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EX-32.2 - CERTIFICATION - GLOBAL EARTH ENERGY, INC.ex322.htm
EX-31.1 - CERTIFICATION - GLOBAL EARTH ENERGY, INC.ex311.htm
EX-31.2 - CERTIFICATION - GLOBAL EARTH ENERGY, INC.ex312.htm
EX-32.1 - CERTIFICATION - GLOBAL EARTH ENERGY, INC.ex321.htm

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

________________

FORM 10-K/A
Amendment No. 2

(Mark One)

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2012.

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________

Commission File No. 000-31343

GLOBAL EARTH ENERY, INC.

(Name of small business issuer in its charter)

  

Nevada

36-4567500

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

  

1213 Culbreth Drive
Wilmington, North Carolina

28405

(Address of principal executive offices)

(Zip Code)

  

Registrant’s telephone number, including area code: (910) 616-0077

  

Securities registered under Section 12(b) of the Exchange Act:

None.

  

Securities registered under Section 12(g) of the Exchange Act:

Common stock, par value $0.001 per share.

 

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ] No [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [  ] No [ X ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [  ] No [ X ]



1

 


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes [  ] No [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act).  Yes [  ] No [ X ]

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on August 31, 2012 (based on the closing sale price of $0.01 per share of the registrant’s common stock, as reported on the OTCQB on that date) was approximately $626,237.  Common stock held by each officer and director and by each person known to the registrant to own 5% or more of the outstanding common stock has been excluded in that those persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of November 30, 2012, we had issued 340,409,338 shares of our common stock, par value $0.001 per share, with 173,857,827 shares outstanding, of which 16,198,617 shares were unrestricted and 157,659,210 shares were restricted.

Documents incorporated by reference:  Items 1, 1A, 1B, 2, 3, 4 of Part I, and Items 5, 6, 7, 7A, 9A, 9A(T), 9B of Part II, and Items 10, 11, 12, 13, 14, and 15 of Part III of this Form 10-K/A, Amendment No. 2 incorporate by reference the registrant’s Form 10-K for the fiscal year ended August 31, 2012, filed on December 26, 2012, and the registrant’s Form 10-K/A, Amendment No. 1, for the fiscal year ended August 31, 2012, filed on January 8, 2013.



2

 


TABLE OF CONTENTS

Item 1.

Business.

1

Item 2.

Properties.

1

Item 3.

Legal Proceedings.

1

Item 4.

(Removed and Reserved).

1

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

1

Item 6.

Selected Financial Data.

2

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

2

Item 8.

Financial Statements and Supplementary Data.

2

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

2

Item 9A.

Controls and Procedures.

2

Item 9A(T).

Controls and Procedures.

2

Item 9B.

Other Information.

2

Item 10.

Directors, Executive Officers and Corporate Governance.

2

Item 11.

Executive Compensation.

2

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

2

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

2

Item 14.

Principal Accounting Fees and Services.

2

Item 15.

Exhibits, Financial Statement Schedules.

2



3

 


EXPLANATORY NOTE

On December 26, 2012, we filed with the Securities and Exchange Commission our Annual Report on Form 10-K for the annual period ended August 31, 2012.  On January 8, 2013, we filed Form 10-K/A, Amendment No. 1, for the fiscal year ended August 31, 2012, solely to furnish Exhibit 101 to the Form 10-K in accordance with Rule 405 of Regulation S-T, which provided the consolidated financial statements and related notes from the Form 10-K formatted in XBRL (eXtensible Business Reporting Language).

This Amendment No. 2 to our Annual Report on Form 10-K is being filed to correct Footnote M in our Financial Statements.  The filing of this Form 10-K/A, Amendment No. 2, is not an admission that our Form 10-K for the year ended August 31, 2012, or Form 10-K/A, Amendment No. 1, for the fiscal year ended August 31, 2012, when filed, knowingly included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading.

Except as described herein, no other changes have been made to our Annual Report on Form 10-K or Form 10-K/A, Amendment No. 1.  We have not updated the disclosures in this Form 10-K/A, Amendment No. 2, to speak as of a later date or to reflect events which occurred at a later date, except as noted.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In light of the risks and uncertainties inherent in all projected operational matters, the inclusion of forward-looking statements in this Form 10-K/A should not be regarded as a representation by us or any other person that any of our objectives or plans will be achieved or that any of our operating expectations will be realized.  Our revenues and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this Form 10-K/A as a result of certain risks and uncertainties including, but not limited to, our business reliance on third parties to provide us with technology, our ability to integrate and manage acquired technology, assets, companies and personnel, changes in market condition, the volatile and intensely competitive environment in the business sectors in which we operate, rapid technological change, and our dependence on key and scarce employees in a competitive market for skilled personnel.  These factors should not be considered exhaustive; we undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I

Item 1.

Business.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 2.

Properties.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 3.

Legal Proceedings.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 4.

(Removed and Reserved).

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.



1



Item 6.

Selected Financial Data.

Not applicable.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8.

Financial Statements and Supplementary Data.

See attached pages F-1-F-33.

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 9A.

Controls and Procedures.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 9A(T).

Controls and Procedures.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 9B.

Other Information.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 11.

Executive Compensation.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

Item 14.

Principal Accounting Fees and Services.

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

2



PART IV

Item 15.

Exhibits, Financial Statement Schedules.



(a)

All financial statements referred to in Item 8 of this report are attached to this report.

(b)

All financial statement schedules required to be filed by Item 8 of this report and the exhibits contained in this report are attached to this report.

(c)

The following exhibits are attached to this report:

Incorporated by reference from the registrant’s report on Form 10-K dated December 24, 2012.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GLOBAL EARTH ENERGY, INC.

Date: February 14, 2013.

By /s/ Sydney A. Harland

    Sydney A. Harland, Chief Executive Officer



By /s/ Edmund J. Gorman

    Edmund J. Gorman, Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

 

Title

 

Date

/s/ Sydney A. Harland

 

Chief Executive Officer and Director

 

February 14, 2013

/s/ Edmund J. Gorman

 

Chief Financial Officer and Director

 

February 14, 2013

/s/ Betty-Ann Harland

 

Chairman

 

February 14, 2013

/s/ Robert Glassen

 

Director

 

February 14, 2013

/s/ Arthur N. Kelly

 

Director

 

February 14, 2013

/s/ Richard Proulx

 

Director

 

February 14, 2013




3



GLOBAL EARTH ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

Wilmington, North Carolina


FINANCIAL REPORTS

AT

August 31, 2012

 

 

 

GLOBAL EARTH ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

Wilmington, North Carolina

TABLE OF CONTENTS



Consolidated Balance Sheets at  August 31, 2012 and  2011                                                      F-2


Consolidated Statements of Operations for the Years Ended August 31, 2012 and 2011

  and for the Period from the Date the Company Re-entered the Development Stage

  (March 1, 2010) Through August 31, 2012                                                                               F- 3

 

Consolidated Statements of Cash Flows for the Years Ended August 31, 2012

 and 2011 and for the Period from the Date the Company  Re-entered the

 Development Stage (March 1, 2010) Through August 31, 2012                                                   F- 4


Consolidated Statements of Changes in Stockholders’ Deficit for the

  Years Ended August 31, 2012 and 2011 and for the Period from the Date

  Company Re-entered the Development Stage (March 1, 2010 Through

  August 31, 2012)                                                                                                                  F-5


Notes to Consolidated Financial Statements

         F-6 - 33


 
 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors

Global Earth Energy, Inc. (A Development Stage Company)

Wilmington, North Carolina

 

We have audited the accompanying consolidated balance sheets of Global Earth Energy, Inc.  (A Development Stage Company) (the “Company”) as of August 31, 2012 and 2011, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended.  The consolidated financial statements for the period since re-entering the development stage (March 1, 2010) to August 31, 2010 were audited by other auditors whose report expressed an unqualified opinion on those statements. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


 We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Global Earth Energy, Inc. (A Development Stage Company) as of August 31, 2012 and 2011, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  The Company has reported recurring losses from operations and has an accumulated deficit for all periods presented. These matters raise substantial doubt about the Company’s ability to continue as a going concern.  These consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. See note D to the consolidated financial statements for further information regarding this uncertainty.


