NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
1 – ORGANIZATION
Nature
of Operations
Greenway
Technologies, Inc., (“Greenway”, “GTI” or the “Company”) through its wholly owned subsidiary,
Greenway Innovative Energy, Inc., is primarily engaged in the research, development and commercialization of a proprietary Gas-to-Liquids
(GTL) syngas conversion system that can be economically scaled to meet individual natural gas field/resource requirements. The
Company’s proprietary and patented technology has now been realized in Greenway’s recently completed first generation
commercial-scale G-Reformer
TM
unit, a unique and critical component to the Company’s overall GTL technology solution.
Greenway’s objective is to become a material direct and licensed producer of renewable GTL synthesized diesel and jet fuels,
with a near term focus on U.S. market opportunities.
Greenway
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 (“Universal Media”). The Company changed its name to UMED Holdings, Inc. on March 23,
2011, and to Greenway Technologies, Inc. on June 23, 2017.
Greenway’s
GTL Technology
In
August 2012, Greenway Technologies acquired 100% of Greenway Innovative Energy, Inc. (“GIE”) which owns patents and
trade secrets for a proprietary technology to convert natural gas into synthesis gas (“syngas”). Based on a new, breakthrough
process called Fractional Thermal Oxidation™ (“FTO”), the Company believes that GIE’s G-Reformer, combined
with conventional Fischer-Tropsch (“FT”) processes, offers an economical and scalable method to converting natural
gas to liquid fuel. On February 15, 2013, GIE filed for its first patent on its GTL technology. U.S. Patent number 8,574,501 was
issued on November 5, 2013. On November 4, 2013, GIE filed for a second patent covering other unique aspects of the design. The
Company has identified several other areas in its technology to file for patent protection and such efforts are ongoing.
On
June 26, 2017, Greenway, in conjunction with the University of Texas at Arlington (“UTA”), announced that they had
successfully demonstrated Greenway’s GTL technology at the Company sponsored Conrad Greer Laboratory at UTA, proving the
viability of the science behind the technology.
On
March 6, 2018, the Company announced the completion of its first commercial scale G-Reformer. The G-Reformer is the critical component
of the Company’s innovative Greer-Wright Gas-to-Liquids system. A team consisting of individuals from the Company, UTA and
the Company’s contracted fabricator worked together to test and calibrate the newly built G-Reformer unit. The testing substantiated
the units’ synthesis gas generation capability and demonstrated additional proficiencies within certain prior prescribed
testing metrics.
The
Company believes that its proprietary G-Reformer is a major innovation in gas reforming and GTL technology in general. Initial
tests have demonstrated that the Company’s solution is superior to legacy technologies which are costly, have a larger footprint
and cannot be easily deployed at field sites to process associated gas, stranded gas, coal-bed methane, vented gas, or flared
gas, all markets the Company seeks to service. The proprietary technology based around the G-Reformer is unique in that it also
allows for transportable GTL plants with a much smaller footprint when compared to legacy large-scale technologies. The Company
believes its technologies and processes will allow for GTL plants to be built with substantially lower up-front and ongoing costs
resulting in more profitable results for O&G operators. Greenway is now working to commercialize both its G-Reformer and its
GTL solutions and is in discussions with a number of oil and gas companies, smaller oil and gas operators and other interested
parties to license and obtain joint venture or other forms of capital funding to build its first complete gas-to-liquid plant.
Mining
Interest
In
December 2010, UMED acquired the rights to approximately 1,440 acres of placer mining claims located on Bureau of Land Management
(“BLM”) land in Mohave County, Arizona for 5,066,000 shares of restricted Common A stock. Early indications, from
samples taken and processed, provided reason to believe that the potential recovery value of the metals located on the 1,440 acres
is significant, but only actual mining and processing will determine the ultimate value which may be realized from this property
holding. The Company is currently exploring strategic options to partner or sell its interest in this acreage, while it focuses
on its emerging GTL technology sales and marketing efforts.
