GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,093,935 |
|
|
$ |
833,584 |
|
Accounts
receivable
|
|
|
53,269 |
|
|
|
146,730 |
|
Inventory
|
|
|
97,964 |
|
|
|
- |
|
Other
current assets
|
|
|
125,757 |
|
|
|
131,741 |
|
Total
Current Assets
|
|
|
1,370,925 |
|
|
|
1,112,055 |
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
7,626,919 |
|
|
|
6,441,489 |
|
|
|
|
|
|
|
|
|
|
DEFERRED
GROWING COST
|
|
|
553,928 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
OTHER
NONCURRENT ASSETS
|
|
|
6,190 |
|
|
|
2,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
9,557,962 |
|
|
$ |
7,556,235 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,711,047 |
|
|
$ |
2,117,573 |
|
Accrued
payroll and payroll taxes
|
|
|
1,763,624 |
|
|
|
1,491,385 |
|
Accrued
interest payable
|
|
|
909,405 |
|
|
|
853,811 |
|
Accrued
return on noncontrolling interest
|
|
|
978,776 |
|
|
|
610,870 |
|
Promissory
notes
|
|
|
32,363 |
|
|
|
509,232 |
|
Notes
payable to shareholders
|
|
|
292,844 |
|
|
|
321,502 |
|
Convertible
notes payable
|
|
|
193,200 |
|
|
|
193,200 |
|
Total
Current Liabilities
|
|
|
5,881,259 |
|
|
|
6,097,573 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
567,000 |
|
|
|
- |
|
Mortgage
notes payable
|
|
|
2,793,934 |
|
|
|
2,051,282 |
|
Total
Long Term Liabilities
|
|
|
3,360,934 |
|
|
|
2,051,282 |
|
|
|
|
|
|
|
|
|
|
EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
Global
Clean Energy Holdings, Inc. equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value; 50,000,000 shares authorized
|
|
|
|
|
|
|
|
|
Series
B, convertible; 13,000 shares issued (aggregate
liquidation
|
|
|
|
|
|
|
|
|
preference
of $1,300,000)
|
|
|
13 |
|
|
|
13 |
|
Common
stock, $0.001 par value; 500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
270,464,478
and 236,919,079 shares issued and outstanding,
respectively
|
|
|
270,464 |
|
|
|
236,919 |
|
Additional
paid-in capital
|
|
|
23,525,695 |
|
|
|
22,998,907 |
|
Accumulated
deficit
|
|
|
(26,607,643 |
) |
|
|
(26,308,143 |
) |
Accumulated
other comprehensive loss
|
|
|
(7,663 |
) |
|
|
(6,108 |
) |
Total
Global Clean Energy Holdings, Inc. Stockholders' Deficit
|
|
|
(2,819,134 |
) |
|
|
(3,078,412 |
) |
Noncontrolling
interests
|
|
|
3,134,903 |
|
|
|
2,485,792 |
|
Total
equity (deficit)
|
|
|
315,769 |
|
|
|
(592,620 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND EQUITY (DEFICIT)
|
|
$ |
9,557,962 |
|
|
$ |
7,556,235 |
|
The
accompanying notes are an integral part of these condensed unaudited
consolidated financial statements
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
71,864 |
|
|
$ |
29,236 |
|
|
$ |
204,717 |
|
|
$ |
69,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
490,333 |
|
|
|
599,345 |
|
|
|
1,251,992 |
|
|
|
940,438 |
|
Plantation
operating costs
|
|
|
174,430 |
|
|
|
- |
|
|
|
449,438 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
664,763 |
|
|
|
599,345 |
|
|
|
1,701,430 |
|
|
|
940,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(592,899 |
) |
|
|
(570,109 |
) |
|
|
(1,496,713 |
) |
|
|
(871,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
22 |
|
|
|
1 |
|
|
|
27 |
|
|
|
2 |
|
Interest
expense
|
|
|
(105,235 |
) |
|
|
(82,016 |
) |
|
|
(197,665 |
) |
|
|
(163,525 |
) |
Gain
on settlement of liabilities
|
|
|
405,530 |
|
|
|
- |
|
|
|
600,802 |
|
|
|
- |
|
Foreign
currency transaction adjustments
|
|
|
38 |
|
|
|
2,007 |
|
|
|
(7,517 |
) |
|
|
2,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expenses)
|
|
|
300,355 |
|
|
|
(80,008 |
) |
|
|
395,647 |
|
|
|
(161,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations
|
|
|
(292,544 |
) |
|
|
(650,117 |
) |
|
|
(1,101,066 |
) |
|
|
(1,032,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations
|
|
|
36,026 |
|
|
|
(182,063 |
) |
|
|
60,873 |
|
|
|
(21,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(256,518 |
) |
|
|
(832,180 |
) |
|
|
(1,040,193 |
) |
|
|
(1,054,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributable to the noncontrolling interest
|
|
|
(339,396 |
) |
|
|
(180,768 |
) |
|
|
(740,693 |
) |
|
|
(338,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) attributable to Global Clean Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings,
Inc.