/s/ M&K CPAS, PLLC

www.mkacpas.com

Houston, Texas

December 21, 2012


F-1


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

August 31,

2012

 

2011

    

ASSETS

   

Current Assets

   

Cash and Cash Equivalents

$             ––

 

$         9,574

    

Total Assets

$             ––

 

$         9,574

    

LIABILITIES AND STOCKHOLDERS' DEFICIT

   

Current Liabilities

   

Bank Overdraft

$              6

 

$           ––

Note Payable – Related Party

    303,250

 

$    236,500

Note Payable

30,000

 

15,000

Convertible Notes Payable, Net of discounts of $18,333 and $20,703

14,767

 

6,797

Accrued Expenses

456,361

 

227,743

Due to Joint Venture

101,250

 

101,250

Derivative Liabilities

55,913

 

163,934

Accrued Interest ($663,937 and $415,791 owed to related parties)

665,363

 

416,542

Accrued Compensation – Directors

3,431,594

 

2,809,968

Due to Directors

––

 

400

    

Total Liabilities

5,058,504

 

3,978,134

    

Stockholders' Deficit

   

Common Stock :  $.001 Par; 844,828,987 Shares Authorized;

   

                           120,829,653 and 472,981 Issued and

                           120,829,633 and 472,961 Outstanding,

                           respectively          

120,830

 

473

    

Stock Held in Escrow:  48,712,800 and 69,565 Held in Escrow,

                                     Respectively

(6,021,420)

 

(775,554)

    

Common Stock, Class B:  $.001 Par; 5,171,013 and 50,000,000

              Shares Authorized; -0- Issued and Outstanding, respectively

––

 

    

Preferred Stock, Class A:  $.001 Par; 10,000 Shares Authorized; -0-

                           Issued and Outstanding

––

 

––

    

Preferred Stock, Class B:  $.001 Par; 5,000,000 Shares Authorized;

   

                          3,000,000 Issued and Outstanding,

3,000

 

3,000

Preferred Stock, Class C:  $.001 Par; 15,000,000 Shares

   

               Authorized;  -0-  Issued and Outstanding

––

 

Preferred Stock, Class D:  $.001 Par;  13,000,000 Shares

   

                            Authorized;  -0- Issued and Outstanding

––

 

    

Additional Paid-In-Capital

43,382,782

 

14,351,133

Accumulated Deficit

 (7,419,591)

 

 (7,419,591)

Accumulated Deficit Since Re-Entering the Development Stage

 (35,121,105)

 

 (10,125,021)

Treasury Stock – 20 Shares at Cost

 (3,000)

 

 (3,000)

    

Total Stockholders' Deficit

(5,058,504)

 

(3,968,560)

    

Total Liabilities and Stockholders' Deficit

$             ––

 

$       9,574

 

The accompanying notes are an integral part of these financial statements.


- F-2 -


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 
 

CONSOLIDATED STATEMENTS OF OPERATIONS

     
   

Period From

   

Date of re-entering the Development Stage

   

March 1, 2010

 

 

 

  

Through

 For the Years Ended August 31,

2012

 

2011

 

August 31, 2012

      

Revenues, Net

$             ––

$           ––

$          ––

 

Cost of Goods Sold

 

 

 

Gross Profit

 

 

 

Expenses

Compensation Expense

23,126,406

92,371

27,209,187

Consulting Fees

1,253,234

1,937,355

3,613,331

General and Administrative

421,744

652,281

1,320,785

Impairment Loss

––

444,643

1,273,191

Interest Expense

328,144

 

349,569

 

776,905

Loss on Conversion

––

180,000

180,000

(Gain) Loss on Derivative

(133,444)

864,646

731,202

 

Total Expenses

24,996,084

 

4,520,865

 

35,104,601

 

Loss from Operations Before

  Provision for Taxes

(24,996,084)

(4,520,865)

(35,104,601)

 

Provision for Taxes

 

 

 

Loss from Continuing Operations

(24,996,084)

(4,520,865)

 (35,104,601)

 

Discontinued Operations

Loss from Discontinued Operations

 

 

(16,504)

 

Net Loss

$ (24,996,084)

 

$  (4,520,865)

 

$  (35,121,105)

 

Weighted Average Number of

  Common Shares Outstanding -

  Basic and Diluted

24,601,650

277,888

 

Net Loss Per Common Share -

  Basic and Diluted

 $          (1.02)

 $        (16.27)

 


The accompanying notes are an integral part of these financial statements.


F- 3

 

 

GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

CONSOLIDATED STATEMENTS OF CASH FLOWS


  

Period From

  

Date of re-entering the Development Stage

  

March 1, 2010

 

 

 

 

Through

For the Years Ended August 31,

2012

 

2011

August 31, 2012

     

Cash Flows from Operating Activities

    
     

Net Loss

$ (24,996,084)

 

$ (4,520,865)

$  (35,121,105)

     

Non-Cash Adjustments:

    

Bad Debt

––

 

5,000

66,750

Discontinued Operations

––

 

––

16,504

Imputed Interest on Related Party Note Payable

24,356

 

9,335

33,691

Preferred Stock Issued in Exchange for Services Rendered

––

 

600,000

600,000

Common Stock Issued in Exchange for Services Rendered

23,857,807

 

973,320

24,859,927

Compensation Expense – Stock Option Awards

––

 

92,371

4,082,781

Impairment Loss

––

 

444,643

1,273,139

Amortization of Debt Discount

29,869

 

111,797

141,666

Loss on Conversion of Accrued Expenses for Stock Payable

––

 

180,000

180,000

(Gain) Loss on Derivative

(133,444)

 

864,646

731,202

Changes in Assets and Liabilities:

    

Prepaid Expenses

––

 

52,820

110,875

Other Assets

––

 

       (5,000)

(5,000)

Accrued Expenses

228,619

 

––

364,221

Accrued Interest

248,821

 

––

348,013

Accrued Compensation – Directors

621,626

 

849,737

1,789,613

     

Net Cash Flows from Operating Activities

(118,430)

 

(342,196)

(527,723)

     

Cash Flows from Investing Activities

    

Cash Paid to Joint Venture

––

 

       (18,750)

             (18,750)

    

Net Cash Flows from Investing Activities

––

 

        (18,750)

(18,750)


Cash Flows from Financing Activities

   

Bank Overdraft

6

 

––

6

Cash Proceeds from Convertible Debt

27,500

 

132,500

160,000

Cash Proceeds from Issuance of Debt

15,000

 

15,000

30,000

Cash Proceeds from Sale of Stock

––

 

––

72,658

Cash Proceeds from Issuance of Related Party Debt

66,750

 

243,623

310,373

Repayment of Related Party Debt

––

 

       (20,673)

(20,673)

Repayment to Directors – Net

(400)

 

––

(6,181)

     

Net Cash Flows from Financing Activities

108,856

 

370,450

546,183

     

Net Change in Cash and Cash Equivalents

(9,574)

 

9,504

(290)

     

Cash and Cash Equivalents - Beginning of Year

9,574

 

70

290

     

Cash and Cash Equivalents - End of Year

$          ––

 

$        9,574

$             ––

     

Supplemental Disclosures

    

Interest Paid

  $    25,094

 

  $    147,665

  $     172,759

Income Taxes Paid

  $          —

 

  $            —

  $             —

     

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVIES:

    

Net Assets Acquired from Acquisition of 688239 B.C.

$            —

 

  $            —

$     845,000

Common Stock Issued in Payment of Debt

  $            —

 

  $            —

$     350,435

Investment in Joint Venture & Due to Joint Venture

  $            —

 

$    120,000

$     120,000

Common Stock Issued for Investment in Joint Venture

  $            —

 

$    324,643

$     324,643

Common Stock Issued for Assets and Liabilities Assumed in Merger

  $            —

 

  $            —

$     845,000

Common Stock Issued to Relieve Accrued Expenses

  $            —

 

  $    136,400

$     136,400

Stock Payable Reclassed to Derivative Due to Tainted Equity

  $        4,700

 

  $    505,000

$     550,700

Discounts on Debt due to Derivative Liability

 $      27,500

 

  $    132,500

$     160,000

Common Stock Issued to Escrow

  $  5,941,518

 

  $ 1,245,117

 $  7,186,634

Conversion of Preferred Stock

  $             —

 

  $       6,000

$        6,000

Derivative Liability Settled for Common Stock Issued

  $      47,777

 

  $ 1,338,212

$  1,385,989

Common Stock Issued from Escrow for Conversion of

    

  Convertible Note Payable

$       21,900

 

  $    108,680

$     130,580

 


The accompanying notes are an integral part of these financial statements.


F-4


GLOBAL EARTH ENERGY, INC.

