having current resources for an appraisal, we recognized an impairment charge of $100,000 during the year ended December 31, 2014.

In August 2012, the Company acquired 100% of Greenway Innovative Energy, Inc. (sometimes, “GIE”) which owns patents and trade secrets for a proprietary process and related technology to convert natural gas into synthesis gas (syngas). Syngas is an important intermediate gas used by industry in the production of ammonia, methane, liquid fuels, and other downstream products. The Company’s unique process is called Fractional Thermal Oxidation™ (FTO). When combined with a conventional Fischer-Tropsch (FT) system, we will be able to offer a new economical, relatively small scale (125 to 2,475 bbls/day) method of converting gas-to-liquids (GTL) that can be located in field locations where needed.

NOTE 2 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES

Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of Greenway and its wholly-owned subsidiaries. The Company entered into an agreement with Jet Regulators at December to return its ownership interest for the return of 300,000 shares of the Company's common stock. All significant inter-company accounts and transactions were eliminated in consolidation.

The accompanying consolidated financial statements include the accounts of the following entities:

  Going Concern Uncertainties

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company sustained a loss of approximately $3.2 million for the year ended December 31, 2018 and has a working capital deficiency of approximately $4.7 million and liabilities in excess of assets of approximately $2.7 million at December 31, 2017. The ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations or on the ability of the Company to obtain necessary financing to fund ongoing operations. Management believes that its current and future plans enable it to continue as a going concern for the next twelve months.

The accompanying consolidated financial statements do not include any adjustment to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies applied in the presentation of the consolidated financial statements are as follows.

Property and Equipment

Property and equipment is recorded at cost. Major additions and improvements are capitalized. The cost and related accumulated depreciation of equipment retired or sold, are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale or salvage value are recorded as a gain or loss on sale of equipment. Depreciation is computed using the straight-line method over the estimated useful life of the assets.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with Accounting Standards Codification, ASC Topic 360, Property, Plant and Equipment .  An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected to generate.  If an asset or asset group is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value.  If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.

Revenue Recognition

The FASB issued ASC 606 as guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The company adopted the guidance on January 1, 2018 and applied the cumulative catch-up transition method. The transition adjustment to be recorded to stockholders’ equity upon adoption of the new standard did not have a material effect upon the financial statements.

 The Company has not, to date, generated any revenues.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amount of revenue and expenses during the reported period.  Actual results could differ materially from the estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three-months or less to be cash equivalents.  There were no cash equivalents at December 31, 2018, or December 31, 2017.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

The Company has adopted the provisions of FASB ASC 740-10-05 Accounting for Uncertainty in Income Taxes . The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.  The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Open tax years, subject to IRS examination include 2014 – 2017.

Net Loss Per Share, basic and diluted

Basic loss per share has been computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Shares issuable upon the exercise of warrants (17,265,893) have been excluded as a common stock equivalent in the diluted loss per share because their effect would be anti-dilutive.

Derivative Instruments

The Company accounts for derivative instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.  They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

See Note 7 below for discussion regarding convertible notes payable and warrants.

  Fair Value of Financial Instruments

Effective January 1, 2008, fair value measurements are determined by the Company’s adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities, as permitted. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three levels as follows:

Level 1 – Valuation based on unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2 – Valuation based on, observable inputs (other than level one prices), quoted market prices for similar assets such as at the measurement date; quoted prices in the market that are not active; or other inputs that are observable, either directly or indirectly.

Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.

Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount (“OID”).  An OID is the difference between the original cash proceeds and the amount of the note upon maturity. The Note is originally recorded for the total amount payable. The OID is amortized into interest expense pro-rata over the term of the Note.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The valuation of the Company’s notes recorded at fair value is determined using Level 3 inputs, which consider (i) time value, (ii) current market and (iii) contractual prices.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, receivables, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments.

The following table represents the Company’s assets and liabilities by level measured at fair value on a recurring basis at December 31, 2018 and 2017:

The following assets and liabilities are measured on the balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances of the liabilities:

All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other interest income and expense in the accompanying consolidated financial statements.

