U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Mark One

 

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

 

[ ] 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. 333-176820

 

 

KLEANGAS ENERGY TECHNOLOGIES INC.
(Name of small business issuer in its charter)
Delaware		45-53499508
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

3001 N. Rocky Point Road Suite 200 Tampa, Florida 33771
(Address of principal executive offices)
(727) 330-3774
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:		Name of each exchange on which registered:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001
(Title of Class)

 

Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 (Section 229.405 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 [x] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[x]

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:

 

Class		Outstanding as of May 19, 2014
Common Stock, $0.000001		3,057,561,098

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KLEANGAS ENERGY TECHNOLOGIES INC.

FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2014

 

 

INDEX

 

			Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			1
PART I. FINANCIAL INFORMATION			2
Item 1.	Financial Statements		2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Qualitative and Quantitative Disclosures About Market Risk		22
Item 4.	Controls and Procedures		22
PART II. OTHER INFORMATION			25
Item 1.		Legal Proceedings	25
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.		Defaults Upon Senior Securities	25
Item 4.		Mine Safety Disclosure	25
Item 5.		Other information	25
Item 6.		Exhibits	25
SIGNATURES			27

 

 

Forward-Looking Information

 

This Quarterly Report of Kleangas Energy Technologies Inc. on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Quarterly Report on Form 10-Q. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

FINANCIAL STATEMENTS

MARCH 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY (A Developmental Stage Company)

INDEX

 

 

 

	PAGE
BALANCE SHEETS	2
STATEMENTS OF OPERATIONS	3
STATEMENTS OF CASH FLOWS	4
NOTES TO FINANCIAL STATEMENTS	5 - 12

 

 

 

 

 

 

 

 

 

 

 

 

 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Balance Sheets

(unaudited)

		March 31,				December 31,
		2014				2013
ASSETS
Current Assets:
Cash		$	17,554			$	406
Accounts receivable			19,550				—
Prepaid expenses			21,000				21,000
TOTAL ASSETS		$	58,104			$	21,406
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	2,411,802			$	1,967,915
Other accrued expenses			17,801				17,801
Due to shareholder			7,260				7,260
Note payable (net of debt discount)			35,401				772
Accrued interest - note payable shareholder			1,207				394
Notes payable - related party			416,668				416,668
Payable to officer			200,000				200,000
Note payable			100,000				100,000
Total Liabilities			3,190,139				2,710,810
Other liabilities:
Derivative liability			347,387				52,023
Total Liabilities			3,537,526				2,762,833
Stockholders' Deficit
Preferred A, B, C, and D stock, par value $0.00001; 1,000 shares authorized, none issued and outstanding			—				—
Preferred E stock, par value $0.00001; 10,000,000 shares authorized, 10,000,000 issued and outstanding at March 31, 2014 and December 31, 2013			10				10
Common stock, par value $0.00001; 4,989,999,000 shares authorized, 3,047,561,098 shares issued and outstanding at March 31, 2014 and December 31, 2013			3,048				3,048
Additional paid in capital			24,960,514				24,914,513
Deficit accumulated during development stage			(4,070,703	)			(3,286,708	)
Accumulated deficit			(24,372,291	)			(24,372,290	)
Total Stockholders' Deficit			(3,479,422	)			(2,741,427	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	58,104			$	21,406

 

See Accountants’ Compilation Report

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Statements of Operations

For the three months ended March 31, 2014 and 2013

and the period June 24, 2010 (inception) through March 31, 2014

(unaudited)

		For the three								For the period
		months ended								June 24, 2010
		March 31,								(Inception) to
		2014				2013				March 31, 2014
Revenues		$	19,550			$	—			$	19,550
Cost of revenues			24,818				—				24,818
Gross Profit			(5,268	)			—				(5,268	)
Expenses:
Selling, general and administrative			89,997				—				1,208,139
Consulting			195,708				132,000				833,328
Professional fees			43,230				—				111,980
Officer payroll			—				—				241,796
Total Operating Expenses			328,935				132,000				2,395,243
Operating Loss			(334,203	)			(132,000	)			(2,400,511	)
Other Income/Expenses
Unrealized gain from change in derivative liabilities			728,250				—				726,459
Interest expense - amortization of debt discount			(1,175,479	)			—				(1,185,202	)
Interest expense - other			(2,563	)			—				(404,349	)
Total Other Expenses			(449,792	)			—				(863,092	)
(Loss) Income from continuing operations			(783,995	)			(132,000	)			(3,263,603	)
Loss from discontinued operations			—				—				(17,210	)
Net (loss) income		$	(783,995	)		$	(132,000	)		$	(3,280,813	)

  

See Accountants’ Compilation Report

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Statements of Cash Flows

For the three months ended March 31, 2014 and 2013

and the period June 24, 2010 (inception) through March 31, 2014

(unaudited)