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:
Name
of Entity
|
|
%
|
|
|
Entity
|
|
Incorporation
|
|
Relationship
|
Greenway
Technologies, Inc.
|
|
|
|
|
|
Corporation
|
|
Texas
|
|
Parent
|
Universal
Media Corporation
|
|
|
100
|
%
|
|
Corporation
|
|
Wyoming
|
|
Subsidiary
|
Greenway
Innovative Energy, Inc.
|
|
|
100
|
%
|
|
Corporation
|
|
Nevada
|
|
Subsidiary
|
Logistix
Technology Systems, Inc.
|
|
|
100
|
%
|
|
Corporation
|
|
Texas
|
|
Subsidiary
|
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, as of March 31, 2019, we have an accumulated deficit of $27,417,532. During the three-months ended March 31, 2019,
we used cash of $260,467 for operating activities. At December 31, 2018, the Company has an accumulated deficit of $26,818,584,
and used net cash of $1,289,436 for its operating activities during the prior year period. 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 March 31, 2019, or December 31, 2018.
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 (12,844,174) 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 6 below for discussion regarding the Company’s current 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
March 31, 2019 and December 31, 2018:
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
March
31, 2019 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
56,697
|
|
December
31, 2018 Derivative Liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
103,476
|
|
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 three-month period ended March 31, 2019, is as follows:
|
|
FairValue
|
|
|
Change
in
|
|
|
New
Convertible
|
|
|
|
|
|
Fair
Value
|
|
|
|
January
1, 2019
|
|
|
Fair
Value
|
|
|
Notes
|
|
|
Conversions
|
|
|
March
31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
(103,476
|
)
|
|
$
|
46,779
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
(56,697
|
)
|
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
March 31, 2019, 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 $243,819 and $309,215 during the periods ended
March 31, 2019 and 2018, 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.
NOTE
4 – PROPERTY, PLANT, AND EQUIPMENT
|
|
Range
of Lives
in Years
|
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Equipment
|
|
|
5
|
|
|
$
|
2,032
|
|
|
$
|
2,032
|
|
Furniture
and fixtures
|
|
|
5
|
|
|
|
1,983
|
|
|
|
1,983
|
|
|
|
|
|
|
|
|
4,015
|
|
|
|
4,015
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
(4,015
|
)
|
|
|
(4,015
|
)
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Depreciation
expense was $0 for the three-months ended March 31, 2019 and 2018, respectively.
NOTE
5 – TERM NOTES PAYABLE
Term
notes payable consisted of the following at March 31, 2019 and December 31, 2018 respectively;
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Secured
notes payable at 18% per annum related to the Mabert LLC as Agent Loan Agreement dated September 14, 2018 for up to $1,500,000
(1)
|
|
$
|
728,869
|
|
|
$
|
728,869
|
|
Unsecured
note payable at 10% per annum dated November 13, 2017 to a corporation at $10,000 lump sum interest at maturity on February
28, 2018, with an amended due date of March 1, 2020
|
|
|
100,000
|
|
|
|
100,000
|
|
Unsecured
note payable at 4.5% per annum dated December 28, 2017 to a corporation, payable in two parts on January 8, 2018 and 2019
(2)
|
|
|
166,667
|
|
|
|
166,667
|
|
Unsecured
note payable at 4.0% per annum dated January 16, 2018 to a trust, payable January 16, 2020 (3)
|
|
|
144,000
|
|
|
|
144,000
|
|
Total
term notes (4)
|
|
$
|
1,139,536
|
|
|
$
|
1,139,536
|
|
(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)
On December 20, 2018, the Company issued a convertible promissory note for $166,667, payable by December 20, 2020. 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. See Note 6 below.
(3)
On January 16, 2018, the Company issued a promissory note for $150,000, shown net a $6,000 repayment. 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.