 The change in the notes payable at fair value for the year ended December 31, 2018, is as follows:

Stock Based Compensation

The Company follows Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non-employees be recognized in the income statement based on their fair values.

At December 31, 2018, the Company did not have any outstanding stock options.

Concentration and Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company places its cash with high credit quality institutions.  At times, such deposits may be in excess of the FDIC insurance limit.

Research and Development

The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $630,518 and $867,052 during the years ended December 31, 2018 and 2017, respectively.

Issuance of Common Stock

The issuance of common stock for other than cash is recorded by the Company at market values.

Impact of New Accounting Standards

The FASB issued ASC 606 as guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The company adopted the guidance on January 1, 2018 and applied the cumulative catch-up transition method. The transition adjustment to be recorded to stockholders’ equity upon adoption of the new standard was not material.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

(1)        On September 14, 2018, the Company entered into a loan agreement with Mabert LLC, an entity owned by a director and stockholder, Kevin Jones, for the purpose of funding working capital and general corporate expenses up to $1,500,000 for the Company. Mabert is acting as the agent for various private lenders to the Company and has loaned $728,869 through December 31, 2018. The loan is secured and Mabert filed a UCC-1 with the State of Texas. The Loan Agreement, Security Agreement and UCC-1filing are attached hereto as Exhibits 10.48–10.50. The Company agreed to issue warrants for Class A common stock valued at $0.01 per share on a 3.67:1 and/or 2:1 basis for each dollar borrowed. For the year ended December 31, 2018, the Company issued 1,624,404 warrants. Of this number, 766,667 warrants were converted to common stock in January 2019.

(2)       This loan is in default. By its terms, the cash interest payable increased to 18% per annum on December 20, 2018 and continues at such rate until the default is cured or is paid at term.

(3)       This loan is in default. By its terms, the cash interest payable increased to 18% per annum on April 1, 2018 and continues at such rate until the default is cured or is paid at term.

NOTE 6 – 2017 CONVERTIBLE PROMISSORY NOTES

The Company issued a $166,667 convertible promissory note bearing interest at 4.50% per annum to an accredited investor, payable in equal installments of $6,000 commencing February 1, 2018 plus interest at rate of 4% per annum on December 20, 2018 and $80,000 plus accrued interest on December 20, 2019.  The holder has the right to convert the note into common stock of the Company at a conversion price of $0.08 per share for each one dollar of cash payment which may be due (which would be 1,083,333 shares for the $86,667 payment and 1,000,000 shares for the $80,000 payment. As of December 20, 2018, a material event of default has occurred. The holder has the right but has not noticed the Company of its intent to convert.

The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible Note did not resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature on the note was valued at $27,083 based on the $0.013 difference between the market price of $0.093 and the conversion price of $0.08 times the 2,083,325 conversion shares. As a result of the event of default, the discount related to the beneficial conversion feature has been extinguished for the balance of 2018, and until the event of default is cured or the note is converted to common shares. 

The Company issued a $150,000 convertible promissory note bearing interest at 4.50% per annum to an accredited investor, payable in equal installments of $6,000 plus accrued interest until the principal and accrued interest are paid in full.  The holder has the right to convert the note into common stock of the Company at a conversion price of equal to 70% of the prior twenty (20) days average closing market price of the Company’s common stock. As of April 1, 2018, a material event of default has occurred. The holder has the right but has not noticed the Company of its intent to convert.

The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock. The discount of $58,595 related to the beneficial conversion feature is being amortized over the term of the debt. The discount related to the beneficial conversion feature on the note was valued at $150,000 based on the  Black-Scholes Model . During the year ended December 31, 2018, the remaining discount was fully amortized. The derivative liability for this note at December 2018 was $103,476, computed as follows. This note is in default and the terms are being renegotiated between the parties.

NOTE 7 – MAY 4, 2016 CONVERTIBLE PROMISSORY NOTE

May 2016 Convertible Note

On May 4, 2016, the Company issued a $224,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable beginning November 10, 2016, in monthly installments of $44,800 plus accrued interest and a cash premium equal to 10.0% of the installment amount.  The convertible promissory note was paid in full on March 4, 2017.  The holder had the right under certain circumstances to convert the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.