		For the three								For the period
		months ended								June 24, 2010
		March 31,								(Inception) to
		2014				2013				March 31, 2014
Cash flows from operating activities
Net loss from continuing operations		$	(783,995	)		$	(132,000	)		$	(3,280,813	)
Adjustments to reconcile net loss to net cash used by operating activities:
Loss from discontinued operations			—				—				17,210
Interest expense			(1,140,601)				—				(1,130,878	)
Gain from change in derivative liabilities			728,250				—				730,041
Accrued expense reversal			—				—				60,298
Reverse Merger Agreement			520,694								520,694
Accrued interest - note payable shareholder			1,813				—				1,813
Issuance of stock for services							132,000				440,000
Changes in operating assets and liabilities:
Accounts receivable			(19,550	)			—				(19,550	)
Accounts payable and accrued expenses			443,887				—				2,195,205
Payables to officer			—				—				6,796
Interest payable			750				—				1,972
Total adjustments			535,243				132,000				2,823,601
Net cash used by operating activities			(248,752	)			—				(457,212	)
Cash flows from financing activities
Proceeds from note payable			265,900				—				265,900
Proceeds from notes - related party			—				—				208,460
Net cash provided by financing activities			265,900				—				474,360
NET INCREASE/(DECREASE) IN CASH			17,148				—				17,148
CASH
Beginning of period			406				40				406
End of period		$	17,554			$	40			$	17,554

  

See Accountants

 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014  

NOTE 1 – BUSINESS DESCRIPTION

 

Business

 

Kleangas Energy Technologies, Inc., a Delaware corporation and subsidiaries (the “Company”), is a development stage company.

 

The Company is in the GREEN ENERGY business and currently is selling wood pellets made from waste wood.

 

Green Day Agreement

 

The Board of Directors (the "Board") of the "Company", approved the execution of a share exchange agreement dated November 15, 2013 (the "Share Exchange Agreement") with Green Day Technologies Inc., a Florida corporation ("Green Day"). On December 18, 2013, the Company and Green Day entered into and executed an amendment to the Share Exchange Agreement (the "Amendment"). In accordance with the terms and provisions of the Amendment to Share Exchange Agreement: (i) the shareholders of Green Day (the "Green Day Shareholders") shall tender their shares of common stock to the Company in exchange for the issuance by the Company of its shares of restricted common stock on the basis of one share of common stock of Green Day for seventeen (17) shares of common stock of the Company; and (ii) the Green Day Shareholders shall tender to the Company their shares of preferred stock of the Company in exchange for the issuance by the Company of a corresponding share on a one to one basis of either its Series A, B, C or D Preferred stock. Effective January 15, 2014, Green Day became a wholly owned subsidiary of the Company.

 

Upon consummation of the Share Exchange and the Purchase Right, Greenday Management controls a majority of the issued and outstanding shares of common stock of the Company and Bo Linton was appointed as Chairman of the Board and Chief Executive Officer of Kleangas.

 

For accounting purposes, this transaction is being accounted for as a reverse merger. Kleangas is the legal acquirer and Greenday, the only operating subsidiary, is considered the accounting acquirer. The Company did not recognize goodwill or any intangible assets in connection with the transaction.

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP") and are presented in U.S. dollars.

 

A Development Stage Company

 

The Company did not have any business since inception. Accordingly, the Company’s activities have been accounted for as those of a Development Stage Enterprise. The Company’s financial statements are identified as those of a development stage company, and the statements of operations, stockholders’ equity and cash flows disclose activity since the date of the Company’s inception.

 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

  

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. 

 

Earnings Per Share

 

FASB ASC 260, "Earnings per Share" provides for calculation of "basic" and "diluted" earnings per share. Basic net earnings per common share are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.

 

Basic and diluted loss per share were the same, as there were no common stock equivalents outstanding.

 

Income Taxes

  

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

Fair Value Measurements

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk. 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The derivative liability in connection with the conversion feature of the convertible debt, classified as a level 3 liability, is the only financial liability measured at fair value on a recurring basis.

 

Convertible Instruments

 

The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.

 

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

The Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities. 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Stock-Based Compensation

 

The Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the non-employee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

 

NOTE 3 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated any revenues since inception, has incurred losses since inception, and its current cash balances will not meet working capital needs. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon, among other things, the continued financial support from its shareholders or the attainment of profitable operations. There is no assurance that the Company will be able to generate revenues in the future. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to continue as a going concern.

 

NOTE 4 – ACCRUED EXPENSES – RELATED PARTIES

 

Accrued expenses – related parties consists following:

 

		March 31,				December 31,
		2014				2013
Accrued salary		$	190,000			$	190,000
Accrued rent			17,000				17,000
Accrued interest			—				—
		$	207,000			$	207,000

 

On May 31, 2012, the company entered into one year employment agreements with its officers. The salary for each officer is $60,000 per year. No cash has been paid to any officers. Salary from June 2012 to September 2013 has been accrued.

 

On May 30, 2012, the company entered into a six-month lease agreement with one of its officers. The term of the lease is from August 1, 2012, to January 31, 2013. The lease then continues as a month-to-month tenancy until terminated in accordance with the provisions of the agreement. No rent has been paid. Rental expense for August 2012 to December 2013 has been accrued. Rent expense was $17,000 for the year ended December 31, 2013 and $5,000 for the period August 1, 2012 to December 31, 2012. 