|
|
$ |
82,878 |
|
|
$ |
(651,412 |
) |
|
|
(299,500 |
) |
|
$ |
(715,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Global Clean Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings,
Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
|
|
$ |
46,852 |
|
|
$ |
(469,349 |
) |
|
$ |
(360,373 |
) |
|
$ |
(694,185 |
) |
Income
(Loss) from Discontinued Operations
|
|
|
36,026 |
|
|
|
(182,063 |
) |
|
|
60,873 |
|
|
|
(21,315 |
) |
Net
Income (Loss)
|
|
$ |
82,878 |
|
|
$ |
(651,412 |
) |
|
$ |
(299,500 |
) |
|
$ |
(715,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
|
|
$ |
0.0002 |
|
|
$ |
(0.0021 |
) |
|
$ |
(0.0014 |
) |
|
$ |
(0.0031 |
) |
Income
(Loss) from Discontinued Operations
|
|
|
0.0001 |
|
|
|
(0.0008 |
) |
|
|
0.0002 |
|
|
|
(0.0001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$ |
0.0003 |
|
|
$ |
(0.0029 |
) |
|
$ |
(0.0012 |
) |
|
$ |
(0.0032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted-Average Common Shares Outstanding
|
|
|
268,022,935 |
|
|
|
226,654,728 |
|
|
|
252,833,173 |
|
|
|
225,739,359 |
|
The
accompanying notes are an integral part of these condensed unaudited
consolidated financial statements
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,040,193 |
) |
|
$ |
(1,054,033 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Foreign
currency transaction loss (gain)
|
|
|
68,390 |
|
|
|
(12,399 |
) |
Gain
on settlement of liabilities
|
|
|
(600,802 |
) |
|
|
- |
|
Share-based
compensation
|
|
|
60,333 |
|
|
|
386,215 |
|
Depreciation
|
|
|
112,116 |
|
|
|
1,099 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
94,009 |
|
|
|
- |
|
Inventories
|
|
|
(99,259 |
) |
|
|
- |
|
Other
current assets
|
|
|
10,891 |
|
|
|
89,756 |
|
Deferred
growing costs
|
|
|
(561,246 |
) |
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
370,484 |
|
|
|
496,707 |
|
Net
Cash Used in Operating Activities
|
|
|
(1,585,278 |
) |
|
|
(92,655 |
) |
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchase
of land
|
|
|
(715,658 |
) |
|
|
- |
|
Plantation
development costs
|
|
|
(334,274 |
) |
|
|
(754,714 |
) |
Purchase
of property and equipment
|
|
|
(131,603 |
) |
|
|
(136,839 |
) |
Net
Cash Used in Investing Activities
|
|
|
(1,181,535 |
) |
|
|
(891,553 |
) |
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock for cash
|
|
|
500,000 |
|
|
|
50,000 |
|
Proceeds
from issuance of preferred membership in GCE Mexico I, LLC
|
|
|
1,700,382 |
|
|
|
1,558,686 |
|
Proceeds
from notes payable
|
|
|
742,652 |
|
|
|
15,000 |
|
Payments
on notes payable
|
|
|
(478,043 |
) |
|
|
- |
|
Proceeds
from convertible notes payable
|
|
|
567,000 |
|
|
|
- |
|
Net
Cash Provided by Financing Activities
|
|
|
3,031,991 |
|
|
|
1,623,686 |
|
Effect
of exchange rate changes on cash
|
|
|
(4,827 |
) |
|
|
- |
|
Net
Increase in Cash and Cash Equivalents
|
|
|
260,351 |
|
|
|
639,478 |
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
833,584 |
|
|
|
291,309 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
1,093,935 |
|
|
$ |
930,787 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
92,254 |
|
|
$ |
- |
|
Noncash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Cashless
exercise of warrants
|
|
|
8,545 |
|
|
|
- |
|
Accrual
of return on noncontrolling interest
|
|
|
367,906 |
|
|
|
201,690 |
|
Plantation
costs financed by accounts payable
|
|
|
32,497 |
|
|
|
190,113 |
|
Equipment
depreciation capitalized to plantation development costs
|
|
|
- |
|
|
|
24,755 |
|
Release
of common Stock held in escrow
|
|
|
|
|
|
|
17,618 |
|
The
accompanying notes are an integral part of these condensed unaudited
consolidated financial statements
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Note
1 – History and Basis of Presentation
History
Medical
Discoveries, Inc. was incorporated under the laws of the State of Utah on
November 20, 1991. Effective as of August 6, 1992, the Company merged
with and into WPI Pharmaceutical, Inc., a Utah corporation (“WPI”), pursuant to
which WPI was the surviving corporation. Pursuant to the MDI-WPI merger, the
name of the surviving corporation was changed to Medical Discoveries, Inc.
(“MDI”). MDI’s initial purpose was the research and development of an
anti-infection drug. In 2005, MDI acquired the assets and business
associated with the SaveCream technology and carried on the research and
development of this drug candidate. As discussed in Note 10, MDI made
the decision in 2007 to discontinue further development of its drug candidates
and sell the technologies.
On
September 7, 2007, MDI entered into a share exchange agreement pursuant to which
it acquired all of the outstanding ownership interests in Global Clean Energy
Holdings, LLC, discussed further in Note 3. Global Clean Energy Holdings, LLC
was an entity that had certain trade secrets, know-how, business plans, term
sheets, business relationships, and other information relating to the start-up
of a business related to the cultivation and production of seed oil from the
seed of the Jatropha plant. With this transaction, MDI commenced the
research and development of a business whose purpose will be providing feedstock
oil intended for the production of bio-diesel.
On
January 29, 2008, a meeting of shareholders was held and, among other things,
the name Medical Discoveries, Inc. was changed to Global Clean Energy Holdings,
Inc. (the “Company”).
Effective
April 23, 2008, the Company entered into a limited liability company agreement
to form GCE Mexico I, LLC (GCE Mexico) along with six unaffiliated
investors. The Company owns 50% of the common membership interest of
GCE Mexico and five of the unaffiliated investors own the other 50% of the
common membership interest. Additionally, a total of 1,000 preferred
membership units were issued to two of the unaffiliated
investors. GCE Mexico owns a 99% interest in Asideros Globales
Corporativo (Asideros I) and a 99% interest in Asideros 2, entities organized
under the laws of Mexico, and the Company owns the remaining 1%
directly. GCE Mexico was organized primarily to, among other things;
acquire land in Mexico through subsidiaries for the cultivation of the Jatropha
plant.
On July
2, 2009, the Company acquired 100% of the equity interests of Technology
Alternatives, Limited (TAL), which has developed a farm in Belize for
cultivation of the Jatropha plant. TAL has also developed a nursery
capable of producing Jatropha seedlings and rooted cuttings, and provides
technical advisory services for the propagation of the Jatropha
plant.
On July
19, 2010, the Company completed a merger with a newly formed, wholly owned
subsidiary to reincorporate in the State of Delaware, which merger was approved
by the Company’s stockholders at an annual meeting of stockholders held on July
15, 2010. As a result, the Company is now a corporation governed by
the laws of the State of Delaware. In addition, the par value of the
company’s capital stock changed from no par to $0.001 per share.
The Company formed
a wholly-owned subsidiary, Globales Energia Renewables (GER), under the
laws of Mexico. The Company’s bio-fuels operations in Latin America
will be coordinated through this newly established subsidiary.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Principles of
Consolidation
The
consolidated financial statements include the accounts of Global Clean Energy
Holdings, Inc., its subsidiaries, and the variable interest entities of GCE
Mexico, Asideros I, and Asideros 2. All significant intercompany transactions
have been eliminated in consolidation.
Generally
accepted accounting principles require that if an entity is the primary
beneficiary of a variable interest entity (VIE), the entity should consolidate
the assets, liabilities and results of operations of the VIE in its consolidated
financial statements. Global Clean Energy Holdings, Inc. considers
itself to be the primary beneficiary of GCE Mexico, Asideros I, and Asideros 2,
and accordingly, has consolidated these entities since their formation beginning
in April 2008, with the equity interests of the unaffiliated investors in GCE
Mexico presented as Noncontrolling Interests in the accompanying condensed
consolidated financial statements.
Unaudited Interim Condensed
Consolidated Financial Statements
The
accompanying unaudited condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the
opinion of management, all adjustments and disclosures necessary for a fair
presentation of these financial statements have been included and are of normal,
recurring nature. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the year ended December 31, 2009, as
filed with the Securities and Exchange Commission. The results of
operations for the three months and six months ended June 30, 2010, may not be
indicative of the results that may be expected for the year ending December 31,
2010.
Accounting for Agricultural
Operations
All costs
incurred until the actual planting of the Jatropha Curcas plant are considered
development costs. Plantation development costs have been accumulated in the
balance sheet during the development period and are being accounted for in
accordance with accounting standards for agricultural producers and agricultural
cooperatives. See further discussion on the accounting of plantation
development cost in Note 4.