The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock.

The discount related to the beneficial conversion feature on the note was valued at $224,000 based on the Black-Scholes Model . The discount related to the beneficial conversion feature ($51,829) was amortized over the term of the debt (10 months).  For the year ended December 31, 2017, the Company recognized interest expense of $9,327 related to the amortization of the discount.

In connection with the issuance of the $224,000 note, the Company recorded debt issue cost and discount as follows:

NOTE 9– CAPITAL STRUCTURE

The Company is authorized to issue 300,000,000 shares of class A common stock with a par value of $.0001 per share and 20,000,000 shares of class B stock with a par value of $.0001 per share.  Each Class A common stock share has one voting right; the Class B common shares do not have voting rights, but retain a preferential right to dividends, if and when declared by the Board of Directors.

Class A Common Stock

At December 31, 2018, there were 286,703,915 shares of Class A common stock issued and outstanding.

During the year ended December 31, 2018, the Company: issued 5,655,253 shares of restricted Class A common stock to 22 individuals through private placements for cash of $$601,517 at average of $0.106 per share.

• issued 500,000 shares of restricted common stock for consulting services of $838,650 at average of $.0129 per share.

• issued 3,000,000 of restricted common stock to one shareholder in settlement of a shareholder obligation for a total value of $330,000 at an average of $0.11 per share.

• Issued 1,600,000 of restricted common stock to one shareholder in settlement of a debt that had warrants attached. The total was a value of $208,000 at an average of $0.13 per share.

• canceled 11,733,164 of treasury shares.

At December 31, 20187, there were 287,681,826 shares of Class A common stock issued and outstanding.

During the year ended December 31, 201, the Company: issued 21,004,716shares of restricted class A common stock to sixty-five individuals through private placements for cash of $2,191,750 at average of $0.104 per share.

• issued 6,356,666 shares of restricted common stock for consulting services of $838,650 at average of $.0129 per share.

• issued 7,346,000 of restricted common stock to eight shares in settlement of Shareholder disputes for a total value of $898,940 at an average of $0.122 per share.

• issued 29,500,000 shares of restricted class A common stock to five directors and valued the shares at $0.14 per share for a total value of $4,130,000.
• canceled 8,337,860 of treasury shares.

Class B Stock

At December 31, 2018 and 2017, there were 0 and 0 shares of Class B stock issued and outstanding, respectively.

During the year ended December 31, 2017, the Company; exchanged 630,000 shares of Class A common stock for 62,986 Class B shares with a shareholder who held Class B shares from the 2009 merger agreement between the Company and Dynalyst Manufacturing Corporation which set a conversion rate of 15 to 1. The Company negotiated the 630,000 shares when the Class B shareholder elected to convert.

• exchanged (on a one for one basis) 63,932 shares of Class A common stock for 63,932 Class B shares with shareholders who acquired the class B shares after the 2009 merger agreement between the Company and Dynalyst Manufacturing Corporation.

During the year ended December 31, 2016, the Company issued 15,000,000 shares of Class A shares in exchange for 15,000,000 Class B shares issued in 2011.

Stock options, warrants and other rights

At December 31, 2018, the Company has not adopted any employee stock option plans.

On February 3, 2017, the Company issued 6,000,000 warrants (4,000,000 at $0.35 for two years and 2,000,000 at $0.45 for three years) as part of a separation agreement with a co-founder and former president. The Company valued the warrants as of March 31, 2017, at $639,284 using the Black-Scholes Model with expected dividend rate of 0%, expected volatility rate of 455%, expected conversion term of two and three years and risk-free interest rate of 1.75%.

On November 30, 2017, the Company issued 1,000,000 warrants at $0.30 for three years as part of a settlement of a shareholder dispute with MTG Holdings, Inc. The Company valued the warrants as of December 31, 2017, at $95,846 using the Black-Scholes Model with expected dividend rate of 0%, expected volatility rate of 116%, expected conversion term of two and three years and risk-free interest rate of 1.37%. These warrants were extinguished in the comprehensive settlement agreement reached in March 2019. See Subsequent Events Note 14.