(4)
There were 1,624,404 detachable warrants issued in conjunction with related parties notes executed by the Company in 2018. Pursuant
to ACS 470, the fair value attributable to a discount on the debt is $90,619; this amount is amortized to interest expense on
a straight-line basis over the terms of the loans. During the three months ended March 31, 2019, a total of $26,120 in debt discount
has been amortized to interest expense.
NOTE
6 – 2018 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 result 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. As of December 31, 2017, 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 of and during the three-months ended March 31, 2018, the remaining discount
was $23,697 and $3,386 of the discount was fully amortized.
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 related to the beneficial conversion feature on the note was valued at $58,494 based on the difference between the
fair value of the 1,578,947 convertible shares at the valuation date and the $150,000 note value. The discount 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 March 31, 2019 and December 31, 2018
was $56,697 and 103,479 respectively calculated as described in Note 3 under the
Black-Scholes Model
parameters
shown below. This Convertible Note is in default with the terms currently being renegotiated between the parties.
|
|
Commitment
Date
|
|
Expected
dividends
|
|
|
0
|
%
|
Expected
volatility
|
|
|
261.71
|
%
|
Expected
term: conversion feature
|
|
|
1
year
|
|
Risk
free interest rate
|
|
|
1.76
|
%
|
NOTE
7 – ACCRUED EXPENSES
Accrued
expenses consisted of the following at March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Accrued
consulting fees
|
|
$
|
497,600
|
|
|
$
|
328,157
|
|
Accrued
consulting expense
|
|
|
380,478
|
|
|
|
356,078
|
|
Accrued
officers’ salaries
|
|
|
233,334
|
|
|
|
118,334
|
|
Accrued
officers’ salaries (reclass from accrued management fees in prior periods)
|
|
|
727,638
|
|
|
|
0
|
|
Accrued
interest expense
|
|
|
91,925
|
|
|
|
50,598
|
|
Total
accrued expenses
|
|
$
|
1,930,975
|
|
|
$
|
853,167
|
|
NOTE
8 – 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 common stock share has one voting right and the right to dividends,
if and when declared by the Board of Directors.
Class
A Common Stock
At
March 31, 2019, there were 287,470,582 shares of class A common stock issued and outstanding.
During
the three-months ended March 31, 2019, the Company: issued 766,667 shares of restricted class A common stock to 3 individuals
holding warrants for 366,667, 200,000 and 200,000 shares respectively, priced at $0.01/converted share.
At
December 31, 2018, there were 286,703,915 shares of Class A commons stock outstanding.
Class
B Stock
At
March 31, 2019 and December 31, 2018 respectively, there were no shares of class B stock issued and outstanding.
Stock
options, warrants and other rights
At
March 31, 2019 and December 31, 2018, the Company has not adopted any employee stock option plans.
On
October 1, 2015, the Company issued 4,000,000 warrants for legal work. The warrants are exercisable at $0.20 per share for a period
of five years from the date of issue. The Company valued the warrants as of December 31, 2015, at $386,549 using the Black-Scholes
Model with expected dividend rate of 0%, expected volatility rate of 189%, expected conversion term of 4.75 years and risk-free
interest rate of 1.75%.
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%. These warrants were not exercised and have expired by their
terms.
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
Note 11 – Legal.
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, 2021.
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 quarter 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
9 - RELATED PARTY TRANSACTIONS
Through
March 31, 2019, Kevin Jones, a director and greater than 5% shareholder, made advances to the Company in the amount of $199,528.
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
December 31, 2018, shareholders, including director Kevin Jones, 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 $310,667 (Tunstall Canyon Group
$166,667 and the Greer Family Trust $144,000) in the same period.
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.
NOTE
10 – COMMITMENTS
Employment
Agreements
In
August 2012, the Company entered into an employment agreement 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.