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

 

NOTE 5 – NOTES PAYABLE

 

Notes Payable

 

The Company issued two $25,000 notes payable to a shareholder and former officer. Note 1 bearing interest at 6% per annum was for the cancellation of 1,050,000,000 shares of common stock held by the officer was issued November 7, 2013 and matures on May 7, 2014. Note 2 bearing interest at 7% per annum was issued for consulting service. The note was issued November 15, 2013 and matured on April 14, 2014.

 

Note Payable – Related Party

 

Note payable – Related Party consists of a note payable to Richard Astrom, the prior president and sole director of Windsor, bearing interest at 0.24% and due in August 15, 2013. This note is secured by a pledge of all of the shares of the Company’s operating subsidiary of the Company. On October 1, 2013, the $275,000 debt was forgiven and the principal amount plus accrued interest was contributed to additional paid in capital.

 

Note Payable

 

Note payable consisted of a promissory note with an aggregate principal amount of $10,000 issued to an unrelated company on January 10, 2013. The note bore an interest at the rate of 12% and was collateralized by the assets of the corporation. The note was not negotiable and could be repaid at any time without penalty or premium at the sole option of the company. The company on August 7, 2013 issued 8,000,000 shares of Preferred A shares of the company’s stock in exchange for the note.

 

Convertible Note Payable

 

During the Quarter ended March 31, 2014 the Company entered into a series of Loans whereby it may borrow up to an aggregate amount of $895,000. The notes carry an original issue discount (the “OID”), for loan expenses which varies per loan. . The Maturity Dates range from one to two years from the Effective Date of each borrowing. The notes are convertible at varying conversion rates. Unless otherwise agreed in writing by both parties, at no time will the Lender convert any amount of the Note into common stock that would result in the Lender owning up to 9.99% of the common stock outstanding on the conversion date.

 

The Company may repay the borrowing at any time on or before 90 days from the Effective Date, after which the Company may not make further payments on this Note prior to the Maturity Date without written approval from Lender.

 

At March 31, 2014 the Company borrowed $300,778 of principal and received net proceeds of $265.900 after deducting loan expenses of $34,878.

 

The Company has determined that the conversion feature embedded in the note constitute a derivative and have been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt on the accompany balance sheet, and revalued to fair market value at each reporting period.

During the first quarter of fiscal year 2014, we issued five (5) convertible notes for potential aggregate funding up to $895,000 (collectively, the "Convertible Notes") as follows:

 

·

$275,000 convertible note due twelve months after its issue date representing maximum funding up to $275,000. The initial consideration shall be $75,000 and the investor may pay additional consideration of up to $175,000, which may be funded at any time prior to the maturity date at the investor's sole discretion. The convertible note shall be interest free for ninety (90) days. In the event that the convertible note is not repaid within ninety days, the convertible note will have a one-time interest charge of 10%. The convertible note shall be convertible into shares of our common stock, which conversion price shall mean 50% multiplied by the lowest trade price in the twenty (2) trading days prior to the measurement date.

·

10% convertible promissory note in the total face value of $250,000 due January 8, 2015. The initial purchase price will be $27,500 of consideration upon execution of a note purchase agreement. Interest on any outstanding principal balance shall accrue at a rate of 10% per annum. In the event of a default, interest will accrue at the rate equal to the lower of twenty (20%) per annum or the highest rate permitted by law. The investor shall have the right, at the investor's option, at any time to convert the outstanding principal amount and Interest under the note in whole or in part. The conversion price shall be equal to the lower of $.0027 or sixty percent (60%) of the lowest trading price of our common stock during the twenty five (25) consecutive trading days prior to the date on which the investor elects to convert all or part of the note. If we are placed on “chilled” status with the Depository Trust Company, the discount will be increased by ten percent (10%) until such chill is remedied.

·

$60,000 convertible note due twelve months after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000 in value of assets.

·

$60,000 convertible note due twelve months after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000 in value of assets.

·

$300,000 promissory note due two years after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at the lesser of $0.0018 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note shall be interest free for the first three months and if we do not repay within the three months, a one time interest charge of 12% shall be applied to the principal sum.

 

On December 11, 2013, we issued a convertible note in the principal amount of $300,000 plus accrued and unpaid interest and any other fees. The consideration is $270,000 payable by wire (there exists a $30,000 original issue discount (the “OID”)). The lender shall pay $25,000 of consideration upon closing of this Note. The lender may pay additional consideration to us in such amounts and at such dates as lender may choose in its sole discretion.

KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

  

NOTE 6 – DUE TO SHAREHOLDER

 

Due to shareholder consists advances from a shareholder. The amount is non-interest bearing and due on demand.