The
direct costs associated with each farm and the production of the Jatropha
revenue streams are deferred and accumulated as a noncurrent asset, deferred
growing costs. Once the trees have reached full maturity, estimated at four to
five years, the costs will be expensed based on the revenue streams generated
and recognized. Other general costs without expected future benefits
are expensed when incurred.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Income/Loss per Common
Share
Income/Loss
per share amounts are computed by dividing income or loss applicable to the
common shareholders of the Company by the weighted-average number of common
shares outstanding during each period. Diluted income or loss per share amounts
are computed assuming the issuance of common stock for potentially dilutive
common stock equivalents. All outstanding stock options, warrants,
convertible notes, convertible preferred stock, and common stock held in escrow
are currently antidilutive and have been excluded from the calculations of
diluted income or loss per share at June 30, 2010 and 2009, as
follows:
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Convertible
notes
|
|
|
19,028,671 |
|
|
|
128,671 |
|
Convertible
preferred stock - Series B
|
|
|
11,818,181 |
|
|
|
11,818,181 |
|
Warrants
|
|
|
26,475,662 |
|
|
|
29,742,552 |
|
Compensation-based
stock options and warrants
|
|
|
68,131,483 |
|
|
|
59,859,083 |
|
Common
stock held in escrow
|
|
|
- |
|
|
|
3,915,016 |
|
|
|
|
125,453,997 |
|
|
|
105,463,503 |
|
Fair Values of Financial
Instruments
The
carrying amounts reported in the condensed consolidated balance sheets for
accounts receivable and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. The
carrying amounts reported for the various notes payable and the mortgage notes
payable approximate fair value because the underlying instruments are at
interest rates which approximate current market rates.
Inventory
The
inventory reported in the condensed consolidated balance sheets consists of
finished goods measured at the lower of cost or market. The company
uses the FIFO (First in first out) valuation method for all
inventories.
Foreign
Currency
The
Company has current operations located in the United States, Mexico and
Belize. During the quarter ended December 31, 2009, the Company
changed its functional currency for certain assets located in Mexico from the
U.S. dollar to the Mexican peso. For these foreign operations, the
functional currency is the local country’s currency. Consequently,
revenues and expenses of operations outside the United States of America are
translated into U.S. dollars using weighted average exchange rates, while assets
and liabilities of operations outside the United States of America are
translated into U.S. dollars using exchange rates at the balance sheet
date. The effects of foreign currency translation adjustments are
included in equity (deficit) as a component of accumulated other comprehensive
loss in the accompanying condensed consolidated financial
statements. Foreign currency transaction adjustments are included in
other income (expense) in the Company’s results of operations.
Certain
foreign currency transactions related to the discontinued bio-pharmaceutical
business are primarily undertaken in Euros. Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income or loss. Consequently,
certain foreign currency gains and losses have been included in income from
discontinued operations.
The
Company has not entered into derivative instruments to offset the impact of
foreign currency fluctuations.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Recently Issued Accounting
Standards
In
October 2009, the FASB issued a new accounting standard which amends guidance on
accounting for revenue arrangements involving the delivery of more than one
element of goods and/or services. This standard addresses the unit of accounting
for arrangements involving multiple deliverables and removes the previous
separation criteria
that objective and reliable evidence of fair value of any undelivered item must
exist for the delivered item to be considered a separate unit of accounting.
This standard also addresses how the arrangement consideration should be
allocated to each deliverable. Finally, this standard expands disclosures
related to multiple element revenue arrangements. This standard is effective for
the Company beginning January 1, 2011. The adoption of this standard is not
expected to have a material impact on the Company’s condensed consolidated
financial statements.
In
January 2010, the FASB issued new accounting guidance related to the disclosure
requirements for fair value measurements and provided clarification for existing
disclosures requirements. More specifically, this update will require an entity
to disclose separately (a) the amounts of significant transfers in and out of
Levels 1 and 2 fair value measurements and to describe the reasons for the
transfers; and (b) information about purchases, sales, issuances and
settlements to be presented separately (i.e. present the activity on a gross
basis rather than net) in the reconciliation for fair value measurements using
significant unobservable inputs (Level 3 inputs). This guidance clarifies
existing disclosure requirements for the level of disaggregation used for
classes of assets and liabilities measured at fair value and require disclosures
about the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements using Level 2 and
Level 3 inputs. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosure requirements related to
the purchases, sales, issuances and settlements in the rollforward activity of
Level 3 fair value measurements. Those disclosure requirements are effective for
fiscal years beginning after December 15, 2010 and for interim periods
within those fiscal years. The Company adopted the new disclosures requirements
in the first quarter of fiscal 2010. Other than requiring additional
disclosures, adoption of this guidance did not have and is not expected to have
a material impact on the Company’s condensed consolidated financial
statements.
Note
2 – Going Concern Considerations
The
accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company incurred a loss from continuing operations
applicable to its common shareholders of $360,373 and $928,733 during the
six-month period ended June 30, 2010 and during the year ended December 31,
2009, respectively, and has an accumulated deficit applicable to its common
shareholders of $26,607,643 at June 30, 2010. The Company also used
cash in operating activities of $1,585,278 and $1,225,629 during the six-month
period ended June 30, 2010 and during the year ended December 31, 2009,
respectively. At June 30, 2010, the Company has negative working
capital of $4,510,334 and a stockholders’ deficit attributable to its
stockholders of $2,819,134. These factors raise substantial doubt
about the Company’s ability to continue as a going concern.
The
Company commenced its new business related to the cultivation and production of
seed oil from the seed of the Jatropha plant in September
2007. Management plans to meet its cash needs through various means
including securing financing, entering into joint ventures, and developing the
new business model. In order to fund its new operations, the Company
has sold Series B preferred stock in the amount of $1,300,000, has issued a
secured promissory note with aggregate borrowings of $625,000, has received
$6,895,710 in capital contributions from the preferred membership interest in
GCE Mexico I, LLC, has issued mortgages in the total amount of $2,793,934 for
the acquisition of land, and has received proceeds of $650,000 from the sale of
common stock. The Company is developing the new business operation to
participate in the rapidly growing bio-diesel industry. The Company
continues
to expect to be successful in this new venture, but there is no assurance that
its business plan will be economically viable. The ability of the
Company to continue as a going concern is dependent on that plan’s success.