(A NEVADA CORPORATION)

Wilmington, North Carolina

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

          
 

Common

Common

Stock

 

Preferred Stock

Additional

 

Treasury

Total

 

Stock

Stock

Held in

 

($.001 Par)

Paid - In

Accumulated

Stock

Stockholders’

 

Shares

($.001 Par)

Escrow

Class A

Class B

Class C

Capital

Deficit

at Cost

Deficit

           

Balance – March 1, 2010

17,115

$17

$           —

$  30

$1,000

$  1,000

$4,679,740

$(7,419,591)

$(3,000)

$(2,740,804)

Compensation Expense – Stock Awards

––

––

––

––

––

––

4,017,410

––

––

4,017,410

Common Stock Issued in Exchange for Services Rendered

1,333

1

––

––

––

––

28,799

––

––

28,800

Common Stock Issued for Cash

2,968

3

––

––

––

––

72,656

––

––

72,659

Common Stock Issued in Payment of Debt

15,667

16

––

––

––

––

350,419

––

––

350,435

Preferred Stock Converted to Common

667

1

––

––

––

(1,000)

999

Common Stock Issued in Plan of Merger

43,334

43

––

––

––

––

844,957

––

––

845,000

Net Loss for the Period

––

––

––

––

(5,604,156)

(5,604,156)

           

Balance - September 1, 2010

81,084

       81

           —

 30

  1,000

  ––

9,994,980

(13,023,747)

 (3,000)

(3,030,656)

           

Shares Issued – Joint Venture Agreement

48,095

48

––

––

––

––

324,595

––

––

324,643

           

Compensation Expense – Stock Option Awards

92,371

92,371

           

Shares Issued to Escrow Held for Notes Payable Conversion

100,869

101

(1,245,117)

1,245,016

           

Escrow Shares Issued Upon Conversion of Notes Payable

469,563

(360,883)

108,680

           

Preferred Stock Issued in Exchange for Services Rendered

2,000

598,000

600,000

           

Common Stock Issued in Exchange for Services Rendered

131,600

132

973,188

973,320

           

Preferred Stock Converted to Common

4,000

4

(30)

26

           

Settlements of Derivative Liabilities

91,333

91

1,338,121

1,338,212

           

Imputed Interest on Non-Interest Notes

9,335

9,335

           

Common Stock Issued to Relieve Accrued Expenses

16,000

16

––

––

––

––

136,384

––

––

136,400

           

Net Loss

  

(4,520,865)

(4,520,865)

           

Balance - August 31, 2011

472,981

473

 (775,554)

 ––

3,000

$14,351,133

(17,544,612)

(3,000)

 (3,968,560)

           

Shares Issued to Escrow Held for Notes Payable Conversion

48,700,963

48,701

 (5,941,518)

5,892,817

           

Compensation Expense – Stock Awards

60,000,000

60,000

22,740,000

22,800,000

           

Escrow Shares Issued Upon Conversion of Notes Payable

24,138

24

695,652

(673,776)

21,900

           

Common Stock Issued in Exchange for Services Rendered

11,620,666

11,621

1,046,186

1,057,807

           

Settlements of Derivative Liabilities

32,667

33

47,744

47,777

           

Shares Loaned to Company – Reclassed to Derivative Liability

(21,762)

(22)

––

––

––

––

(45,678)

––

––

(45,700)

           

Imputed Interest on Non-Interest Notes

24,356

24,356

           

Net Loss

(24,996,084)

(24,996,084)

           

Balance - August 31, 2012

120,829,653

$ 120,830

$ (6,021,420)

$ ––

$3,000

––

$43,382,782

$(42,540,696)

$(3,000)

$ (5,058,504)



The accompanying notes are an integral part of these financial statements.


F-5



GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A –The Company

 

International Development Corp. (“IDC”) was formed on October 22, 2004, under the laws of the state of Nevada.  On December 9, 2004, IDC merged with Ozolutions Inc., a Delaware Corporation, which was formed on January 10, 1996 as Unipak Process, Inc., with IDC as the surviving corporation.  On April 14, 2006 IDC changed its name to Global Wataire Inc. On February 5, 2008, the Company changed their name to Global Earth Energy, Inc.   The Company’s principal office is located in Wilmington, North Carolina.

 

On December 9, 2004, the Company amended the articles of incorporation to increase the authorized shares of common stock from 50,000,000 to 800,000,000 and authorized up to 100,000,000 shares of all classes of Preferred Stock.

 

On December 9, 2004, the Company established a series of Preferred Stock, Class A, $0.001 Par Value.  The Company is authorized to issue 1,000,000 shares of Preferred Stock, Class A, with each share carrying 200 to 1 voting rights and convertible into common stock on a 200 for 1 basis.

 

In April 2005, the Company established a series of Preferred Stock, Class B, $0.001 Par Value.  The Company is authorized to issue 5,000,000 shares with each share carrying 500 to 1 voting rights and not convertible into common stock.

 

Preferred Stock, Class C, $0.001 Par Value.   The Company is authorized to issue 15,000,000 shares with each share carrying 1 to 1 voting rights and convertible into common stock on a 1 for 1 basis.

 

In May 2006, the Company established a series of Preferred Stock, Class D, $0.001 Par Value.  The Company is authorized to issue 13,000,000 shares with each share carrying 3 to 1 voting rights and  convertible into common stock on a 3 for 1 basis.

 

On May 31, 2006, the Company changed the name of its wholly owned subsidiary Freshwater Technologies, Inc. to Atlantic Seaboard Company.

 

On September 28, 2006, the Company changed the name of its wholly owned subsidiary Atlantic Seaboard Company to DigiTar Nevada, Inc.

 

On November 5, 2007, the Company changed the name of its wholly owned subsidiary DigiTar Nevada, Inc. to Knightbridge Corp.

 

The Company has changed its primary business objective from advisory services to the Renewable and Recoverable Energy Markets.  Consequently, the Company changed their name on February 5, 2008 to Global Earth Energy, Inc.

 

On April 23, 2010, the Company’s wholly owned subsidiary, Global Earth Energy Acquisition Company was incorporated in the state of Wyoming.

 

On January 28, 2011, the Company amended their Preferred Stock Class A authorized shares from 1,000,000 shares to 10,000 shares.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Global Earth Energy, Inc., and its wholly owned subsidiary; Knightsbridge Corp. (the “Company”).  All significant inter-company balances have been eliminated in consolidation.

- continued -



F-6

 

 

GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A –The Company - continued

 

Scope of Business

 

The Company’s business objective is to maximize its resources to purchase holdings in the Coal, Oil and Gas field. The Company’s main focus is purchasing and mining coal assets with joint venture partners and operators. Given the high demand for coal as an energy source, the Company is only attempting to purchase coal properties that produce high grade steam or metallurgic coal. Further, the Company is keeping open the possibility of expanding its operations into the oil, gas and precious metal fields of mining.   

 

Note B -

Summary of Significant Accounting Policies

 

               Method of Accounting

 

The Company maintains its books and prepares its financial statements on the accrual basis of accounting.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less.  The Company maintains cash and cash equivalents at financial institutions, which periodically may exceed federally insured amounts. As of August 31, 2012 and 2011 the Company had no cash equivalents.

 

Income Taxes

 

The Company accounts for income taxes in accordance with generally accepted accounting principles which prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

 

The Company evaluates all significant tax positions as required by accounting principles generally accepted in the United States of America.  As of August 31, 2012, the Company does not believe that it has taken any positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next year.  It is the Company’s policy to recognize any interest and penalties in the provision for taxes.

 

               Earnings per Share

 

Earnings per share of common stock are computed in accordance with FASB ASC 260 (prior authoritative literature:  FASB Statement No. 128.), FASB ASC 260 replaces SFAS No, 128, “Earnings per Share”.  Basic earnings per share are computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding for each period.  Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding assuming conversion of all potentially dilutive stock options, warrants and convertible securities, if dilutive. Common stock equivalents that are anti-dilutive are excluded from both diluted weighted average number of common shares outstanding and diluted earnings per share.

 

               Financial Instruments

 

               The Company’s financial instruments consist of cash, long-term investments, and accounts payable. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.  The fair value of these financial instruments approximates their carrying value, unless otherwise noted.


- continued -


F-7

 


 GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note B -

Summary of Significant Accounting Policies - continued

 

               Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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 amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

              Stock-Based Compensation

 

Stock-based compensation is computed in accordance with FASB ASC 718 (prior authoritative literature:  FASB Statement No. 123R). FASB ASC 718 replaces SFAS No. 123R which requires all share-based payment to employees, including grants of employee stock options, to be recognized as compensation expense in the financial statements based on their fair values.  That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company has selected the Black-Scholes option pricing model as the most appropriate fair value method for our awards and have recognized compensation costs immediately as our awards are 100% vested.  

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50 (prior authoritative literature, EITF 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.”)  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.  Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with ASC 718.  

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.

 

The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments.  In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a lattice model for valuation of the derivative.  When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments.  The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.


- continued -


F-8

 

 

GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note B -

Summary of Significant Accounting Policies – continued

 

Derivative Financial Instruments

 

The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.

 

Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.

 

   Joint Venture

 

The Company has determined that the investment in joint venture should be accounted for as an equity investment in accordance with FASB ASC 323,   FASB ASC 323 provides that under the equity method, an investor shall recognize its share of the earnings or losses of an investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend. An investor shall adjust the carrying amount of an investment for its share of the earnings or losses of the investee after the date of investment and shall report the recognized earnings or losses in income. An investor’s share of the earnings or losses of an investee shall be based on the shares of common stock and in-substance common stock held by that investor.


Note C -  Recently Issued Accounting Standards

 

   In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

 

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.

 

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.

 

 

- continued -


F-9


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note C -  Recently Issued Accounting Standards – continued

 

In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.

 

In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.

 

Note D -  Going Concern

 

The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported recurring losses from operations.  As a result, there is an accumulated deficit of $42,540,696 at August 31, 2012.