 

NOTE 7– INCOME TAXES

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the period ended December 31, 2013 to the Company’s effective tax rate is as follows:

 

U.S. federal statutory rate			(34.0	)%
State income tax, net of federal benefit			(6.0	)%
Increase in valuation allowance			40.0	%
Income tax provision (benefit)			0.0	%

 

The benefit for income tax is summarized as follows:

 

Federal:
Current		$	—
Deferred			83,300
State and local:
Current			—
Deferred			7,350
Change in valuation allowance			(90,650	)
Income tax provision (benefit)		$	—

 

As of December 31, 2013 the Company had approximately $245,000 of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2032. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

 KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

  

NOTE 8– PREFERRED STOCK

 

There are five classes of Preferred Stock Series “A” “B” “C” “D” AND “E”

 

Number:

 

That the number of Shares of Series “A” shall be 200 shares

That the number of Shares of Series “B” shall be 100 shares

That the number of Shares of Series “C” shall be 300 shares

That the number of Shares of Series “D” shall be 400 shares

That the number of Shares of Series “E” shall be 10,000,000 shares

 

Voting Rights:

 

That the Shares of Series “A” shall have no voting rights.

That the Shares of Series “B” shall have no voting rights

That the Shares of Series “C” shall have no voting rights

That the Shares of Series “D” shall have voting rights as follows,

One share of Series of “D” will be equivalent to voting 1,000,000 shares of common stock.

That the Shares of Series “E” shall have voting rights as follows,

One share of Series of “E” will be equivalent to voting 10,000,000 shares of common stock

 

Preferred Series A Stock Par Value $.000001

 

Each share of Series “A” Convertible Preferred Stock shall be convertible, at the option of the Holder into 10,000 shares of fully paid and non-assessable shares of the Company’s Common Stock; provided, however that such conversion would not violate any applicable federal, state, or local law, regulation, or any judgment, writ, decree or order binding upon the Corporation or the Holder; or any provision of the Corporation’s or Holder’s if applicable, amended Articles of Incorporation or Bylaws, nor conflict with or contravene the provisions of any agreement to which the Corporation and the Holder are parties or which they are bound. The foregoing conversion shall be hereinafter referred to as the “Conversion Ratio” Said Conversion Ratio shall be subject to equitable adjustment a the reasonable discretion of the Board of Directors of the Corporation in the event of the occurrence of capital events which make such adjustments appropriate, such as a dividend payable to shares of common stock, combinations of common stock, a merger or consolidation, or the like. (See Limitations on Conversion)

 

Preferred Series B Stock Par Value $.000001

 

Each share of Series “B” Convertible Preferred Stock shall be convertible, at the option of the Holder into 10,000,000 shares of fully paid and non-assessable shares of the Company’s Common Stock; provided, however that such conversion would not violate any applicable federal, state, or local law, regulation, or any judgment, writ, decree or order binding upon the Corporation or the Holder; or any provision of the Corporation’s or Holder’s if applicable, amended Articles of Incorporation or Bylaws, nor conflict with or contravene the provisions of any agreement to which the Corporation and the Holder are parties or which they are bound. The foregoing conversion shall be hereinafter referred to as the “Conversion Ratio” Said Conversion Ratio shall be subject to equitable adjustment a the reasonable discretion of the Board of Directors of the Corporation in the event of the occurrence of capital events which make such adjustments appropriate, such as a dividend payable to shares of common stock, combinations of common stock, a merger or consolidation, or the like. (See Limitations on Conversion) 

 KLEANGAS ENERGY TECHNOLOGIES, INC. AND SUBSIDIARY

(A Developmental Stage Company)

Notes to Financial Statements

March 31, 2014

  

NOTE 8– PREFERRED STOCK (continued)

 

Preferred Series C Stock Par Value $0.000001

 

Each share of Series “C” Convertible Preferred Stock shall be convertible, at the option of the Holder into Ten Thousand ($10,000) worth shares of fully paid and non-assessable shares of the Company’s Common Stock based upon the most recent 10 day average closing price effective the date of receipt of the conversion request; provided, however that such conversion would not violate any applicable federal, state, or local law, regulation, or any judgment, writ, decree or order binding upon the Corporation or the Holder; or any provision of the Corporation’s or Holder’s if applicable, amended Articles of Incorporation or Bylaws, nor conflict with or contravene the provisions of any agreement to which the Corporation and the Holder are parties or which they are bound. The foregoing conversion shall be hereinafter referred to as the “Conversion Ratio” Said Conversion Ratio shall be subject to equitable adjustment a the reasonable discretion of the Board of Directors of the Corporation in the event of the occurrence of capital events which make such adjustments appropriate, such as a dividend payable to shares of common stock, combinations of common stock, a merger or consolidation, or the like. (See Limitations on Conversion)

 

Limitations on Conversion

 

No Conversion of any issued shares of Preferred Series “A, B &C” into common stock shall exceed 4.9% of the then issued and outstanding shares of common stock as reported by the Company’s transfer agent, unless such conversion is submitted to and approved by the board of directors of the Company. The Company may request information from the holder of any preferred shares submitted for conversion as to that shareholders current ownership of common stock or other security of the Company.