On January 8, 2018, the Company issued 4,000,000 warrants at a purchase price of $0.15 per share to a director, Kent Harer, in exchange for his return of 3,000,000 shares of Class A common stock he had been prior granted. The 3,000,000 shares issued were valued and recorded for $490,000 during 2017. The value of $490,000 remained on the books as it reflects the event that occurred in 2017. The warrants shall be void and of no effect and all rights thereunder shall cease at 5:00 pm, Fort Worth, Texas time on January 8, 202

In conjunction with the Mabert LLC Loan Agreement described herein above, the Company issued a combined total of 1,624,404 warrants at a purchase price of $0.01 per share for fifteen (15) years in the two quarters ending December 31, 2018. In the third quarter ending September 30, 2018, the Company issued 366,667 warrants. In the fourth quarter, the Company issued 1,257,737 warrants, including 1,057,737 warrants to Kevin Jones, a director, and his spouse for loans they each separately made totaling $428,868 and $100,000 respectively, and 200,000 warrants to a third-party lender. All such warrants, excluding Mr. Jones’, were converted to common stock in January 2019.

NOTE 10 - RELATED PARTY TRANSACTIONS

Through December 31, 2018, Shareholders, including Kevin Jones, a director and greater than 5% shareholder, made loans and advances to the Company in the amount of $878,869, of which $728,869 was made through Mabert, LLC a company that Mr. Jones controls, as compared to $219,509 (Tunstall Canyon Group $166,667, Kevin Jones $51,342 and Pat Six $1,500) through December 31, 2017. During the year ended December 31, 2107, a shareholder and former president and director, Richard Halden purchased 2,250,000 shares of class A common stock for $225,000 ($0.010 per shares and Kevin Jones received repayment of a prior $59,690 loan.

After approval during a properly called special meeting of the board of directors, on September 14, 2018 Mabert, LLC, a Texas Limited Liability Company owned by a director and stockholder, Kevin Jones and his wife Christine Early, entered into a loan agreement for the purpose of funding working capital and general corporate expenses up to $1,500,000 for the Company. Mabert is acting as the agent for the lenders to the Company. The Company bylaws provide no bar from transactions with Interested Directors, so long as the interested party does not vote on such transaction. Mr. Jones did not vote on this transaction. Since the inception of the Loan Agreement, a total of $$728,869 has been loaned to the Company by four shareholder individuals, including Mr. Jones through Mabert, LLC.

Through Mabert, Mr. Jones along with his wife and his company have loaned $528,869, and two other shareholders have loaned the balance. These loans are secured by the assets of the Company. A financing statement and UCC-1 have been filed according to Texas statutes. Should a default under the loan agreement occur, there could be a foreclosure or a bankruptcy proceeding filed by the Agent for these Shareholders. The actions of the Company in case of default can only be determined by the Shareholders. A foreclosure sale or distribution through bankruptcy could only result in the creditors receiving a pro rata payment based upon the terms of the loan agreement. Mabert did not nor will it receive compensation for its efforts.

Through December 31, 2017, affiliate shareholders made loans and advances to the Company in the amounts of $219,509 (Tunstall Canyon Group $166,667, Kevin Jones $51,342 and Pat Six $1,500) during the year ended December 31, 2017. Also during the year ended December 31, 2107, a former director, president and greater than 5% shareholder Richard Halden purchased 2,250,000 shares of class A common stock for $225,000 ($0.010 per share) and Kevin Jones received repayment of a prior $59,690 loan.

NOTE 11 – INCOME TAXES

At December 31, 2018 and 2017, the Company had approximately $3.2 million and approximately $9.5 million, respectively, of net operating losses ("NOL") carry forwards for federal and state income tax purposes.  These losses are available for future years and expire through 2035.  Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.  