 

The Company’s continued existence is dependent upon its ability to raise capital or acquire a marketable company.  The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

Note E -  Share Activity

 

Stock Awards

 

On October 18, 2008, Ed Gorman (member of the Board of Directors) was granted as compensation for services options to buy 40,000 shares of the Company’s preferred stock at the last quoted common stock offering price as of that day. A total of 40,000 options were granted at a price of $105  These options were issued in error but were subsequently issued as preferred class A shares (see below).

 

On November 8, 2009, the Company’s attorney was granted as compensation for services options to buy 667 shares of the Company’s common stock at the last quoted common stock offering price as of that day. A total of 667 options were granted at a price of $40.50.

 

On May 26, 2010, the Board of Directors were each granted as compensation for services options to buy 667 shares of the Company’s common stock at the last quoted common stock offering price as of

that day. A total of 4,000 options were granted at a price of $114.


- continued -



F-10


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -  Share Activity - continued

 

Stock Awards

 

On May 26, 2010 the Company’s Chief Financial Officer was granted as compensation for services options to buy 40,000 shares of the Company’s preferred class A stock at the last quoted common stock offering price as of that day times 200.  A total of 40,000 options were granted at a price of $15.20.  

 

On July 26, 2010, the Company’s President was granted as compensation for services options to buy 325,000 shares of the Company’s preferred class A stock at the last quoted common stock offering price as of that day times 200. A total of 325,000 options were granted at a price of $8.60.

 

On August 2, 2010, the Company’s attorney was granted as compensation for services warrants to buy 1,333 shares of the Company’s common stock at $52.50.  On April 5, 2011 these shares were cancelled and 1,333 shares were issued for relief of $11,000 of accrued amounts owed.  The grant date fair value of the shares was equal to the liability relieved.

 

On August 11, 2011 the four board members were granted as compensation for services options to buy common stock at the last quoted common stock offering price as of that day.  A total of 22,000 options were granted at a price of $4.20. These options vested immediately and have a ten year contractual term.

  

The following table provides the range of assumptions used by the Company, at the time stock options were issued.

 

For the year ended August 31, 2012 and 2011, $-0- and $92,371 was expensed utilizing the Black-Scholes option pricing model, respectively.  The following weighted-average assumptions were used for the grants issued:


Common Stock

 

2012

2011

    

Dividend Yield

 

0.00%

0.00%

    

Expected Volatility

 

-0-

321.72%

    

Discount Rate

 

-0-

1.02%

    

Expected term of option

 

-0-

5 Years


 

- continued -

 


F-11

 

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -  Share Activity – continued

 

Stock Awards





Common Stock




Shares Under

Option


 

 

Weighted

Average

Exercise

Price

 

Exercisable

     

2011

    

Balance - September 1, 2010

6,000

$40.50 - $114

6,000

Options Granted

22,000

$4.20

22,000

Options Exercised

––

––

––

Options Forfeited

­––

––

––

Balance – August 31, 2011

28,000

28,000

 
 

2012

Balance - September 1, 2011

28,000

$40.50 - $114

28,000

Options Granted

––

––

––

Options Exercised

––

––

––

Options Forfeited

––

––

––

Balance – August 31, 2012

28,000

28,000

 

 

 

F-12

 


Stock Options - Preferred

Stock




Shares Under

Option


 

 

 

Weighted

Average

Exercise

Price

 

Exercisable

     

2012

Balance - September 1, 2011

365,000

$8.60 - $15.20

365,000

Options Granted

––

­––

––

Options Exercised

––

­––

––

Options Forfeited

––

––

––

Balance – August 31, 2012

365,000

365,000

 

Common Stock

 

On March 2, 2010, a stockholder that is closely related to Betty-Ann and Sydney Harland (Chairman, and President, CEO and Director, respectively) converted 1,000,000 Preferred Class C shares to 667 common shares.

 

On April 30, 2010, the Company entered into an agreement with Richard Proulx (Director) as a Contractor.  Pursuant to the agreement the Contractor agrees to assist the Company in Sales for the Company in Quebec, Canada.  The term of the contract is for one year, expiring on April 30, 2011.  In consideration for his services, the Contractor received 1,333 common shares on April 30, 2010.  These shares were valued at $28,000 based on the closing price on the date of the grant.

 

On May 10, 2010, the Company and its wholly owned subsidiary, Global Earth Energy Acquisition Company, entered into an agreement to merge with 688239 B.C. Ltd., a British Columbia Corporation (688239 B.C.).  Pursuant to the agreement the Company issued 43,334 common shares to the sole stockholder of 688239 B.C. in exchange for the fair market value of certain assets and liabilities of 688239 B.C. On December 2, 2010 the merger with 688239 B.C. was rescinded and accounted for in the year ended August 31, 2010 (See Note – Discontinued Operations).

 

On June 22, 2010 the Company agreed to issue Sydney Harland (CEO and Director) 15,667 shares common stock in lieu of payment by the Company of $350,435 owed to Mr. Harland, included in due to directors.  The agreement was effective as of May 14, 2010.

 

On August 31, 2010, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2010.  The purpose of the Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company’s stockholders, by paying their retainer or fees in the form of shares of the Company’s common stock.  1,333 shares of common stock are registered to this plan at an offering price of $39.  The Plan shall expire on August 31, 2020.


- continued -



F-13

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -   Share Activity – continued

 

Common Stock

 

On September 9, 2010 Robert Levitt converted 30,000 Preferred Class A shares to 4,000 common shares.

 

In September of 2010 Norman Reynolds was issued 1,333 shares common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $54,000 based on the value of the shares on the date of grant.

 

On September 27, 2010 Arthur Kelly and Gloria Leung were granted 1,333 and 667 shares of common stock, respectively for rewriting and updating the Company’s business plan.  These shares were valued at $78,000 based on the closing price on the date of the grant.

 

On September 27, 2010 Carolyn Merrill was granted 667 shares common stock from the Company as compensation as the Company’s accountant.  These shares were valued at $16,500 based on the closing price on the date of the grant.  

 

On October 1, 2010 the Company entered into an agreement with Geoffrey Eiten (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in various industrial relations and marketing services. The term of the contract is for three months expiring on January 1, 2011.    In consideration for his services, the Contractor was granted 2,000 common shares on September 27, 2010.  These shares were valued at $49,500 based on the fair value of the shares on the grant date.

 

On October 5, 2010, 16,927 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock Held in Escrow account at a value of $253,907 based on the grant date fair value of the shares.   

 

During the fiscal year ended August 31, 2011 Robert Levitt agreed to accept 120,000 shares in lieu of payment of an accrued balance owed to him of $180,000. The value of the shares to be issued on the date of the agreement was $360,000 causing a loss of $180,000 for the conversion. This stock payable was later re-classed to the derivative liability due to the tainted equity environment and potential inability of the Company to share settle the instrument. As a result, the related value of the stock payable and issuances were re-valued at each issuance date and balance sheet date due to the mark to market requirements for the derivative liability.

 

On October 12, 2010 Robert Levitt was granted 6,000 shares of common stock in partial satisfaction of the 120,000 shares owed to him for prior consulting services. The value of the shares issued was $73,800. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.  

 

On November 8, 2010, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2010 No. 2.  The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company’s stockholders, by paying their retainer or fees in the form of shares of the Company’s common stock.  33,333 shares of common stock are registered to this plan at an offering price of $.0029.  The Plan shall expire on November 8, 2020.


- continued -



F-14

 

 

 

GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -   Share Activity – continued

 

Common Stock

 

On November 8, 2010 Norman Reynolds was granted 4,000 shares common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney. These shares were valued at $16,200 based on the value of the shares on the date of grant.

 

On November 23, 2010, 48,095 shares of common stock were granted to five shareholders to acquire 40% of the joint venture as determined pursuant to the joint venture agreement signed November 22, 2010 – see Note G.  Strategic Alliance, George Sinnis, Glenn Sturm, Atlantic Station and Raymond F. Barbush III received 41,762; 1,333; 333; 1,333 and 3,334 shares respectively. The fair value of the shares based on the agreement date was $324,643 and was capitalized as a part of the joint venture asset.

 

On October 11, 2010 AGS was granted 6,667 shares common stock valued at $110,000 as part of their investment agreement executed October 5, 2010. The shares were expensed upon grant and the agreement was later dissolved.


On December 3, 2010 Robert Levitt received 6,667 shares common stock in partial satisfaction of the 120,000 shares owed to him for prior consulting services. The value of the shares issued was $179,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.  

 

On December 9, 2010, 51,467 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock

                Held in Escrow account at a value of $772,002 based on the grant date fair value of the shares.

 

On December 21, 2010, Norman Reynolds was granted 4,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $30,000 based on the closing price on the date of the grant.     

 

On December 21, 2010 Spiros Sinnis was granted 2,400 shares of common stock for his consultant work pertaining to the Joint Venture agreement between the Company and Reflora do Brasil.  These shares were valued at $15,120 based on the closing price on the date of the grant.