 

Preferred Series D Stock Par Value $.000001

 

Each share of Series “D” Preferred Stock is not convertible into Common stock. Preferred Stock “D” has voting rights as follows. One share of Series of “D” will be equivalent to voting 1,000,000 shares of common stock.

 

Preferred Series E Stock Par Value $.000001

 

These shares are the former Series A shares of Kleangas Technologies Inc. Each share of Series “E” Preferred Stock is not convertible into Common stock. Preferred Stock “E” has voting rights as follows. One share of Series of “E” will be equivalent to voting 10,000,000 shares of common stock.

 

Reissue of Preferred Stock

 

Shares of Preferred Stock acquired by the corporation by reason of redemption, purchase, conversion or otherwise can be reissued, as determined by the corporation and approved by the Board of Directors.

 

Mandatory Redemption

 

There shall be no mandatory redemption.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

BACKGROUND

 

We were incorporated in Delaware on January 8, 2008, for the purpose of being the vehicle whereby Redmond Capital Corp., a Florida corporation (“Redmond”) would change its corporate domicile to Delaware. Redmond was incorporated effective September 12, 1996, in the State of Florida under the corporate name Minex Minerals, Inc. On February 3, 1999, it changed its corporate name to Redmond Capital Corp. Redmond’s sole business, which terminated prior to the end of 2004, was the production of an animated television series.

 

On June 14, 2007, the Circuit Court of the Eleventh Circuit in and for Miami-Dade County, Florida, appointed a receiver over the business of Redmond (Case No. 06-21128 CA 10) and on August 28, 2007, that court issued an order releasing the receiver, closing the case and approving certain actions specified in the receiver’s report, including the issuance of 32,000,000 shares of the common stock of Redmond to Mark Renschler to compensate him for services theretofore rendered to Redmond. Shortly thereafter, he was elected as Redmond’s president, secretary and sole director.

 

On January 8, 2008, Redmond changed its corporate domicile from Florida to Delaware through a process known as “conversion” as permitted by Florida and Delaware law. In the conversion, we were incorporated in Delaware and we effected the conversion with Redmond by filing certificates of conversion in Delaware and Florida, respectively.

 

Immediately prior to the merger described below and since our inception in January 2008, we were, and from at least October 2004 until our acquisition by conversion in January 2008, a shell company, with nominal assets and no operations.

 

KNGS Merger

 

On August 15, 2012, we entered into a Plan and Agreement of Merger by and among KNGS Acquisition, Inc., a Florida corporation and our wholly owned subsidiary (“Acquisition”), and Kleangas Energy Technologies, Inc., a private Florida corporation ("KET") under which Acquisition was merged with and into KET with KET being the surviving corporation (the "Merger"). As a result of the Merger, we are no longer considered a shell company.

 

On December 3, 2013, our Board of Directors authorized the return to treasury of 1,052,000,000 shares of our restricted common stock. As a result of the Merger, we had issued 2,100,000,000 shares of our common stock to the holders of the common stock of KET. As a result of the Merger, William B. Wylie and Dennis J. Klein became our controlling shareholders. Of the 2,100,000,000 shares, 1,052,000,000 shares of common stock were previously returned to treasury.

 

Green Day Share Exchange Agreement

 

Our Board of Directors approved the execution of a share exchange agreement dated November 15, 2013 (the "Share Exchange Agreement") with Green Day Technologies Inc., a Florida corporation ("Green Day"). On December 18, 2013, we entered into and executed an amendment to the Share Exchange Agreement with Green Day (the "Amendment"). In accordance with the terms and provisions of the Amendment to Share Exchange Agreement: (i) the shareholders of Green Day (the "Green Day Shareholders") tendered tender their shares of common stock to us in exchange for the issuance by us of shares of our restricted common stock on the basis of one share of common stock of Green Day for seventeen (17) shares of our common stock; and (ii) the Green Day Shareholders tendered to us their shares of preferred stock in exchange for the issuance by us of a corresponding share on a one to one basis of either its Series A, B, C or D preferred stock. Thus, Green Day became a wholly-owned subsidiary.

 

Effective January 22, 2014, the Board of Directors approved the issuance of the shares of common stock and preferred stock to the Green Day Shareholders in accordance with the terms and provisions of the Share Exchange Agreement. See "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities".

 

We commenced operations in May 2012 and are a development-stage company. Our common stock is quoted on and traded over OTCQB under the symbol “KGET.

 

Increase in Authorized Capital

 

Effective February 11, 2014, our Board of Directors and the majority shareholders approved an amendment to the articles of incorporation to authorize an increase in authorized capital from 3,000,000,000 shares of common stock, par value $0.001, to 5,000,000,000 shares of common stock, par value $0.001 (the “Amendment”). The Amendment was filed with the Secretary of State of Delaware on February 18, 2014 reflecting the authorized common stock shall be an aggregate 5,000,000,000 shares consisting of 5,000,000,000 shares of common stock, par value $0.000001, and 10,001,000 shares of preferred stock, par value $0.000001. The Amendment will not affect the number of our issued and outstanding common shares.