The condensed consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Note
3 – Jatropha Business Venture
Having
determined to discontinue its bio-pharmaceutical operations and dispose of the
related assets, the Company considered entering into a number of other
businesses that would enable it to be able to provide the shareholders with
future value. The Company’s Board of Directors decided to develop a
business to produce and sell seed oils, including seed oils harvested from the
planting and cultivation of the Jatropha curcas plant, for
the purpose of providing feedstock oil intended for the generation of methyl
ester, otherwise known as bio-diesel (the “Jatropha Business”). The
Company’s Board concluded that there was a significant opportunity to
participate in the rapidly growing biofuels industry, which previously was
mainly driven by high priced, edible oil-based feedstock. In order to
commence its new Jatropha Business, the Company entered into various
transactions during September and October of 2007, including: (i) hired Richard
Palmer, an energy consultant, and a member of Global Clean Energy Holdings LLC
(“Global”) to act as its new President, Chief Operating Officer and future Chief
Executive Officer, (ii) engaged Mobius Risk Group, LLC, a Texas company engaged
in providing energy risk advisory services, to provide it with consulting
services related to the development of the Jatropha Business, (iii) acquired
certain trade secrets, know-how, business plans, term sheets, business
relationships, and other information relating to the cultivation and production
of seed oil from the Jatropha plant for the production of bio-diesel from
Global, and (iv) engaged Corporativo LODEMO S.A DE CV to assist with the
development of the Jatropha Business in Mexico. Subsequent to
entering into these transactions, the Company identified certain real property
in Mexico it believed to be suitable for cultivating the Jatropha
plant. During April 2008, the Company and six unaffiliated investors
formed GCE Mexico I, LLC (GCE Mexico) and Asideros Globales Corporativo
(Asideros I), a Mexican corporation. Asideros I acquired the land in
Mexico for the cultivation of the Jatropha plant. In July 2009, the
Company acquired Technology Alternatives Limited (TAL), which has developed a
farm in Belize for cultivation of the Jatropha plant and provides technical
advisory services for the propagation of the Jatropha plant. In March
2010, the Company formed Asideros 2, a Mexican corporation, which has acquired
additional land in Mexico adjacent to the land acquired by Asideros
I. All of these transactions are described in further detail in the
remainder of this note to these condensed consolidated financial
statements.
Share Exchange
Agreement
The
Company entered into a share exchange agreement (the Global Agreement) pursuant
to which the Company acquired all of the outstanding ownership interests in
Global Clean Energy Holdings, LLC, a Delaware limited liability company
(Global), on September 7, 2007 from Mobius Risk Group, LLC (Mobius) and from
Richard Palmer (Mr. Palmer). Mr. Palmer owned a 13.33% equity
interest in Mobius and became the Company’s new President and Chief Operating
Officer in September 2007 and its Chief Executive Officer in December
2007.
Mobius Consulting
Agreement
Concurrent
with the execution of the Global Agreement, the Company entered into a
consulting agreement with Mobius pursuant to which Mobius agreed to provide
consulting services to the Company in connection with the Company’s new Jatropha
bio-diesel feedstock business. The Company engaged Mobius as a consultant to
obtain Mobius’ experience and expertise in the feedstock/bio-diesel market to
assist the Company and Mr. Palmer in developing this new line of operations for
the Company. Mobius agreed to provide the following services to the
Company: (i) manage and supervise a contemplated research and development
program contracted by the Company and conducted by the University of Texas Pan
American regarding the location, characterization, and optimal economic
propagation of the Jatropha plant; and (ii) assist
with the management and supervision of the planning, construction, and start-up
of plant nurseries and seed production plantations in Mexico, the Caribbean or
Central America.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
The
original term of the agreement was twelve months. The scope of work
under the agreement was completed in August 2008 and the agreement was
terminated. Mobius supervised the hiring of certain staff to serve in
management and operations roles of the Company, or hired such persons to provide
similar services as independent contractors. Mobius’ compensation for
the services provided under the agreement was a monthly retainer of
$45,000. The Company also reimbursed Mobius for reasonable business
expenses incurred in connection with the services provided. The
agreement contained customary confidentiality provisions with respect to any
confidential information disclosed to Mobius or which Mobius received while
providing services under the agreement. The Company had recorded
liabilities to Mobius of $322,897 for accrued, but unpaid, compensation and
costs as of June 30, 2010 and December 31, 2009. The Company disputes
the total of these charges and is currently in litigation with Mobius to resolve
this liability. Based on the Company’s evaluation of the claims made against the
Company, the basis for the claims, and the Company’s defenses and counterclaims,
management currently does not believe that the anticipated resolution of this
outstanding legal matter will have a material adverse effect on the Company’s
financial position or results of operations. However, legal matters
are subject to inherent uncertainties and there exists the possibility that the
ultimate resolution of these matters could have a material adverse impact on the
Company’s financial position and the results of operations in the period in
which any such effect is recorded.
LODEMO
Agreement
On
October 15, 2007, the Company entered into a service agreement with Corporativo
LODEMO S.A DE CV, a Mexican corporation (the LODEMO Group). The
Company had decided to initiate its Jatropha Business in Mexico, and had
identified parcels of land in Mexico to plant and cultivate
Jatropha. In order to obtain all of the logistical and other services
needed to operate a large-scale farming and transportation business in Mexico,
the Company entered into the service agreement with the LODEMO Group, a
privately held Mexican company with substantial land holdings, significant
experience in diesel distribution and sales, liquids transportation, logistics,
land development and agriculture.
Under the
supervision of the Company’s management, the LODEMO Group was responsible for
the establishment, development, and day-to-day operations of the Jatropha
Business in Mexico, including the extraction of the oil from the Jatropha seeds,
the delivery of the Jatropha oil to buyers, the purchase or lease of land in
Mexico, the establishment and operation of one or more Jatropha nurseries, the
clearing, planting and cultivation of the Jatropha fields, the harvesting of the
Jatropha seeds, the operation of the Company’s oil extraction facilities, and
the logistics associated with the foregoing. The LODEMO Group was
responsible for identifying and acquiring the farmland. However, ownership of
the farmland or any lease thereto is held directly by the Company or by a
Mexican subsidiary of the Company. The LODEMO Group was responsible
for hiring and the initial management of all necessary employees. All
direct and budgeted costs of the Jatropha Business in Mexico were to be borne by
the Company or by its Mexican subsidiary or joint venture.
The
LODEMO Group initially provided the foregoing and other necessary services for a
fee. The Company had agreed to pay the LODEMO Group a fixed fee per
year of $60 per hectare of land planted and maintained with minimum payments
based on 10,000 hectares of developed land, to follow a planned planting
schedule. The Agreement has a 20-year term but could be terminated or modified
earlier by the Company under certain circumstances. In June 2009, the scope of
work previously performed by LODEMO was reduced and modified based upon certain
functions being provided internally by the Company and by Asideros I, the
Company’s Mexican subsidiary, on a go-forward basis. Under this
agreement, the Company has paid the LODEMO Group or accrued $47,415 and $139,770
during the three months ended June 30, 2010 and 2009,
respectively. The company has paid the Lodemo Group or accrued
$47,415 and $602,090 during the six months ended June 30, 2010 and 2009,
respectively, all of which was capitalized as plantation development
costs. As of June 30, 2010 and December 31, 2009, the Company owed
the LODEMO Group $251,500 and $204,085, respectively, for accrued, but unpaid,
compensation and costs.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
GCE Mexico I, LLC, Asideros
1, and Asideros 2
Effective
April 23, 2008, the Company entered into a limited liability company agreement
(“LLC Agreement”) to form GCE Mexico I, LLC, a Delaware limited liability
company (GCE Mexico), with six unaffiliated investors (collectively, the
Investors). GCE Mexico was organized primarily to facilitate the
acquisition of approximately 5,000 acres of farm land (the Jatropha Farm) in the
State of Yucatan in Mexico to be used primarily for the (i) cultivation of Jatropha curcas, (ii) the
marketing and sale of the resulting fruit, seeds, or pre-processed crude
Jatropha oil, whether as biodiesel feedstock, biomass or otherwise, and (iii)
the sale of carbon value, green fuel value, or renewable energy credit value
(and other similar environmental attributes) derived from activities at the
Jatropha Farm.