 

On January 11, 2011 Robert Levitt was granted 14,667 shares of common stock of the 120,000 shares owed. The value of the shares issued was $154,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.  

 

On January 31, 2011 Norman Reynolds was granted 2,000 shares common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $10,500 based on the closing price on the date of the grant.

 

On January 26, 2011 the Company entered into an agreement with Spiros Sinnis (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in connection with strategic transactions. The term of the contract is for twelve months expiring on January 26, 2012. In consideration for his services, the Contractor was granted 4,000 common shares on January 31, 2011. These shares were valued at $19,200 based on the closing price on the date of the grant. The shares were expensed upon grant due to being fully vested.  

 


- continued -



F-15

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -   Share Activity – continued

 

Common Stock

 

On January 26, 2011 the Company entered into an agreement with Andrew Madenberg (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in connection with strategic transactions. The term of the contract is for twelve months expiring on January 26, 2012. In consideration for his services, the Contractor was granted 4,000 common shares on January 26, 2011. These shares were valued at $19,200 based on the closing price on the date of the grant. The shares were expensed upon grant due to being fully vested.    

 

On February 9, 2011 GFC 2005 was granted 5,000 shares common stock valued at $34,500 as part of their joint venture agreement executed February 9, 2011. The shares were expensed on the grant date based on the agreement being terminated shortly thereafter.

 

 On February 10, 2011 Robert Levitt received 10,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $315,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.

 

On February 25, 2011 Norman Reynolds was granted 2,000 shares common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $30,000 based on the closing price on the date of the grant.  

 

On February 25, 2011 Carolyn Merrill was granted 2,000 shares of common stock in lieu of payment by the Company for compensation as the Company’s accountant.  These shares were valued at $60,000 based on the closing price on the date of the grant.

 

On March 2, 2011 Marie Fay was granted 867 shares common stock for services rendered.  These shares were valued at $13,000 based on the closing price on the date of the grant.

 

For the quarter ended May 31, 2011 Spiros Sinnis was granted 11,333 shares for services rendered in connection with his consultant contract.  These shares were valued at $92,000 based on the closing price on the date of the grants.

 

For the quarter ended May 31, 2011 Andrew Madenberg was granted 11,333 shares for services rendered in connection with his consultant contract.  These shares were valued at $92,000 based on the closing price on the date of the grants.

 

On February 1, 2011 the Company entered into an agreement with Geoffrey Eiten (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in various industrial relations and marketing services. The term of the contract is for six months expiring on August 1, 2011.    In consideration for his services, the Contractor was granted 1,333 common shares on February 1, 2011. These shares were valued at $9,200 based on the value of the shares on the grant date.

 

On May 13, 2011 Norman Reynolds was granted 8,000 shares common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $57,600 based on the closing price on the date of the grant.

 

On April 27, 2011, 32,475 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock

               Held in Escrow account at a value of $219,208 based on the grant date fair value of the shares.


- continued -

    



F-16


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -  Share Activity – continued

 

Common Stock

 

On August 2, 2010, the Company’s attorney was granted as compensation for services warrants to buy 1,333 shares of the Company’s common stock at $0.035.  On April 5, 2011 these shares were cancelled and 1,333 shares were issued for relief of $11,000 of accrued amounts owed.  The grant date fair value of the shares was equal to the liability relieved.

 

For the quarter ended May 31, 2011 Robert Levitt received 30,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $318,500. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.    

 

On May 24, 2011, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2011.  The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company’s stockholders, by paying their retainer or fees in the form of shares of the Company’s common stock.  66,667 shares of common stock are registered to this plan at an offering price of $.004.  The Plan shall expire on May 24, 2021.

 

For the quarter ended August 31, 2011During June and July, 2011 Andrew Madenberg was granted a total of 16,667 shares for services rendered in connection with his consultant contract.  These shares were valued at $90,000 based on the closing price on the date of the grants.

 

For the quarter ended August 31,During June and July, 2011 Spiros Sinnis was granted a total of 16,667 shares for services rendered in connection with his consultant contract.  These shares were valued at $90,000 based on the closing price on the date of the grants.

 

For the quarter ended August 31During June and July, 2011 Robert Levitt received a total of 20,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $84,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.

 

On June 8, 2011 Norman Reynolds was granted 8,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $49,200 based on the closing price on the date of the grant.

 

On June 8, 2011 Carolyn Merrill was granted 1,333 shares of common stock in lieu of payment by the Company for compensation as the Company’s accountant.  These shares were valued at $6,400 based on the closing price on the date of the grant.

 

On July 18, 2011 the Company entered into an agreement with Daniel Chase (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in its coal, oil and gas procedures and protocols . The term of the contract is for six months expiring on January 18, 2012.    In consideration for his services, the Contractor received 32,667 common shares on July 18, 2011.  These shares were valued at $147,000 based on the grant date of the shares.

 

On September 22, 2011, the Company amended their authorized Common Stock Class B to 5,171,013 shares from 50,000,000 shares.  The 44,828,987 Class B shares were transferred to Common Stock Class A thereby increasing Common Stock Class A authorized to 844,828,987.


-  continued -



F-17

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -  Share Activity – continued

 

 On September 5, 2011 the Company entered into an agreement with Makaha Media Corporation (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in developing and implementing appropriate plans and means for presenting the Company and its product(s) to the proper industries, establishing an image for the Company and its product(s) and creating the foundation for subsequent marketing efforts.  The term of the contract is for two months expiring on October 31, 2011.  In consideration for their services, the Contractor received 33,333 common shares.  These shares were valued at $130,000 based on the grant date of the shares.

 

On September 20, 2011 the Company entered into an agreement with Strategic Alliance Consulting Group (Contractor).  Pursuant to the agreement the Contractor agreed to return the 21,762 shares Common Stock Class A that they were holding, for consideration of the Company reauthorizing the same amount of shares sometime in the future. The Company recorded the shares as treasury stock based on the value of the shares owed of $47,500 with the offsetting credit to stock payable. The treasury stock were immediately returned to the authorized and unissued pool of shares for the Company. The treasury amount was relieved against common stock and APIC with this retirement. The stock payable was considered a part of the tainted equity environment as a common stock equivalent and re-classed to derivative liability upon being owed. The value of the shares was marked to market on the balance sheet date, see footnote I.

 

On September 20, 2011, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2011, No. 2.  The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company’s stockholders, by paying their retainer or fees in the form of shares of the Company’s common stock.  26,667 shares of common stock are registered to this plan at an offering price of $2.10.  The Plan shall expire on September 20, 2021.

 

On May 21, 2012 the Company approved a 1 to 1,500 reverse stock split on its common stock.  All share activity has been retroactively adjusted for the split.

 

On June 7, 2012, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2012.  The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company’s stockholders, by paying their retainer or fees in the form of shares of the Company’s common stock.  5,000,000 shares of common stock are registered to this plan at an offering price of $0.20.  The Plan shall expire on June 7, 2022.

 

On June 15, 2012 six board members were granted as compensation for services 10,000,000 shares each of common stock for services rendered. These shares were valued at $22,800,000 based on the closing price on the date of the grant.

 

On June 15, 2012 Norman Reynolds was granted 20,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $7,600 based on the closing price on the date of the grant.


-  continued -



F-18

 

 

GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -  Share Activity – continued

 

On June 21, 2012 Betty and Sydney Harland were each granted 600,000 shares of common stock for services rendered to the company.  These shares were valued at $72,000 based on the closing price on the date of the grant.

 

On June 25, 2012 Betty and Sydney Harland were each granted 1,500,000 shares of common stock for services rendered to the company.  These shares were valued at $366,000 based on the closing price on the date of the grant.

 

On June 26, 2012 Norman Reynolds was granted 150,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $18,300 based on the closing price on the date of the grant.

 

On June 27, 2012, 48,700,963 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock

               Held in Escrow account at a value of $5,941,517 based on the grant date fair value of the shares.


On July 11, 2012, Robert Levitt was issued the final 32,667 common shares related to the original agreement he had with the Company to repay his loan of $180,000 with 120,000 common shares.  The value of the shares issued was $3,593.  The related portion of the derivative liability was marked to this value and relieved to additional paid in capital upon issuance. Mr. Levitt was also issued on July 11, 2012, 2,967,333 common shares in lieu of payment for services he rendered to the Company. These shares were valued at $326,406 based on the closing price on the date of the grant.

 

On July 20, 2012 Norman Reynolds was granted 250,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $27,500 based on the closing price on the date of the grant.

 

On August 6, 2012 the Company entered into an agreement with Christian Hansen (Contractor).  Pursuant to the agreement the Contractor agrees to assist the Company in developing and implementing appropriate plans and means for presenting the Company and its product(s) to the proper industries, establishing an image for the Company and its product(s) and creating the foundation for subsequent marketing efforts.  The term of the contract is for six months expiring on February 6 2013.  In consideration for their services, the Contractor received 3,000,000 common shares.  These shares were valued at $90,000 based on the grant date of the shares.