 

CURRENT BUSINESS OPERATIONS

 

We are a research and development company dedicated to producing alternative clean technologies that promote energy efficiency throughout a wide range of applications. We design, develop and market various technologies, including Oxy-Hydrogen on-demand generators, reverse fuel cells, solar to hydrogen fuel cells and other products to deliver a clean gas that provides energy savings, emissions reductions of diesel fuel and other natural gas applications. We believe that all of our products are designed to assist companies in reducing operational costs, providing a competitive advantage and increasing our customers' profitability.

 

Our subsidiary, Green Day, has licensed patented waste heat to electric power generation technology which works as a co-generator when installed on a primary electrical generator unit. We believe it is also powerful enough to serve as a primary energy source. Green Day has pending contracts to sell refuse and biomass derived pellets, which are alternatives to producing electricity instead of the traditional method of burning coal.

 

OXY-HYDROGEN SYSTEMS

 

In accordance with the terms and provisions of the Acquisition, we are the parent of KET. Through KET, we will design, manufacture and sell Oxy-Hydrogen Systems. We are developing an electrolyzer unit, which is a component of Oxy-Hydrogen Systems, that produces hydrogen and oxygen for these systems. This unit offers the advantage of producing adequate quantities of these gases with lower power requirements, lower weight and smaller size. Initially and until we obtain the financing necessary to develop our own products, all of these systems will be manufactured by a third party. The purpose of these systems is to promote fuel economy and engine life and to reduce harmful emissions by reducing the amount of fuel required to be used to operate an engine and by reducing the temperatures as which engines operate. These systems function by creating oxygen and hydrogen from distilled water through electrolysis and injecting these gases into the mixture of fuel and air used in gasoline and diesel internal combustion engines. Electrolysis is performed by passing electric current generated by a vehicle’s electrical system through distilled water. The gases thus generated are moved through valves and tubing into the fuel mixture, and is burned in the engine, together with the fuel. Hydrogen is an explosive gas. In order to reduce the possibility of an explosion, the systems that we sell will not store hydrogen, but create it on an “on demand” basis.

 

REFUSE AND BIOMAS DERIVED PELLETS

 

Our wholly-owned subsidiary, Green Day, through its wholly owned subsidiary, G-PEL, is a pellet brokerage firm created to market and sell excess manufactured RDF pellets. Through our subsidiary, we will also sell sourced RDF pellets from multiple manufacturers and markets to prospective  RDF pellet buyers.

 

Fuel burning customers are typically municipal utilities, industrial plants or major public facilities such as university campuses. What they all have in common, is a need for a cost-effective, cleaner-burning, renewable fuel supplement to coal or a high-energy blend with biomass.

 

The cost and administrative overhead of adopting fuel pellet technology is minimal.  In most cases coal-burning boilers can burn pellets without capital expense or facility modification.  Fuel pellets are readily mixed and stored with coal or woody biomass which allows a smooth transition in the percentage of pellets being burned over time.

 

Additional raw materials that can be utilized include: plastic films containing polyethylene, polypropylene, PET, etc., non-recyclable fiber-based waste, and materials containing laminates of plastics, adhesives and fiber. If raw materials end up in landfills, they produce methane and decompose. Fuel pellet technology is proof that universities, municipal utilities, major manufacturers and paper mills can become more carbon-neutral in energy production by eliminating coal and using alternative fuel pellets made from a range of industrial waste materials. This will lower greenhouse gas emissions, improve the environmental footprint of corporations and reduce the bottom-line costs of doing business.

 

On March 3, 2014, we received a shipment of hemp at our testing plant. The industrial hemp is being dried and converted into pellets similar to wood and RDF pellets. Hemp farming is completely sustainable when rotated with other crops producing four times as much fiber per acre as pine trees. Management believes that this can be an ideal source of biomass for fuel which will be used as an alternative to coal and other fossil fuels. We will convert the hemp into pellets and run clinical test through a certified lab to verify the hemp pellets to be as good or even better than wood pellets as an alternative clean energy to fossil fuels. We believe the hemp product is very attractive because it can be converted into a usable product alternative to the wood pellets at a production cost of 30% to 40% less. With the growth of hemp dramatically increasing for medical and other purposes, the stalks are a perfect source of biomass for fuel.

 

Purchase Order Contract

 

On January 28, 2014, Green Day received that certain purchase order dated January 28, 2014 (the “Purchase Order”) for the purchase of 5,000 metric tons monthly of wood pellets at a price of  $850,000. The Purchase Order is for a one year period and represents the binding commitment to purchase an aggregate 60,000 metric tons for an aggregate purchase price of $10,200,000 for delivery to South Korea.

 

On February 5, 2014, Green Day received that certain letter of intent purchase order dated February 4, 2014 (the “Order”) for the purchase of 5,000 metric tons monthly of wood pellets at a price of  $825,000. The Order is for a one year period and represents the binding commitment to purchase an aggregate 60,000 metric tons for an aggregate purchase price of $9,900,000 for delivery to South Korea. As of the date of this Annual Report, we have delivered 120 tons of pellets to Busan Korea and invoiced $19,800 in March 2014. We were paid $19,550 in the first week of April. 2014.