Under the
LLC Agreement, the Company owns 50% of the issued and outstanding common
membership units of GCE Mexico. The remaining 50% of the common
membership units was issued to five of the Investors. The Company and
the other owners of the common membership interest were not required to make
capital contributions to GCE Mexico.
In
addition, two of the Investors agreed to invest in GCE Mexico through the
purchase of preferred membership units and through the funding of the purchase
of land in Mexico. An aggregate of 1,000 preferred membership units
were issued to these two Investors who each agreed to make capital contributions
to GCE Mexico in installments and as required, funding the development and
operations of the Jatropha Farm. The preferred members have made
capital contributions of $1,700,382 and $1,558,686 during the six-month periods
ended June 30, 2010 and 2009, respectively, and total contributions of
$6,895,710 received by GCE Mexico from these Investors since the execution of
the LLC Agreement. The LLC Agreement calls for additional
contributions from the Investors, as requested by management and as required by
the operation in 2010 and the following years. These Investors are
entitled to earn a preferential 12% per annum cumulative compounded return on
the cumulative balance of their preferred membership interest. The
preferential return totaled $367,906 and $201,690 during the six-month periods
ended June 30, 2010 and 2009, respectively, and totaling $978,776 since the
execution of the LLC Agreement.
The two
investors holding preferred membership units also directly funded the purchase
by Asideros I of approximately 5,000 acres of land in the State of Yucatan in
Mexico by the payment of $2,051,282. The land was acquired in the
name of Asideros I and Asideros I issued a mortgage in the amount of $2,051,282
in favor of these two investors. These two investors also directly
funded the purchase by Asideros 2 of approximately 3,700 acres of land adjacent
to the land owned by Asideros I by the payment of $742,652. The land
was acquired in the name of Asideros 2 and Asideros 2 issued a mortgage in the
amount of $742,652 in favor of these two investors. These mortgages
bear interest at the rate of 12% per annum, payable quarterly. The
Board has directed that this interest shall continue to accrue until such time
as the Board determines that there is sufficient cash flow to pay all accrued
interest. The initial mortgage, including any unpaid interest, is due
in April 2018. The second mortgage, including any unpaid interest, is
due in February 2020.
The net
income or loss of Asideros I and of Asideros 2 is allocated to its shareholders
based on their respective equity ownership, which is 99% to GCE Mexico and 1%
directly to the Company. GCE Mexico has no operations separate from
its investments in Asideros I and Asideros 2. According to the LLC
Agreement of GCE Mexico, the net loss of GCE Mexico is allocated to its members
according to their respective investment balances. Accordingly, since
the common membership interest did not make a capital contribution, all of the
losses have been allocated to the preferred membership
interest. The noncontrolling interest presented in the
accompanying condensed consolidated balance sheet includes the carrying value of
the preferred membership interests and of the common membership interests owned
by the Investors, and exclude any common membership interest in GCE Mexico held
by the Company.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Technology Alternatives,
Limited
On
October 29, 2008, the Company entered into a stock purchase agreement with the
shareholders of Technology Alternatives, Limited (TAL), a company formed under
the laws of Belize in Central America. Subsequently, the terms and
conditions of the stock purchase agreement were modified prior to
closing. The closing was primarily delayed to allow TAL to complete
all required conditions for the closing. On July 2, 2009, all closing
requirements were completed and the Company consummated the stock purchase
agreement by issuing 8,952,757 shares of its common stock in exchange for 100%
of the equity interests of TAL. TAL owns approximately 400 acres of
land and has developed a Jatropha farm in stages over the last three years for
the cultivation of the Jatropha plant. TAL has also developed a
nursery capable of producing Jatropha seeds, seedlings and rooted
cuttings. During 2009, TAL commenced selling seeds, principally to
GCE Mexico. TAL also provides technical advisory services for the
propagation of the Jatropha plant.
In
connection with the acquisition, certain payables to the former shareholders of
TAL were renegotiated and converted into promissory notes in the aggregate
principal amount of $516,139 Belize Dollars (US $268,036 based on exchange rates
in effect at July 2, 2009). These notes payable to shareholders were
interest free through September 30, 2009, and then bear interest at 8% per annum
through the maturity date. The notes are secured by a mortgage on the
land and related improvements. The notes, plus any related accrued
interest, were originally due on December 29, 2009, but the due date had been
extended to June 28, 2010 and has subsequently been extended to January 1,
2011. TAL and/or the Company may prepay the notes at any time without
penalty, and the Company is required to prepay the notes if and when it receives
future funding in an amount that, in the Company’s reasonable discretion, is
sufficient to permit the prepayment of the notes without adversely affecting the
Company’s operations or financial condition.
Note
4 – Property and Equipment
Property
and equipment are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
2,831,639 |
|
|
$ |
2,079,914 |
|
Plantation
development costs
|
|
|
4,033,744 |
|
|
|
3,633,288 |
|
Plantation
equipment
|
|
|
905,146 |
|
|
|
805,719 |
|
Office
equipment
|
|
|
80,287 |
|
|
|
33,478 |
|
|
|
|
|
|
|
|
|
|
Total
cost
|
|
|
7,850,816 |
|
|
|
6,552,399 |
|
Less
accumulated depreciation
|
|
|
(223,897 |
) |
|
|
(110,910 |
) |
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$ |
7,626,919 |
|
|
$ |
6,441,489 |
|
Commencing
in June 2008, Asideros I purchased certain equipment for purposes of rapidly
clearing the land, preparing the land for planting, and actually planting the
Jatropha trees. The Company has capitalized farming equipment and
costs related to the development of land for farm use in accordance with
generally accepted accounting principles for accounting by agricultural
producers and agricultural cooperatives. Plantation equipment is
depreciated using the straight-line method over estimated useful lives of 5 to
15 years. Depreciation expense has been capitalized as part of
plantation development costs through the date that the plantation becomes
commercially productive. The initial plantations were deemed to be
commercially productive on October 1, 2009, at which date the Company commenced
the depreciation of plantation development costs over estimated useful lives of
10 to 35 years, depending on the nature of the
development. Developments and other improvements with indefinite
lives are capitalized and not depreciated. Other developments that
have a limited life and intermediate-life plants that have growth and production
cycles of more than one year are being depreciated over their useful lives once
they are placed in service. The land, plantation development costs,
and plantation equipment are located in Mexico and in Belize.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Note
5 – Accrued Payroll and Payroll Taxes
A
significant portion of accrued payroll and payroll taxes relates to unpaid
compensation for officers and directors who are no longer affiliated with the
Company. Accrued payroll taxes will become due upon payment of the
related accrued compensation. Accrued payroll and payroll taxes are
composed of the following:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Accrued
payroll, vacation, and related payroll taxes for current
officers
|
|
$ |
1,089,335 |
|
|
$ |
570,726 |
|
Former
Chief Executive Officer, resigned 2007, including $500,000 under the
Release and Settlement Agreement
|
|
|
570,949 |
|
|
|
570,949 |
|
Other
former officers and directors
|
|
|
77,750 |
|
|
|
311,200 |
|
Accrued
payroll taxes on accrued compensation to former officers and
directors
|
|
|
25,590 |
|
|
|
38,510 |
|
|
|
|
|
|
|
|
|
|
Accrued
payroll and payroll taxes
|
|
$ |
1,763,624 |
|
|
$ |
1,491,385 |
|
On August
31, 2007, the Company entered into a Release and Settlement Agreement with Judy
Robinett, the Company’s then-current Chief Executive Officer. Under
the agreement, Ms. Robinett agreed to, among other things, assist the Company in
the sale of its legacy assets and complete the preparation and filing of the
delinquent reports to the Securities and Exchange Commission. Under
the agreement, Ms. Robinett agreed to (i) forgive her potential right to receive
$1,851,805 in accrued and unpaid compensation, un-accrued and pro-rata bonuses,
and severance pay and (ii) the cancellation of stock options to purchase
14,000,000 shares of common stock at an exercise price of $0.02 per
share. In consideration for her services, the forgiveness of the
foregoing cash payments, the cancellation of the stock options, and settlement
of other issues, the Company agreed, among other things, to pay Ms. Robinett
$500,000 upon the receipt of the cash payment under the agreement to sell the
SaveCream Assets to Eucodis Pharmaceuticals Forschungs und Entwicklungs GmbH
(Eucodis). Pursuant to this agreement, Ms. Robinett resigned on
December 21, 2007. Despite the Company’s efforts, the sale to Eucodis
was never completed and Eucodis has since ceased
operations. Accordingly, the conditions precedent to make the
$500,000 payment from the Eucodis proceeds described above has not been
fulfilled, i.e., the Company’s sale of the SaveCream Assets to Eucodis did not
occur. Furthermore, the Company subsequently sold the SaveCream
Assets to an unaffiliated third party on November 16, 2009.