 

On August 21, 2012 Norman Reynolds was granted 1,000,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Company’s attorney.  These shares were valued at $20,000 based on the closing price on the date of the grant.

 

Preferred Stock

 

On January 28, 2011, the Company amended their Preferred Stock Class A authorized shares from 1,000,000 shares to 10,000 shares.


-  continued –



F-19-


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note E -  Share Activity – continued

 

Preferred Stock

 

On February 28, 2011 the Board of Directors approved the issuance of 2,000,000 Preferred Stock Class B to Betty Harland.  These shares carry 500 to 1 voting rights and are not convertible into common stock. These shares also carry a liquidation preference over common shares. These shares were valued at $600,000 and were expensed upon grant. The shares were valued by a valuation expert on the date of grant. The key inputs in the valuation were related to assigning a value to the control associated with the preferred shares issued. No value was assigned to the liquidation preference of the securities based on the net deficit position of the Company. The valuation expert used industry studies for similar companies which estimated a premium on control equal to 10.05% of the Company’s respective market cap. The other inputs involved in calculating the market cap on the date of grant which was calculated as the shares outstanding multiplied by the shares price on the date of grant. The market cap on the date of grant was found to be approximately $5,969,380 based on this calculation.

 

Note F –  Related Party Transactions

 

Certain disbursements of the Company have been paid by two directors of the Company therefore; a Due to Directors account has been established.  The balance at August 31, 2012 and 2011 was $-0- and $400, respectively.  

 

In October 2004, the Company entered into a consulting agreement with its Chairman, Betty-Ann Harland for a five year term, with annual compensation of $220,000 and auto allowance of $12,000.  The accrued consulting fees are accruing interest at 8.75% annually.  On March 24, 2011, the Company extended Ms Harland’s consulting agreement effective October 1, 2009 through October 1, 2011. On December 5, 2011, Mrs. Harland’s contract was extended through October 1, 2015. At August 31, 2012 and 2011 accrued compensation due to Mrs. Harland was $1,021,389 and $789,841, respectively.  At August 31, 2012 and 2011 accrued interest on accrued compensation was $150,123 and $82,297, respectively.

 

On February 28, 2011 Betty Harland was issued 2,000,000 Preferred Stock Class B (See Note E – Preferred Stock).

 

On August 25, 2007, the Company entered into a consulting agreement with its CEO, Sydney Harland for a five year term, with annual compensation of $220,000, health benefits of $15,000 and $12,000 auto allowance.  The agreement agrees to pay all accrued compensation from April 2006 and is accruing interest at 8.75% annually.  At August 31, 2012 and 2011 accrued compensation due to Mr. Harland was $1,399,786 and $1,167,208, respectively.  At August 31, 2012 and 2011 accrued interest imputed on accrued compensation was $270,223 and $171,427, respectively.


 

-continued -


F-20


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note F –  Related Party Transactions – continued

 

On August 25, 2007, the Company entered into a consulting agreement with its CFO, Edmund Gorman for a two year term, with annual compensation of $150,000, health benefits of $7,500.  The agreement agrees to pay all accrued compensation from April 2006 and is accruing interest at 8.75% annually.    On March 24, 2011, the Company extended Mr. Gorman’s consulting agreement effective August 25, 2009 through August 25, 2011.  On December 5, 2011, Mr. Gorman’s contract was extended through August 27, 2015.  At August 31, 2012 and 2011 accrued compensation due to Mr. Gorman was $1,010,419 and $852,919, respectively.    At August 31, 2012 and 2011 accrued interest imputed on accrued compensation was $243,590 and $162,067, respectively.

 

On September 9, 2010 Robert Levitt converted 30,000 Preferred Class A shares to 4,000 common shares.

 

During the fiscal year ended August 31, 2011 Robert Levitt agreed to accept 120,000 shares in lieu of payment of an accrued balance owed to him of $180,000. The value of the shares to be issued on the date of the agreement was $360,000 causing a loss of $180,000 for the conversion. This stock payable was later re-classed to the derivative liability due to the tainted equity environment and potential inability of the Company to share settle the instrument. As a result, the related value of the stock payable and issuances were re-valued at each issuance date and balance sheet date due to the mark to market requirements for the derivative liability.

 

On October 12, 2010 Robert Levitt was granted 6,000 shares of common stock in partial satisfaction of the 180,000,000 shares owed to him for prior consulting services. The value of the shares issued was $73,800. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.  

 

For the quarter ended February 28, 2011 Robert Levitt received 31,333 shares common stock in partial satisfaction of the 120,000 shares owed to him for prior consulting services. The value of the shares issued was $648,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.  

 

For the quarter ended May 31, 2011 Robert Levitt received 30,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $318,500. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.

 

For the quarter ended August 31, 2011 Robert Levitt received 20,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $84,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.

 

On June 15, 2012 Betty Harland, Sydney Harland and Edmund Gorman as board members were granted as compensation for services 10,000,000 shares each of common stock for services rendered. These shares were valued at $11,400,000 based on the closing price on the date of the grant.

 

On June 21, 2012 Betty and Sydney Harland were each granted 600,000 shares of common stock for services rendered to the company.  These shares were valued at $72,000 based on the closing price on the date of the grant.

 

On June 25, 2012 Betty and Sydney Harland were each granted 1,500,000 shares of common stock for services rendered to the company.  These shares were valued at $366,000 based on the closing price on the date of the grant.

 

-continued -

        



F-21



GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note F –  Related Party Transactions – continued

 

Note Payable – Related Party balance was $303,250 and $236,500 at August 31, 2012 and 2011, respectively.  Amounts due are to Robert Levitt for monies loaned to the Company.  Imputed interest in the amount of $21,590 ehas been recorded since the note was non-interest bearing.

 

Interest expense charged to operations was $328,144 and $349,569 for the years ended August 31, 2012 and 2011 respectively.  

 

On July 11, 2012, Robert Levitt was issued the final 32,667 common shares related to the original agreement he had with the Company to repay his loan.  Mr. Levitt was also issued on July 11, 2012, 2,967,333 common shares in lieu of payment for services he rendered to the Company. These shares were valued at $326,406 based on the closing price on the date of the grant.

 

Note G – Joint Ventures

 

   Reflora do Brasil

 

On November 22, 2010, the Company and Reflora do Brasil, a Brazilian company (“RDB”) executed a Joint Venture Agreement with respect to sale by RDB of carbon credits relating to certain property located in Brazil.  Proceeds from the sale of the Credits brokered by the Company for RDB shall be split as follows: sixty percent (60%) of the proceeds shall be distributed to the owners of the Para
Property, who are represented by RDB, and forty percent (40%) to the Company.   Pursuant to the agreement, the Company issued 6,333 shares of common stock valued at $6.75 per share on November 22, 2010 in addition to those shares listed below.

 

Strategic Alliance Consulting Group, Ltd. is entitled to compensation from the Company pursuant to the Joint Venture Agreement, as follows:

(a) 41,762 shares of the common stock valued at $6.75 per share of the Company and

 

(b) The sum of $30,000 per month for four months totaling $120,000 which has been recorded as due to joint venture on the balance sheet.  This payment to the Strategic Alliance is compensation to run the business lines to be brought in, (carbon credit deals, soybean, asset backed bonds, Lifecycle partnership) which includes legal costs and other costs involving the stated deals.  The Cash Compensation will be paid by the Company as and when it is able to raise sufficient funds through a private placement of shares of the Global Earth Common Stock pursuant to Regulation D promulgated under the Securities Act of 1933, as amended.  The Company shall immediately begin the preparation of a private placement memorandum for the purpose of raising the cash compensation.  

 

The total paid for the joint venture is $444,643 which is composed of $324,643 in common stock issued and $120,000 in cash to be paid. The Company evaluated these capitalized costs as of August 31, 2011 for impairment and determined at that time that there was no certainty that these costs would be recovered with future cash flows from the joint ventures. As a result, the costs were fully valued with an impairment of $444,643.  Since the impairment on August 31, 2011, there has been no activity on this joint venture.

 

 

- continued -



F-22

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note H – Convertible Debentures and Note Payable

 

   The Company had convertible debentures outstanding as follows:

 


August 31, 2012

 

Outstanding Balance of Convertible Debenture


Unamortized

Discount

Net of Principal and Unamortized Discount

     
     

April 27, 2011 – Debenture

 

  $    5,600

$         ––

  $    5,600

June 26,2012 – Debenture

 

27,500

18,333

9,167

     

Total Convertible Debentures

 

  $  33,100

$    18,333

  $    14,767

     


August 31, 2011

 

Outstanding Balance of Convertible Debenture


Unamortized

Discount

Net of Principal and Unamortized Discount

     
     

April 27, 2011 – Debenture

 

  $    27,500

$    20,703

$    6,797

     

Total Convertible Debentures

 

$    27,500

$    20,703

$    6,797

     

 

On April 27, 2011, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $27,500 in a convertible debenture bearing interest at 8% per annum, payable on or before January 31, 2012.  $27,500 was disbursed to the Company on May 13, 2011.