 

RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Quarterly Report. Our reviewed financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

We are a development stage company and have not generated any revenue. We have incurred recurring losses since inception. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

 

We believe we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

Three Month Period Ended March 31, 2014 Compared to Three Month Period Ended March 31, 2013

Our net loss for the three month period ended March 31, 2014 was ($783,995) compared to a net loss of ($132,000) during the three month period ended March 31, 2013, an increase of $651,995. During the three month periods ended March 31, 20124 and March 31, 2013, we did not generate any revenue.

During the three month period ended March 31, 2014, we incurred operating expenses of $328,935 compared to $132,000 incurred during the three month period ended March 31, 2013, an increase of $196,935. Operating expenses generally consisted of: (i) selling, general and administrative of $89,997 (2013: $-0-); (ii) consulting of $195,7-8 (2013: $132,000); and (iii) professional fees of $43,230 (2013: $-0-). The increase in operating expenses was primarily attributable to the increase in consulting fees and general and administrative based on the increased scale and scope of our business operations. General and administrative expenses also generally include corporate overhead, financial and administrative contracted services, marketing, and consulting costs.

Thus, our operating loss for the three month period ended March 31, 2014 was ($334,203) compared to an operating loss for the three month period ended March 31, 2013 of ($132,000).

During the three month period ended March 31, 2014, we incurred other expense in the form of unrealized gain from change in derivative liabilities of $728,250 (2013: $-0-), which was offset by a gain realized on interest expense-amortization of debt discount of $1,175,479 and gain on interest expense-other of $2,563. Thus, this resulted in total other expenses for the three month period ended March 31, 2014 of $449,792 (2013: $-0-). See " --Material Commitments" below.

 

Therefore, our net loss and loss per share during the three month period ended March 31, 2014 was ($783,995) or $0.00 per share compared to a net loss and loss per share of ($132,000) or $0.00 per share during the three month period ended March 31, 2013.

LIQUIDITY AND CAPITAL RESOURCES

Three Month Period Ended March 31, 2014

As of March 31, 2014, our current assets were $58,104 and our current liabilities were $3,190,139, which resulted in a working capital deficit of $3,132,035. As of March 31, 2014, current assets were comprised of: (i) $17,554 in cash; (ii) $19,550 in accounts receivable; and (iii) $21,000 in prepaid expenses. As of March 31, 2014, current liabilities were comprised of: (i) $2,411,802 in accounts payable and accrued expenses; (ii) $17,801 in other accrued expenses; (iii) $7,260 due to shareholder; (iv) $35,401 in note payable (net of debt discount); (v) $1,207 in accrued interest - note payable shareholder; (vi) $416,668 in notes payable - related party; (vii) $200,000 payable to officer; and (viii) $100,000 in note payable.

 

As of March 31, 2014, our total assets were $58,104 comprised entirely of current assets. The increase in total assets during the three month period ended March 31, 2014 from fiscal year ended December 31, 2013 was due to the increase in accounts receivable of $19,550.

 

As of March 31, 2014, our total liabilities were $3,537,526 comprised of $3,190,139 in current liabilities and $347,387 in derivative liability. The increase in liabilities during the three month period ended March 31, 2014 from fiscal year ended December 31, 2013 was primarily due to the increase in accounts payable and accrued expenses of $443,887.

 

Stockholders’ deficit increased from ($2,741,427) for fiscal year ended December 31, 2013 to ($3,479,422) for the three month period ended March 31, 2014.

 

 

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For the three month period ended March 31, 2014, net cash flows used by operating activities was $17,148 compared to $-0- for the three month period ended March 31, 2013. Net cash flows used in operating activities consisted primarily of a net loss of $783,995 (2013: $132,000), which was partially adjusted by: (i) an increase of $728,250 (2013: $-0-) for gain from change in derivative liabilities; (ii) an increase of $1,813 (2013: $-0-) in accrued interest-note payable to shareholder; (iii) an increase of $89,880 (2013: $-0-) for issuance of stock for services; (iv) a decrease of ($1,140,601) in interest expense; and (v) $-0- (2013: $132,000) in issuance of stock for services. Net cash flows used in operating activities was further changed by: (i) a decrease of $19,550 (2013: $-0-) in accounts payable and accrued expenses; and (ii) an increase of $750 (2012: $-0-) in interest payable; and (iii) an increase of $443,887 in accounts payable and accrued expenses.

Cash Flows from Investing Activities

For the three month periods ended March 31, 2014 and March 31, 2013, net cash flows used in investing activities was $0.

Cash Flows from Financing Activities

We have financed our operations primarily from debt or the issuance of equity instruments. For the three month period ended March 31, 2014, net cash flows from financing activities was $265,900 (2013: $-0-) consisting of $265,900 in proceeds from notes payable.

 

PLAN OF OPERATION AND FUNDING

 

We expect that working capital requirements will continue to be funded through a combination of our existing funds and generation of revenues. Our working capital requirements are expected to increase in line with the growth of our business.