Note
6 – Debt and Commitments
Promissory
Notes
Mercator Momentum Fund
III
In order
to fund ongoing operations pending closing of the sale of the SaveCream Assets,
the Company entered into a loan agreement with, and issued a promissory note in
favor of, Mercator Momentum Fund III, L.P. (Mercator) in September
2007. At that time, Mercator, along with two other affiliates, owned
all of the issued and outstanding shares of the Company’s Series A Convertible
Preferred Stock, and was considered a related party to the
Company. The loan was secured by a lien on all of the assets of the
Company. Under the loan agreement, interest was originally payable on
the loan at a rate of 12% per annum, payable monthly. Pursuant to the
loan agreement, the original amount to be available under the credit facility
was $1,000,000 and was due in December 2007.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Between
September 2007 and December 2009, there were various modifications to the loan
agreement that resulted in various extensions and modifications of the interest
rate. During that period of time, Mercator advanced a total of
$625,000 to the Company, of which $150,000 was repaid prior to December 31,
2009, leaving a balance of $475,000 at that date, with interest accruing at
10.68%. In March 2010, the Company used substantially all of the
proceeds received from the sale of the convertible promissory notes to repay, in
full, the balance of this note, plus accrued interest of
$81,909.
Bank
Loan
In
October 2009, a bank loaned TAL $67,800 Belize Dollars (US $35,554 based on
exchange rates in effect on the date of the note). The note bears
interest at 13% per annum, is unsecured, and is due on demand. The
balance of the note at June 30, 2010 is $62,598 Belize Dollars (US $32,363 based
on exchange rates in effect at June 30, 2010). The balance of the
note at December 31, 2009 was $66,548 Belize Dollars (US $34,232 based on
exchange rates in effect at December 31, 2009).
Notes Payable to
Shareholders
The
Company has notes payable to certain shareholders in the aggregate amount of
$26,000 and $56,000 at June 30, 2010 and December 31, 2009,
respectively. The notes originated between 1997 and 1999, bear
interest at 12%, are unsecured, and are currently in default. Accrued
interest on the notes totaled $41,705 and $85,541 at June 30, 2010 and December
31, 2009, respectively.
As more
fully disclosed in Note 3 to these condensed consolidated financial statements,
the Company has promissory notes to the former shareholders of TAL in the amount
of $516,139 Belize dollars (US $266,844 based on exchange rates in effect at
June 30, 2010 and US $265,502 based on exchange rates in effect at December 31,
2009). These notes payable to shareholders were interest free through
September 30, 2009, and then bear interest at 8% per annum through the maturity
date. The notes are secured by a mortgage on the land and related
improvements. The notes, plus any related accrued interest, were
originally due on December 29, 2009, but the due date had been extended to June
28, 2010 and subsequently extended to January 1, 2011.
Convertible Notes
Payable
In March
2010, the Company entered into a securities purchase agreement with the
preferred members of GCE Mexico pursuant to which the Company issued senior
unsecured convertible promissory notes in the original aggregate principal
amount of $567,000 and warrants to acquire an aggregate of 1,890,000 shares of
the Company’s common stock. The Convertible Notes mature on the
earlier of (i) March 16, 2012, or (ii) upon written demand of payment by the
note holders following the Company’s default thereunder. The maturity date of
the Convertible Notes may be extended by written notice made by the note holders
at any time prior to March 16, 2012. Interest accrues on the
convertible notes at a rate of 5.97% per annum, and is payable quarterly in
cash, in arrears, on each three-month anniversary of the issuance of the
convertible notes. The Company may at its option, in lieu of paying
interest in cash, pay interest by delivering a number of unregistered shares of
its common stock equal to the quotient obtained by dividing the amount of such
interest by the arithmetic average of the volume weighted average price for each
of the five consecutive trading days immediately preceding the interest payment
date. At any time following the first anniversary of the issuance of
the Convertible Notes, at the option of the note holders, the outstanding
balance thereof (including unpaid interest) may be converted into shares of the
Company’s common stock at a conversion price equal to $0.03. The
conversion price may be adjusted in connection with stock splits, stock
dividends and similar events affecting the Company’s capital
stock. The convertible notes rank senior to all other indebtedness of
the Company, and thereafter will remain senior or pari passu with all accounts
payable and other similar liabilities incurred by the Company in the ordinary
course of business. The Company may not prepay the convertible notes without the
prior consent of the Investors.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
The
warrants have an exercise price of $0.03 per share and the exercise price of the
warrants may be adjusted in connection with stock splits, stock dividends and
similar events affecting the Company’s capital stock. The warrants
expire on March 16, 2013. The fair value of the warrants was immaterial,
accordingly, all of the proceeds from the issuance of the debt were allocated to
the Convertible Notes. The Company used substantially all of the
proceeds received from the sale of the convertible promissory notes to repay, in
full, an outstanding promissory note in the amount of $475,000, plus accrued
interest of $81,909.
The
Company has other convertible notes payable to certain individuals in the
aggregate amount of $193,200 at June 30, 2010 and December 31,
2009. The notes originated in 1996, bear interest at 12%, are
unsecured, and are currently in default. Each $1,000 note is
convertible into 667 shares of the Company’s common stock. Accrued
interest on the convertible notes totaled $283,480 and $271,983 at June 30, 2010
and December 31, 2009, respectively.