The provision for income taxes for continuing operations consists of the following components for the years ended December 31, 2018 and 2017:

A comparison of the provision for income tax expense at the federal statutory rate of 21% for the years ended December 31, 2018 and 2017 the Company's effective rate is as follows:

The net deferred tax assets and liabilities included in the financial statements consist of the following amounts at December 31, 2018 and December 31, 2017: 

The change in the valuation allowance was $242,037 and $12,784,855 for the years ended December 31, 2018 and 2017, respectively.  The Company has recorded a 100% valuation allowance related to the deferred tax asset for the loss from operations, interest expense, interest income and other income subsequent to the change in ownership, which amounted to $26,818,584 and $23,623,602 at December 31, 2018 and 2017 respectively.  

Utilization of the Company’s net operating losses may be subject to substantial annual limitation if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and similar state provisions. Such an ownership change would substantially increase the possibility of net operating losses expiring before complete utilization.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, historical taxable income including available net operating loss carry forwards to offset taxable income, and projected future taxable income in making this assessment.

NOTE 13 – COMMITMENTS 

Employment Agreements

In August 2012, the Company entered into employment agreements with Ray Wright, president of Greenway Innovative Energy, Inc., now chairman of the board for a term of 5 years with compensation of $90,000 per year. In July 2014, the president's employment agreement was amended to increase his annual pay to $180,000. By its terms, the employment agreement automatically renewed on August 12, 2018 for a successive one-year period. During the years ended December 31, 2018 and 2017, the Company paid and accrued a total of $180,000 and $180,000, respectively, for the annual compensation payments, as well as accrued an additional $435,000 as an adjustment for prior periods not correctly accounted for.

Effective May 10, 2018, the Company entered into employment agreements with John Olynick, as President and Ransom Jones, as Chief Financial Officer, respectively. The terms and conditions of their employment agreements are identical. John Olynick, as President earns a salary of $120,000 per year. Ransom Jones, as Chief Financial Officer, earns a salary of $120,000 per year. Mr. Jones also serves as the Company’s Secretary and Treasurer. During each year that their Agreements are in effect, they are each entitled to receive a bonus (“Bonus”) equal to at least Thirty-Five Thousand Dollars ($35,000) per year. They are also entitled to certain additional stock grants based on the performance of the Company during the term of their employment. They are each entitled to a grant of common stock (the “Stock Grant”) on the Effective Date equal to 250,000 shares each of the Company’s Common Stock, par value $.0001 per share (the “Common Stock”), such shares vesting immediately. They are also entitled to participate in the Company’s benefit plans.

The foregoing summary of the Employment Agreements is qualified in its entirety by reference to the actual true and correct Employment Agreements, copies of which are attached hereto as Exhibit 10.39 and 10.40.

In the August 2012 acquisition agreement with Greenway Innovative Energy, Inc. (“GIE”), the Company agreed to: (i) issue an additional 7,500,000 shares of restricted common stock when the first portable GTL unit is built and becomes operational, and, is capable of producing 2,000 barrels of diesel or jet fuel per day, and (ii) pay a 2% royalty on all gross production sales on each unit placed in production. In connection with a settlement agreement with the Greer Family Trust (‘Trust”), the successor owner of one of the two founders and prior owners of GIE on February 6, 2018, the Company exchanged Greer’s half of the 7,500,000 shares (3,750,000 shares) to be issued in the future, Greer’s half of the 2% royalty, a termination of Greer’s then current Employment Agreement and the Trust's waiver of any future claims against the Company for any reason, for the issuance and delivery to the Trust of three million (3,000,000) restricted shares of the Company’s common stock, and a Promissory Note for $150,000. As a result, only 3,750,000 shares are committed to be later issued under the original 2012 acquisition agreement. A copy of the Settlement Agreement and Promissory Note is attached hereto as Exhibit 10.36.

Consulting Agreements

On April 13, 2018, the Company entered into a consulting agreement with an individual, Gary L. Ragsdale, Ph.D., P.E., to provide research and development support of the Company’s GTL technology development, including but not limited to chemical modeling and simulations, operational validation, operating plant forecasts, ancillary product analysis and general technical advisory services. Terms include payment of billable time at $40.00 per hour, plus approved expenses, retroactive to January 1, 2017. The term of the agreement is indefinite, unless otherwise terminated with written notice by the parties. Dr. Ragsdale continues to provide services to the Company under the current agreement.