 

Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 58% of the average price for the lowest three trading prices for the common stock for ten trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company.  

 

On November 14, 2011, Asher Enterprises elected to convert $8,000 of their note payable into 12,698 common shares of the Company.  Asher’s remaining note payable at November 14, 2011 is therefore $19,500. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.  

 

On December 14, 2011, Asher Enterprises elected to convert $6,000 of their note payable into 22,222 common shares of the Company.  Asher’s remaining note payable at December 14, 2011 is therefore $13,500. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.

 

 

- continued -



F-23



GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note H – Convertible Debentures and Note Payable – continued

 

On December 21, 2011, Asher Enterprises elected to convert $6,500 of their note payable into 22,807 common shares of the Company.  Asher’s remaining note payable at December 21, 2011 is therefore $7,000. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.

 

On June 12, 2012, Asher Enterprises elected to convert $1,400 of their note payable into 24,138 common shares of the Company.  Asher’s remaining note payable at June 12, 2012 is therefore $5,600. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.

 

On June 26, 2012, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $27,500 in a convertible debenture bearing interest at 8% per annum, payable on or before March 28, 2013.  $27,500 was disbursed to the Company on June 29, 2012.

 

Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 51% of the average price for the lowest three trading prices for the common stock for ten trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company.

 

At August 31, 2012 the payment due to Asher on their April 27, 2011 debenture was past due and in default.  Asher has waived all default penalties and interest through August 31, 2012.  Default penalties and interest include the following:  default interest at 22%, the amount under default multiplied by two or depending on the default circumstance the amount under default multiplied by 150%.

 

Note payable at August 31, 2012 and 2011 consisted of $30,000 and $15,000 due and payable to Marie Fay upon demand. Imputed interest expense for the years ended August 31, 2012 and 2011 was $2,400 and $-0-, respectively.


Note I –

Derivative Liability

 

The Company evaluated their convertible note agreements pursuant to ASC 815 and due to there being no minimum or fixed conversion price resulting in an indeterminate number of shares to be issued in the future, the Company determined an embedded derivative existed and ASC 815 applied for their convertible notes with a cumulative balance of $33,100 and $27,500 as of August 31, 2012 and 2011, respectively.

 

In accordance with the option allowed in ASC 815, the Company has elected to value the derivatives separately at the fair value on the issuance date using the Black-Scholes valuation model and bifurcate the instruments. The Company valued the embedded derivative within the convertible note using the Black-Scholes valuation model.  The result of the valuation is a derivative liability in the amount of $31,455 as of August 31, 2011.  We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.42 years; (2) a computed volatility rate of 271.26% (3) a discount rate of 0.12% and (4) zero dividends.  The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.


- continued -



F-24


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note I –

Derivative Liability - continued

 

The Company valued the embedded derivative within the convertible note using the Black-Scholes valuation model.  The result of the valuation is a derivative liability in the amount of $55,683 as of August 31, 2012.  We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.25 to 0.75 years; (2) a computed volatility rate of 345.29% (3) a discount rate of 0.01% and (4) zero dividends.  The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.

 

As previously mentioned $20,500 of the previous convertible debt owed of $27,500 was converted during the period. The embedded derivative related to this portion of the convertible debt was re-valued on the settlement dates using the Black Scholes model to be $44,184. The related portion of the derivative liability was marked to market and re-classed to additional paid in capital with the settlements. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.25 years; (2) a computed volatility rate of 345.29% (3) a discount rate of 0.01% and (4) zero dividends.  

 

The Company evaluated all convertible debt and outstanding warrants to determine whether these instruments may be tainted from the aforementioned derivative. All warrants outstanding were considered tainted as a result of the tainted equity environment and potential inability of the Company to share settle the instruments. The Company valued these warrants using the Black-Scholes valuation

model.  The result of the valuation is a derivative liability in the amount of $5 as of August 31, 2012.  We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 2.2 years; (2) a computed volatility rate of 345.29% (3) a discount rate of 0.41% and (4) zero dividends.  The valuation of these warrants was recorded with an offsetting gain/loss on the derivative liability.

 

For the year ended August 31, 2011, the Company evaluated all convertible debt and outstanding warrants to determine whether these instruments may be tainted from the aforementioned derivative.  All warrants outstanding were considered tainted as a result of the tainted equity environment and potential inability of the Company to share settle the instruments. The Company valued these warrants using the Black-Scholes valuation   model. The result of the valuation is a derivative liability in the amount of $2,479.  We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 5 years; (2) a computed volatility rate of 301.93% (3) a discount rate of 2.3% and (4) zero dividends.  The valuation of these warrants was recorded with an offsetting loss on the derivative liability.


F-25

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note I –

Derivative Liability - continued

 

                The result of the initial valuations for these notes was a derivative liability in the amount of $179,038 and an offsetting loss on derivative of $46,538 and discount on debt of $132,500.  We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of .75 years; (2) a computed volatility rate ranging from 311.00% to 328.59% (3) a discount rate ranging from 0.22% to 0.25% and (4) zero dividends.  The discount is equal to the value of the notes issued as it can only be discounted up to the value of the note and is being amortized over the life of the notes using the effective interest method.  For the year ended August 31, 2011, $111,797 was amortized and is included in interest expense. All discounts were fully amortized upon conversion where applicable. The instruments were revalued at each settlement and at year end, and the resulting change of $(65,470) was included in the statement of operations and netted with other gains and losses on the Statement of Operations.

 

For each of the years ended August 31, 2012 and 2011 the Company had 22,429 shares owed that were recorded as a part of the derivative liability due to the tainted equity environment. The related portion of the derivative liability was marked to market according to the value of the shares owed on the balance sheet date, August 31, 2012 and 2011 was $225 and $130,000 respectively.

 

The 32,667 shares that were issued to Robert Levitt were marked to market for $3,593 and relieved to additional paid in capital with the settlement.

 

During the year ended August 31, 2011, one of the Company’s warrant holders exercised 2,000,000 warrants for relief of accrued legal costs owed to him valued at $11,000.  Due to this instrument being a part of the derivative liability due to the tainted equity environment this portion of the derivative was marked to market on the exercise date resulting in a net loss of $11,799.  The derivative value on this date of $11,799 was reclassed to additional paid in capital with the settlement.

 

During the year ended August 31, 2011 $1,244,300 was reclassed from derivative liability to additional paid in capital with the settlement of the derivative liability related to stock payables to vendors for past services rendered.  A total of 137,000,000 shares were issued to extinguish the stock payables and related derivative liability. As of August 31, 2011 the Company owed an additional 50,000,000 shares as a stock payable that were recorded within the derivative liability. The value of these remaining shares was marked to market on the balance sheet date at $132,479. The Company recorded a net loss marking these stock payables to market on the settlement and balance sheet dates of $869,300 during the year ended August 31, 2011.


- continued -



F-26


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note I –

Derivative Liability - continued


 

Derivative Liability at

August 31, 2011

Reclass from equity to derivative liability

Discount on debt with initial valuation

(Gain) Loss on Derivative for the Year Ended August 31, 2012

Settled to Additional Paid in  

Capital

Derivative

Balances

At

August 31,

2012

       

Asher– Debentures

$    31,455

$          ––

$  27,500

$    40,912

$ (44,184)

$   55,683

       

Tainted Equity – Stock Payable

130,000

45,700

––

  (171,882)

(3,593)

225

       

Tainted Equity -Warrants Outstanding

2,479

––

––

  (2,474)

––

5

       

Total

$  163,934

$  45,700

$  27,500

 $ (133,444)

$ (47,777)

$  55,913

       


Note J –  Commitments and Contingencies

 

During the fiscal year ended August 31, 2011, the Company signed an agreement with Robert Levitt to settle the amount due him in the amount of $180,000.  The Company agreed to pay Mr. Levitt 120,000 common shares which at the date of the agreement were valued at $3.00 per share, or $360,000, resulting in a loss on conversion of $180,000. All shares were paid to Mr. Levitt as of August 31, 2012.

 

On December 2, 2010, the Company, RCI Solar, Inc., and Melvin K. Dick rescinded that certain Plan and Agreement of Triangular Merger Between Global Earth Energy, Inc., Global Earth Energy Acquisition Company and 688239 B.C. Ltd. effective on May 10, 2010.  Although the agreement was dated November 15, 2010, it was not executed by the parties until December 2, 2010.  The rescission agreement dated December 2, 2010, was reported in a current report on Form 8-K filed with the SEC on December 3, 2011.

 

On March 18, 2011, the Registrant, RCI Solar, Inc., and Melvin K. Dick amended the rescission agreement dated December 2, 2010.