Effective
January 1, 2019, the Company entered into an employment agreement with Thomas Phillips, Vice President of Operations, reporting
to the President of Greenway Innovative Energy, Inc., for a term of fifteen (15) months with compensation of $120,000 per year.
Phillips is entitled to a no-cost grant of common stock on the effective date equal to 5,000,000 shares of the Company’s
Rule 144 restricted Class A common stock, par value $.0001 per share, such shares to be issued at such time as the Company has
the ability to issue such number of shares. also entitled to certain additional stock grants based on the performance of the Company
during the term of their employment. Phillips is also entitled to participate in the Company’s benefit plans, when such
become available. The foregoing summary of the Phillips Employment Agreements is qualified in its entirety by reference to the
actual true and correct employment agreements, a copy of which is attached hereto as Exhibit 10.53.
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:
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500,000
shares at the time the Company’s common stock reaches $0.25 per share during the first year
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500,000
shares at the time the Company’s common stock reaches $0.45 per share during the first year
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1,000,000
shares at the time the Company’s common stock reaches $0.90 per share during the first or second year
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2,000,000
shares at the time the Company’s common stock reaches $1.50 per share during the first or second year
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3,000,000
shares at the time the Company’s common stock reaches $2.00 per share during the term of the agreement
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1,000000
shares at the time the Company’s common stock reaches $10.00 per share during the term of the agreement
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Due
to a breach of the Agreement by Chisos, on June 22, 2018, the Board of Directors of the Company voted to terminate the Agreement.
Based on the termination, all warrants to purchase the Company’s common stock were cancelled. The Company is currently in
litigation over such termination action. See “Legal” matters description below in this Note 10.
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 then current terms was mutually
ended as of December 2018. MBK continues to provide services to the Company on a month-to-month and on an as-needed/requested
basis.
Leases
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.
On
September 7, 2018, Wildcat Consulting Group, LLC (“Wildcat”), a company controlled by a shareholder, filed suit against
the Company alleging claims arising from a Consulting Agreement between the Parties, seeking to recover monetary damages, interest,
court costs, and attorney’s fees. On September 27, 2018, Wildcat filed a second suit against the Company alleging claims
arising from a Promissory Note between the Parties, seeking to recover monetary damages, interest, court costs, and attorney’s
fees. On February 13, 2019, the Parties attended mediation which resulted in settlement discussions which resulted in a Rule 11
Agreement settling both disputes. Pursuant to the Rule 11 Agreement, the Parties have agreed to abate this case until the earlier
of a default of the performance of the Rule 11 Agreement or October 30, 2019. The Rule 11 Agreement causes and allows the Parties
time to draft and sign a Compromise Settlement and Mutual Release Agreement (“Settlement Agreement”), to make payments
due on or before October 15, 2019, and to allow for the transfer of stock to effectuate the terms of the Rule 11 Agreement. As
of the date of this report, the Company is in compliance with the Rule 11 Agreement, and the Parties have exchanged drafts of
the Settlement Agreement to be completed before the abatement period ends. The material terms of the Rule 11 Agreement are as
follows:
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The
Company will execute a new Promissory Note to replace the original Promissory Note, effective November 13, 2017, the effective
date of the original note. The new Promissory Note has a maturity date of March 1, 2020 and provides for four equal payments
of principal through such date, and accrued interest at 10% upon maturity.
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The
Company shall pay $300,000 in settlement of the prior Consulting Agreement in 60 installments of $5,000 each month, until
paid in full. [The $300,000 was accrued as of December 31, 2018, of which $10,000 was paid in the period ending March 31,
2019.]
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The
Parties agreed to amend the existing Overriding Royalty Agreement (“ORRI”) between the Company’s wholly
owned subsidiary, Greenway Innovative Energy, Inc. (“GIE”), increasing Wildcat’s royalties from .25%
(1/4 of 1%) to .375% (3/8 of 1%).