On April 13, 2018, the Company entered into a consulting agreement with an individual, John Olynick, to provide general advisory services, including but not limited to advice and support for funding discussions, creation of presentations, document and contract preparation. Terms include payment of billable time at $40.00 per hour, plus approved expenses, retroactive to January 1, 2017. The term of the agreement is indefinite, unless otherwise terminated with written notice by the parties. This agreement was terminated on May 10, 2018 when Mr. Olynick was engaged as President of Greenway.

On April 17, 2018, the Company entered into a consulting agreement with an individual, Mark A. Zoellers, to provide general advisory services, including but not limited to document and contract preparation, creation of presentations, photography and technical document review. Terms include payment of billable time at $40.00 per hour, plus approved expenses, retroactive to January 1, 2017. The term of the agreement is indefinite, unless otherwise terminated with written notice by the parties. Mr. Zoellers continues to provide services to the Company under the current agreement.

On April 18, 2018, the Company entered into a consulting agreement with an individual, Paul R. Alfano via Alfano Consulting Services, to provide board and senior management advice, including but not limited to corporate strategy, SEC adherence, sales and marketing strategies, document and presentation preparation and fund-raising support. Terms include payment of billable time at $40.00 per hour, plus approved expenses, retroactive to January 1, 2017. The term of the agreement is indefinite, unless otherwise terminated with written notice by the parties. Mr. Alfano continues to provide services to the Company under the current agreement.

On April 18, 2018, the Company entered into a consulting agreement with an individual, Peter J. Hauser, to provide general advisory services, including but not limited to public relations, press release preparation, photography, document preparation and editing. Terms include payment of billable time at $40.00 per hour, plus approved expenses, retroactive to January 1, 2017. The term of the agreement is indefinite, unless otherwise terminated with written notice by the parties. Mr. Hauser was a member of the Company’s board of directors from May 10, 2018 until his resignation March 8, 2019 and continues to provide services to the Company under the current agreement.

On April 19, 2018, the Company entered into a consulting agreement with an individual, William N. Campbell, to sales and marketing support for the Company’s GTL technology, including but not limited to sales prospecting and presentation, document preparation, editing and making presentations, along with general technical advisory services. Terms include payment of billable time at $40.00 per hour, plus approved expenses, retroactive to January 1, 2017. The term of the agreement is indefinite, unless otherwise terminated with written notice by the parties. Mr. Campbell continues to provide services to the Company under the current agreement.

On July 10, 2017, the Company entered into a one-year consulting agreement with an individual, Ryan Turner, to provide business development services, including but not limited to enhanced digital marketing, assistance with shareholder communications and help in establishing industry relationships. Terms included monthly payments of $5,000 per month, plus approved expenses. After the first twelve-month initial term, the agreement was automatically renewable for successive twelve-month terms, unless otherwise terminated with written notice by the parties, and was subsequently renewed for an additional term. Mr. Turner continues to provide services to the Company under the current agreement.

The foregoing summaries of the Consulting Agreements described above are qualified in their entirety by reference to the actual true and correct Consulting Agreements, copies of which are attached hereto as Exhibits 10.41 through 10.47.

On November 28, 2017, the Company entered into a three-year consulting agreement with Chisos Equity Consultants, LLC for public relations, consulting and corporate communications services. The initial payment was 1,800,000 shares of the Company’s restricted common stock. Additional payments upon the Company’s common stock reaching certain price points as follows;

• 500,000 shares at the time the Company’s common stock reaches $0.25 per share during the first year
• 500,000 shares at the time the Company’s common stock reaches $0.45 per share during the first year
• 1,000,000 shares at the time the Company’s common stock reaches $0.90 per share during the first or second year
• 2,000,000 shares at the time the Company’s common stock reaches $1.50 per share during the first or second year
• 3,000,000 shares at the time the Company’s common stock reaches $2.00 per share during the term of the agreement
• 1,000000 shares at the time the Company’s common stock reaches $10.00 per share during the term of the agreement

Due to a breach under the Agreement, the Board of Directors of the Company on June 22, 2018 voted to terminate the Agreement. Based on the termination, all warrants to purchase the Company’s common stock were cancelled.