Lease
Commitment
During
June 2010, the Company entered into a new two-year and two month lease agreement
with average monthly payments including prescribed common area fees of $3,400,
with a 3% annual increase in lease payments.
The table
below is a summary of future minimum lease payments as of June 30,
2010.
2010
|
|
$ |
17,000 |
|
2011
|
|
|
41,500 |
|
2012
|
|
|
24,500 |
|
|
|
|
|
|
Total
minimum lease payments
|
|
$ |
83,000 |
|
Settlement of
Liabilities
The
Company has negotiated the settlement of liabilities carried on the condensed
consolidated balance sheet and has recorded significant gains. The
gain on settlement of liabilities for the three months and the six months ended
June 30, 2010, was $405,530 and $600,802, respectively. There was no gain on
settlement of liabilities for the comparable period in 2009. This gain was
primarily from the settlement of historic liabilities primarily incurred by
prior management in connection with our discontinued pharmaceutical operations
that have been on our records for several years.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Note
7 – Changes in Equity (Deficit)
A summary
of the composition of Equity (Deficit) of the Company at June 30, 2010 and 2009,
and the changes during the six months then ended is presented in the following
table:
|
|
Total Global Clean
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
stockholders'
|
|
|
Noncontrolling
|
|
|
Total equity
|
|
|
|
equity (deficit)
|
|
|
interest
|
|
|
(deficit)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
(3,078,412 |
) |
|
$ |
2,485,792 |
|
|
$ |
(592,620 |
) |
Issuance
of common stock
|
|
|
500,000 |
|
|
|
- |
|
|
|
500,000 |
|
Capital
contribution from noncontrolling interest
|
|
|
- |
|
|
|
1,700,382 |
|
|
|
1,700,382 |
|
Share-based
compensation
|
|
|
60,333 |
|
|
|
- |
|
|
|
60,333 |
|
Accrual
of preferential return for the noncontrolling interest
|
|
|
- |
|
|
|
(367,906 |
) |
|
|
(367,906 |
) |
Net
loss
|
|
|
(299,500 |
) |
|
|
(740,693 |
) |
|
|
(1,040,193 |
) |
Other
comprehensive loss
|
|
|
(1,555 |
) |
|
|
57,328 |
|
|
|
55,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2010
|
|
$ |
(2,819,134 |
) |
|
$ |
3,134,903 |
|
|
$ |
315,769 |
|
|
|
Total Global Clean
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
stockholders'
|
|
|
Noncontrolling
|
|
|
Total equity
|
|
|
|
equity (deficit)
|
|
|
interest
|
|
|
(deficit)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$ |
(5,948,575 |
) |
|
$ |
1,962,022 |
|
|
$ |
(3,986,553 |
) |
Issuance
of common stock
|
|
|
50,000 |
|
|
|
- |
|
|
|
50,000 |
|
Capital
contribution from noncontrolling interest
|
|
|
- |
|
|
|
1,558,686 |
|
|
|
1,558,686 |
|
Share-based
compensation
|
|
|
386,215 |
|
|
|
- |
|
|
|
386,215 |
|
Accrual
of preferential return for the noncontrolling interest
|
|
|
- |
|
|
|
(201,690 |
) |
|
|
(201,690 |
) |
Net
loss
|
|
|
(715,500 |
) |
|
|
(338,533 |
) |
|
|
(1,054,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2009
|
|
$ |
(6,227,860 |
) |
|
$ |
2,980,485 |
|
|
$ |
(3,247,375 |
) |
Common
Stock
On March
30, 2010 the Company entered into a stock purchase agreement whereby the Company
agreed to issue and sell 25,000,000 shares of the Company’s common stock at a
price of $0.02 per share, for an aggregate purchase price of $500,000, which was
paid in cash.
Note
8 – Stock Options and Warrants
Stock Options and
Compensation-Based Warrants
The
Company has two incentive stock option plans wherein 24,000,000 shares of
the Company’s common stock are reserved for issuance there under. As further
explained in Note 9 to these condensed consolidated financial statements, the
Company granted stock options during the six months ended June 30, 2010 to
acquire 12,000,000 shares of the Company’s common stock to the Company’s Chief
Executive Officer. Additionally, during the six months ended June 30,
2010, the Company issued compensation-based warrants to purchase 250,000 shares
of common stock to a law firm. Effective April 1, 2010, the Company
appointed Martin Wenzel to its board of directors. Mr. Wenzel was
granted an option to purchase 500,000 shares of the Company’s common stock at an
exercise price of $0.01 per share. The option vests over ten equal
monthly installments commencing May 1, 2010 and expires on April 1,
2015. During the six months ended June 30, 2009, the Company issued
compensation-based stock warrants to an investment banking firm to acquire
7,700,000 shares of the Company’s common stock at $0.0325 per share. No
income tax benefit has been recognized for share-based compensation
arrangements. The Company has recognized plantation development costs
totaling $124,565 related to a liability that was satisfied by the issuance of
warrants in 2008. Otherwise, no share-based compensation cost has
been capitalized in the condensed consolidated balance sheet.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
A summary
of the status of options and compensation-based warrants at June 30, 2010, and
changes during the six months then ended is presented in the following
table:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Shares
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Under
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Price
|
|
Life
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
61,209,083 |
|
|
$ |
0.03 |
|
|
|
|
|
Granted
|
|
|
12,750,000 |
|
|
|
0.02 |
|
|
|
|
|
Exercised
|
|
|
(5,827,600 |
) |
|
|
0.01 |
|
|
|
|
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2010
|
|
|
68,131,483 |
|
|
|
0.03 |
|
5.5 years
|
|
$ |
1,174,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2010
|
|
|
55,581,483 |
|
|
$ |
0.04 |
|
4.6
years
|
|
$ |
886,826 |
|
At June
30, 2010, options to acquire 80,000 shares of common stock have no stated
contractual life. The fair value of other stock option grants and
compensation-based warrants is estimated on the date of grant or issuance using
the Black-Scholes option pricing model. The weighted-average fair
value of stock options granted and compensation-based warrants issued during the
six months ended June 30, 2010 was $0.0081. The weighted-average
assumptions used for the stock options granted and compensation-based warrants
issued during the six months ended June 30, 2010 were risk-free interest rate of
3.6%, volatility of 155%, expected life of 9.9 years, and dividend yield of
zero. The weighted-average assumptions used for the
compensation-based warrants issued during the six months ended June 30, 2009
were risk-free interest rate of 2.5%, volatility of 150%, expected life of 5.0
years, and dividend yield of zero. The assumptions employed in the Black-Scholes
option pricing model include the following. The expected life of
stock options represents the period of time that the stock options granted are
expected to be outstanding prior to exercise. The expected volatility is based
on the historical price volatility of the Company’s common stock. The risk-free
interest rate represents the U.S. Treasury constant maturities rate for the
expected life of the related stock options. The dividend yield represents
anticipated cash dividends to be paid over the expected life of the stock
options. The intrinsic values are based on a June 30, 2010 closing
price of $0.0425 per share.