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The
Company shall pay Wildcat’s legal fees related to these matters, capped at $60,000, in three installments of $20,000
on June 1, August 1, and October 1, 2019.
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The
Company shall issue 1,500,000 restricted shares of its Class A common stock on or before October 15, 2019, in consideration
of the Promissory Note, in exchange for extinguishment of all prior granted warrants and to complete the grant of 1,000,000
shares not received from a prior transaction. Such shares were valued at $120,000 and accrued for the year ended December
31, 2018.
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Provided
the Company timely performs through October 15, 2019, the Parties will file a Joint Motion for Dismissal and present Agreed Orders
of Dismissal with prejudice for both lawsuits. A copy of the Rule 11 Agreement is attached hereto as Exhibit 10.52.
On
March 13, 2019, Chisos Equity Consultants, LLC (“Chisos”), a company controlled by a dissident shareholder, Richard
Halden, filed suit against the Company alleging claims arising from a consulting agreement between the parties, seeking to recover
monetary damages, interest, court costs, and attorney’s fees. The Company answered the lawsuit and asserted a number of
affirmative defenses. Greenway is confident in its defenses and intends to vigorously defend its interests.
On
March 13, 2019, Richard Halden (“Halden”), a dissident shareholder in his capacity as an individual, filed suit against
the Company alleging claims arising from a confidential severance and release agreement between the parties, seeking to recover
monetary damages, interest, court costs, and attorney’s fees. The Company answered the lawsuit and asserted a number of
affirmative defenses. Greenway is confident in its defenses and intends to vigorously defend its interests.
On
March 26, 2019, the Company filed a verified petition for Declaratory Judgement, Ex Parte Application for a Temporary Restraining
Order and Application for Injunctive Relief against the members of a dissident shareholders group (including Richard Halden) named
the “Greenway Shareholders Committee” in Dallas County. A Temporary Restraining Order was issued by the court enjoining
the Defendants (and their officers, agents, servants, employees and attorneys) and those persons in active concert or participation
from; holding the special shareholders meeting on April 4, 2019 or calling such meeting to order; attending or participating in
the Special Meeting; voting the shares of Plaintiff owned by any Defendant at the Special Meeting, either directly or by granting
a proxy to allow a non-defendant to vote said shares; voting any shares of Plaintiff owned by non-defendants with or by proxy
at the Special Meeting; and serving as chairman at the Special Meeting. On April 8, 2019, the court issued such Temporary Injunction
against the dissident shareholders who received notice. The Injunction will continue until the trial date of December 10, 2019.
NOTE
11-SUBSEQUENT EVENTS
On
April 1, 2019, the Company entered into an employment agreement effective January 1, 2019, with Thomas Phillips, as Vice President
of Operations, reporting to the President of Greenway Innovative Energy, Inc., for a term of fifteen (15) months with compensation
of $120,000 per year. Phillips is entitled to a no-cost grant of common stock on the effective date equal to 5,000,000 shares
of the Company’s Rule 144 restricted Class A common stock, par value $.0001 per share, such shares to be issued at such
time as the Company has the ability to issue such number of shares. also entitled to certain additional stock grants based on
the performance of the Company during the term of their employment. Phillips is also entitled to participate in the Company’s
benefit plans, when such become available. The foregoing summary of the Phillips Employment Agreements is qualified in its entirety
by reference to the actual true and correct employment agreements, a copy of which is attached hereto as Exhibit 10.53.
On
April 30, 2019, the Company executed a Promissory Note with a shareholder for $25,000, at 18% interest per annum, such note being
incorporated by reference into and subject to the terms of that certain Mabert LLC as Agent Loan Agreement entered into by the
Company on September 14, 2018. Mabert LLC is a Texas Limited Liability Company owned by a Director and shareholder, Kevin Jones
and his wife Christine Early. As an inducement to enter the note, the Company shall also issue 50,000 shares of its Class A common
stock, subject to standard Rule 144 restrictions.