The amendment to the rescission states that Melvin Dick shall be permitted to retain 6,667 shares of the Global Earth Common Stock which he received in connection with the Plan of Merger.  The remaining 36,667 shares of the Global Earth Common Stock received by Melvin Dick shall be surrendered to the Company and shall be cancelled.  The 6,667 shares of the Global Earth Common Stock retained by Melvin Dick shall be delivered to Norman T. Reynolds, Esq., attorney for the Company, who will hold the shares in escrow.  Melvin Dick shall be permitted to sell 333 to 667 shares each month depending how the stock is trading, after complying with the provisions of Rule 144 promulgated under the Securities Act of 1933, as amended.


 - continued -


F-28

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note J –  Commitments and Contingencies - continued

 

On June 16, 2011, the Company acquired a 25% equity ownership in Global Earth Natural Resources Inc., a New Brunswick corporation. The Company provided no consideration for the transfer as the transferor is under common control. The book value of the ownership received was immaterial and therefore there was no related accounting impact from the transfer. This Company has had no material activity since inception.

The Company is aware of one lawsuit filed against its wholly owed subsidiary Knightsbridge Corp. The case  is pending in the Superior Court of the State of California.  It was filed on October 4, 2012.  It is probable that the Company will have to repay the fees given it for unperformed services in the amount of $52,800 and has therefore accrued this as a liability at August 31, 2012.

Note K – Discontinued Operations

 

On May 10, 2010, the Company acquired all of the agreed upon assets and liabilities of 688239 B.C. Ltd.  The acquired business employs complementary technologies and serves compatible markets compared with Global Earth Energy, Inc.  688239 B.C.’s assets and liabilities were merged into Global Earth Energy Acquisition Company, a wholly owned subsidiary of the Company, a Wyoming corporation. Upon merger the subsidiary changed its name to RCI Solar, Inc.

RCI Solar, Inc. located in Kelowna, British Columbia, Canada is an electrical contracting company.  RCI Solar, Inc. delivers a suite of residential and commercial renewable energy solutions. RCI Solar specializes in Solar Panels, Thermo Energy, and Wind Turbines.  Management has over 30 years experience in the industry and have become a partner both in business and in research and development.  Consideration from the National Research Centre of Canada and ecoEnergy Canada has helped RCI Solar position itself to explore new opportunities.  These opportunities will help the Company further define and develop our solutions as a leader in Renewable and Recoverable Energy Markets.  RCI Solar is experiencing steady growth and has completed several deployments throughout Western Canada.  New contracts are anticipated throughout various communities in several Canadian provinces.

In exchange for the assets and liabilities of 688239 B.C., the Company issued 43,333 shares common stock at a value of $845,000.

 

Due to the difficulties encountered in completing the audit of 688239 B.C., filed on Form 8-Ka, item 9.01, on August 16, 2010 and continued difficulties experienced during the preparation of the subsidiary’s accounting records included in the Company’s annual report on Form 10-K for fiscal year 2010, the parties to the Plan of Merger desired to rescind the Plan of Merger (the “Rescission”). On December 2, 2010 the parties to the Plan of Merger executed the Rescission. As a result, Global Earth has agreed to transfer to Melvin Dick all of Global Earth’s interest in the 5,000 shares of the Class A Common Stock of 688239 B.C. which Melvin Dick previously agreed to deliver to Global Earth

 

The amendment to the rescission states that Melvin Dick shall be permitted to retain 6,667 shares of the Global Earth Common Stock which he received in connection with the Plan of Merger.  The remaining 36,667 shares of the Global Earth Common Stock received by Melvin Dick shall be surrendered to the Company and shall be cancelled.  The 10,000,000 shares of the Global Earth Common Stock retained by Melvin Dick shall be delivered to Norman T. Reynolds, Esq., attorney for the Company, who will hold the shares in escrow.  Melvin Dick shall be permitted to sell 333 to 667 shares each month depending how the stock is trading, after complying with the provisions of Rule 144 promulgated under the Securities Act of 1933, as amended.

- continued -


F-29

 


GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note K – Discontinued Operations - continued

 

In compliance with authoritative literature, “ASC 855, Subsequent Events,” Management determined that the events leading up to the Rescission and the execution thereof on December 2, 2010, would fit the definition of a subsequent event that provides additional evidence about conditions that existed at the date of the balance sheet. In accordance with authoritative literature, this type of subsequent event is recognized in the financial statements as if it occurred on the Company’s balance sheet date.

 

As a result, the Company has recognized an impairment loss from the rescission of $828,496. The net operating results of 688239 B.C. Ltd. have been presented as discontinued operations in the Company’s statement of operations for the year ended August 31, 2010.

The following table provides the details of those discontinued operations:


Discontinued Operations of Subsidiary 688239 B.C.

  
   

For the Period May 10, 2010 Through August 31, 2010

     

Revenue

  

 $130,836

 
         

Cost of Goods Sold

  

77,613

 
   
 

Gross Profit

  

53,223

 
   
 

G&A Expense

  

69,727

 
   
 

Operating Loss

  

16,504

 
   
 

Net Loss

  

 $  16,504

 



F-30



GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note L –  Fair Value

 

The Company has categorized its assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP.  All assets and liabilities are recorded at historical cost which approximates fair value, and therefore, no items were valued according to these inputs.

 

The levels of fair value hierarchy are as follows:

·

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

 

·

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

 

·

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety.  Our 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.

 

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category.  All assets and liabilities are at cost which approximates fair value and there are not items that were required to be valued on a non-recurring basis.

 

The following liability was valued at fair value as of August 31, 2012 and 2011. No other items were valued at fair value on a recurring or non-recurring basis as of August 31, 2012 or 2011.


August 31, 2012

 

Fair Value Measurements Using

 

Carrying

    
 

Value

Level 1

Level 2

Level 3

Total

      

Derivative Liablilities

$   55,913

$      ––

$      ––

$   55,913

$   55,913

      

Total

 

$      ––

$      ––

$   55,913

$   55,913



August 31, 2011

 

Fair Value Measurements Using

 

Carrying

    
 

Value

Level 1

Level 2

Level 3

Total

      

Derivative Liablilities

$  163,934

$      ––

$      ––

$  163,934

$  163,934

      

Total

 

$      ––

$      ––

$  163,934

$  163,934



F-31



GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note M - Income Taxes

 

Since the Company has had continuous losses and has available net operating losses, the Company believes that any tax liability would not be material. Deferred taxes are provided for the temporary differences between the financial reporting basis and the tax reporting basis of the Company’s assets and liabilities.  The temporary differences between financial reporting and income tax purposes are primarily net operating loss carry forwards for income tax purposes. A valuation allowance is recorded for deferred tax assets when management determines it is more likely than not, that such assets, will not be realized.


A full valuation allowance has been established against the deferred tax assets for the years ended August 31, 2012 and 2011 as utilization of the loss carry forwards and realization of other deferred tax assets cannot be reasonably assured.


August 31,

2012

2011

   

Deferred Tax Asset

$ 3,164,193

$ 2,693,495

Less:  Valuation Allowance

3,164,193

2,693,495

   

Net Deferred Tax Asset

$            ––

$            ––


The difference between the income tax expense rate computed by applying the federal statutory corporate tax rate and actual income tax expense rate recognized is as follows:


August 31,

2012

2011

   

Statutory federal income tax rate

                           34%

             34%

Change in valuation allowance

(34%)

(34%)

   

Effective tax rate

            0%

            0%


The Company files U.S. Federal and North Carolina State income taxes for the years ended August 31, 2012 and 2011.  

 

For the federal and state tax returns, the Company is no longer subject to tax examinations for years prior to 2007.

 

For the year ended August 30, 2012 the company has cumulative Federal NOL carry forwards available of $9,040,552 to be used against current and future taxable income.  The net operating loss will be carried forward until 2025.

 

For the year ended August 30, 2011 the company has cumulative Federal NOL carry forwards available of $7,650,144 to be used against current and future taxable income.  The net operating loss will be carried forward until 2024.

 

The Company had no uncertain tax positions as of August 31, 2012 or August 31, 2011, respectively.



F-32


GLOBAL EARTH GLOBAL EARTH ENERGY, INC.

(A Development Stage Company)

Wilmington, North Carolina


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note N –  Subsequent Events

 

During the quarter ended November 30, 2012, the Company issued 220,000,000 shares of common stock, and cancelled 425,618 shares of common stock bringing the total outstanding common stock to 340,409,344.  The 220,000,000 shares issued consisted of 120,000,000  shares issued to the Asher Escrow note account and 100,000,000 shares issued to a consultant of the Company while 425,618 shares were returned to the Company from the Company’s attorney due to conflict of interest.

 

On December 22, 2012 an agreement was signed with Robert Levitt concerning his debt of $303,250.  The agreement is a cancellation of debt in exchange for common stock of the Company. The note payable will be converted into common stock at the discretion of Mr. Levitt. Mr. Levitt will be entitled to a maximum of 303,250,000 shares but at no time will Mr, Levitt be able to own more than 4.99% of the outstanding shares of the Company’s common stock. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.


 

 

F-33