Share-based
compensation from all sources recorded during the three months and six months
ended June 30, 2010 was $43,343 and $60,333, respectively, and is reported as
general and administrative expense in the accompanying condensed consolidated
statements of operations. Share-based compensation from all sources
recorded during the three months and six months ended June 30, 2009 was $326,331
and $386,215, respectively, and is reported as general and administrative
expense. As of June 30, 2010, there is approximately $57,000 of
unrecognized compensation cost related to stock-based payments that will be
recognized over a weighted average period of approximately 0.6
years.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
Stock
Warrants
A summary
of the status of the warrants outstanding at June 30, 2010, and changes during
the six months then ended is presented in the following table:
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Warrant
|
|
|
Price
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
29,742,552 |
|
|
$ |
0.01 |
|
Issued
|
|
|
1,890,000 |
|
|
|
0.03 |
|
Exercised
|
|
|
(4,575,495 |
) |
|
|
0.01 |
|
Expired
|
|
|
(581,395 |
) |
|
|
0.13 |
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2010
|
|
|
26,475,662 |
|
|
|
0.01 |
|
On April
26, 2010, the Company received a notice for the exercise of 4,575,495
financing-based warrants and 5,827,600 compensation-based warrants to
acquire common stock on a cashless basis. The warrants
were exercisable at $0.01 per share. The Company issued 8,545,399
shares of its common stock to the entity as a result of the cashless
exercise.
Note
9 – Employment Agreement
On March
16, 2010, the Company and Richard Palmer, the Company’s Chief Executive Officer,
entered into an amendment of Mr. Palmer’s employment agreement originally
entered into in September 2007. Pursuant to the amendment, the
Company extended the term of Mr. Palmer’s employment as the Company’s President,
Chief Executive Officer and Chief Operating Officer for an additional two years
through September 30, 2012. Thereafter, the term of employment shall
automatically renew for successive one-year periods unless otherwise terminated
by either party 90 days before the renewal period. In connection with the
amendment, the Company granted Mr. Palmer an option to purchase up to 12,000,000
shares of the Company’s common stock at an exercise price of $0.02, subject to
the Company’s achievement of certain market capitalization
goals. According to the terms of the option, the option to purchase
up to 6,000,000 shares vests when the Company’s market capitalization first
reaches $30 million and the option to purchase the other 6,000,000 shares vests
when the Company’s market capitalization first reaches $60
million. The option expires on March 16, 2020, ten years after the
date of amendment. The remaining terms of the original employment
agreement remain in effect.
Note
10 – Discontinued Operations
Prior to
2007, the Company was a developmental-stage bio-pharmaceutical company engaged
in the research, validation, development and ultimate commercialization of two
drugs known as MDI-P and SaveCream. The Board evaluated the value of
its developmental stage drug candidates and in March 2007, the Board determined
that the best course of action was to discontinue further development of these
drug candidates and sell these technologies. MDI-P was a drug
candidate being developed as an anti-infective treatment for bacterial
infections, viral infections and fungal infections. In August 2007,
the Company sold the MDI-P related assets. SaveCream was a drug
candidate that the Company was developing to reduce breast cancer
tumors. From March of 2007 through July of 2008, the Company entered
into various agreements with Eucodis Pharmaceuticals Forschungs und Entwicklungs
GmbH, an Austrian company (Eucodis) related to the sale of the SaveCream
assets. Eucodis entered into a binding letter of intent in March 2007
and later entered into a sale and purchase agreement in July
2007. The sale and purchase agreement was approved by the Company’s
shareholders in January 2008. Ultimately, all discussions and
agreements with Eucodis were terminated in July 2008 due to their inability to
obtain their own financing and their failure to close the
sale. Eucodis has since ceased operations.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
On
November 16, 2009, Global Clean Energy Holdings, Inc. and its subsidiary, MDI
Oncology, Inc., entered into a Sale and Asset Purchase Agreement with Curadis
Gmbh, an unaffiliated German company, for the sale and of substantially all of
the intellectual property associated with the patents, patent applications,
pre-clinical study data and ancillary clinical trial data concerning the
SaveCream asset. The closing occurred on December 22,
2009. The SaveCream asset had no carrying value on the consolidated
balance sheet of the Company. In connection with the sale, the
Company recognized a gain of $3,298,511 during the fourth quarter of 2009,
consisting of cash received of $518,655, the assumption of a research and
development obligation with a carrying value of $2,758,350 (1,850,000 Euros),
and the assumption of accounts payable of $21,506. Should the
pharmaceutical product ever be commercialized, the entire transaction will be
valued at 4.2 million Euros. Although management is hopeful that the
pharmaceutical product will be commercialized, no assurance can be given if or
when any additional consideration or cash will be provided to the Company after
the closing. If additional consideration or cash is received, the Company will
recognize additional gain at that time. The Company will hold a
security interest in the sold assets until the final two million Euro payment is
made, if ever.
Pursuant
to accounting rules for discontinued operations, the Company has classified all
gain, revenue and expense related to the operations, assets, and liabilities of
its bio-pharmaceutical business as discontinued operations. For the
three and six months ended June 30, 2010 and 2009, Income (Loss) from
Discontinued Operations consists of the foreign currency transaction gains or
losses related to current liabilities associated with the discontinued
operations that are denominated in Euros.
Note
11 – Subsequent Events
On July
19, 2010, the majority of the stockholders of the Company voted to change its
state of incorporation from Utah to Delaware. In addition, the par
value of the Company’s capital stock changed from no par to $0.001 per
share. The effects of the change in par value have been reflected
retroactively in the accompanying condensed consolidated financial statements
and notes thereto for all periods presented. The effect of
retroactively applying the par value of $0.001 per share resulted in a
reclassification of $17,644,228 of common stock and $1,290,722 of preferred
stock as of December 31, 2009 to additional paid-in capital.
Also on
July 19, 2010, the stockholders approved the 2010 Stock Incentive Plan. The
granting of options and other stock awards is an important incentive tool for
the Company’s employees, officers and directors. The 2010 Plan provides a means
by which employees, directors and consultants of the Company may be given an
opportunity to benefit from increases in the value of our common stock, and to
attract and retain the services of such persons. All of our
employees, directors and consultants are eligible to participate in the 2010
Plan. The total number of shares of common stock which may be offered, or issued
as restricted stock or on the exercise of options or SARs (Stock Appreciation
Rights) under the Plan shall not exceed twenty million (20,000,000) shares of
common stock. The shares subject to an option or SAR granted under
the Plan that expire, terminate or are cancelled unexercised shall become
available again for grants under this Plan. If shares of restricted
stock awarded under the Plan are forfeited to the Company or repurchased by the
Company, the number of shares forfeited or repurchased shall again be available
under the Plan. Where the exercise price of an option is paid by
means of the optionee’s surrender of previously owned shares of common stock or
the Company’s withholding of shares otherwise issuable upon exercise of the
option as may be permitted herein, only the net number of shares issued and
which remain outstanding in connection with such exercise shall be deemed
“issued” and no longer available for issuance under this Plan. No
eligible person shall be granted options or other awards during any twelve-month
period covering more than five hundred thousand (500,000) shares of common
stock