On December 8, 2017, the Company entered into a six-month consulting agreement with MBK Consulting LLC (“MBK”) for the provision of general corporate management and public company governance support, including assistance in and providing guidance for raising capital. Terms included monthly payments of $10,000 per month, plus approved expenses. After the first six-months initial term, the agreement was automatically renewable for successive six-moth terms, unless otherwise terminated with written notice by the parties, and was subsequently renewed for an additional term. The agreement on its current terms was mutually ended as of December 2018. MBK continues to provide services to the Company on a month-to-month and as-needed basis.

In October 2015, the Company entered into a two-year lease for approximately 1,800 square feet a base rate of $2,417 per month. For the years ended December 31, 2018, and 2017, the Company expensed $17,995 and $26,992 respectively. The Company terminated the lease effective August 31, 2018 and has no further financial obligations under the lease.

Greenway rents approximately 600 square feet of office space at 1521 North Cooper St., Suite 205, Arlington, Texas 76011, at a rate of $957 per month. 

The Company   pays approximately $11,600 in annual maintenance fees on its Arizona BLM mining leases, in addition to 10% royalties based on production.

Legal

The Company was named as a co-defendant in an action brought against the Company and Mamaki Tea, Inc., alleging, among other things, that the Company was named as a co-guarantor on an $850,000 foreclosed note. On April 22, 2016, Greenway Technologies filed suit under Cause No. DC-16-004718, in the 193rd District Court, Dallas County, Texas against Mamaki of Hawaii, Inc. (“Mamaki”), Hawaiian Beverages, Inc.(“HBI”), Curtis Borman and Lee Jenison for breach of a Stock Purchase Agreement dated October 29, 2015, wherein the Company sold its shares in Mamaki to HBI for $700,000 (along with the assumption of certain debt). The Company maintained its guaranty on the original loan as a component of the sale transaction. The Defendants failed to make payments of $150,000 each on November 30, 2015, December 28, 2015 and January 27, 2016. On January 13, 2017, the parties executed a Settlement and Mutual Release Agreement (Agreement). However, the Defendants again defaulted in their payment obligations under this new Agreement. Curtis Borman and Lee Jennison were co-guarantors of the obligations of Mamaki and HBI. To secure their guaranties, each of Curtis Borman and Lee Jennsion posted 1,241,500 and 1,000,000 shares, respectively, of the Company. Under the Agreement, the shares were valued at $.20. Due to the default under the Agreement, these shares were returned to the Company’s treasury

shares. Curtis Borman subsequently filed for bankruptcy and the property was liquidated for $600,000, applied against the prior loan amount, leaving a remaining guaranteed loan payment balance of approximately $700,000, including accrued interest and legal fees. The Company is currently in negotiations with the note holders and anticipates a positive resolution.

On April 9, 2108, the Company and Tonaquint, Inc. agreed to settle on Tonaquint’s exercise of a warrant option with a one-time issuance from Greenway Technologies of 1,600,000 shares of our common stock subject to a weekly leak out restriction equal to the greater of $10,000.00 and 8% of the weekly trading volume. Further, the issuance of stock was completed in connection with a legal opinion pursuant to Rule 144.

Wildcat Consulting Group LLC (“Wildcat”) filed a civil lawsuit against Greenway Technologies, Inc. on September 27, 2018 for an alleged breach of contract. The Company answered the lawsuit and asserted a number of affirmative defenses. The Company settled all claims with Wildcat and its principal, Marshall Gleason in the first quarter of 2019. See Subsequent Events Note 14.

The Company is aware that there are claims that may be asserted against it by Richard Halden, a dissident shareholder, and Chisos Equity Consultants, LLC, which is a company that may be controlled by Halden. These claims, if they are asserted will be vigorously defended by the Company.