 

Our principal demands for liquidity are to increase capacity, inventory purchase, sales distribution of our pellets, and general corporate purposes. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment and/or inventory, and the expansion of our business, through cash flow provided by operations and funds raised through proceeds from the issuance of debt or equity.

 

Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We have no lines of credit or other bank financing arrangements. We may finance expenses with further issuances of securities and debt issuances. Any additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all.

 

MATERIAL COMMITMENTS

 

Notes Payable

 

On November 7, 2013, we issued a note in the principal amount of $25,000 as consideration for the cancellation of the 1,050,000,000 shares of common stock held by one of our prior officers. The note matures May 7, 2014 and bears interest at the rate of 6% per annum.

 

On November 15, 2013, we issued a note in the principal amount of $25,000 for consulting services rendered. The note matures April 14, 2014 and bears interest at the rate of7% per annum.

Convertible Notes

 

During the quarter ended March 31, 2014 we entered into a series of loans whereby we may borrow up to an aggregate amount of $895,000. The notes carry an original issue discount (the “OID”), for loan expenses which varies per loan. The maturity dates range from one to two years from the effective date of each borrowing. The notes are convertible at varying conversion rates. Unless otherwise agreed in writing by both parties, at no time will the lender convert any amount of the note into common stock that would result in the lender owning up to 9.99% of the common stock outstanding on the conversion date.

We may repay the borrowing at any time on or before 90 days from the effective date, after which we may not make further payments on this note prior to the maturity date without written approval from the lender.

At March 31, 2014 we borrowed $300,778 of principal and received net proceeds of $265.900 after deducting loan expenses of $34,878.

We have determined that the conversion feature embedded in the note constitute a derivative and has been bifurcated from the note and recorded as a derivative liability with a corresponding discount recorded to the associated debt on the accompany balance sheet, and revalued to fair market value at each reporting period.

During the three month period ended March 31, 2014, we issued five (5) convertible notes for potential aggregate funding up to $895,000 (collectively, the "Convertible Notes") as follows:

 

·

$275,000 convertible note due twelve months after its issue date representing maximum funding up to $275,000. The initial consideration shall be $75,000 and the investor may pay additional consideration of up to $175,000, which may be funded at any time prior to the maturity date at the investor's sole discretion. The convertible note shall be interest free for ninety (90) days. In the event that the convertible note is not repaid within ninety days, the convertible note will have a one-time interest charge of 10%. The convertible note shall be convertible into shares of our common stock, which conversion price shall mean 50% multiplied by the lowest trade price in the twenty (2) trading days prior to the measurement date.

·

10% convertible promissory note in the total face value of $250,000 due January 8, 2015. The initial purchase price will be $27,500 of consideration upon execution of a note purchase agreement. Interest on any outstanding principal balance shall accrue at a rate of 10% per annum. In the event of a default, interest will accrue at the rate equal to the lower of twenty (20%) per annum or the highest rate permitted by law. The investor shall have the right, at the investor's option, at any time to convert the outstanding principal amount and Interest under the note in whole or in part. The conversion price shall be equal to the lower of $.0027 or sixty percent (60%) of the lowest trading price of our common stock during the twenty five (25) consecutive trading days prior to the date on which the investor elects to convert all or part of the note. If we are placed on “chilled” status with the Depository Trust Company, the discount will be increased by ten percent (10%) until such chill is remedied.

·

$60,000 convertible note due twelve months after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000 in value of assets.

·

$60,000 convertible note due twelve months after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at a 45% discount to the lowest daily closing bid with a ten (10) look back. The note shall bear interest at 8%. Of the $60,000, $30,000 will be paid in cash upfront against delivery of the note. The remaining $30,000 shall be paid via delivery of a further $30,000 promissory note secured by $30,000 in value of assets.

·

$300,000 promissory note due two years after its issue date. The principal and accrued interest under the note will be convertible into shares of our common stock at the lesser of $0.0018 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note shall be interest free for the first three months and if we do not repay within the three months, a one time interest charge of 12% shall be applied to the principal sum.

On December 11, 2013, we issued a convertible note in the principal amount of $300,000 plus accrued and unpaid interest and any other fees. The consideration is $270,000 payable by wire (there exists a $30,000 original issue discount (the “OID”)). The lender shall pay $25,000 of consideration upon closing of this Note. The lender may pay additional consideration to us in such amounts and at such dates as lender may choose in its sole discretion.

 

PURCHASE OF SIGNIFICANT EQUIPMENT

 

We do not intend to purchase any significant equipment during the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

GOING CONCERN

 

The independent auditors' report accompanying our December 31, 2013 and December 31, 2012 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, have a working capital deficit and are currently in default of the payment terms of certain note agreements. These factors raise substantial doubt about our ability to continue as a going concern.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

There were no recently issued applicable accounting standards that would have a material effect on the accompanying consolidated financial statements.

 

OFF-BALANCE SHEET ARRANGEMENTS.

 

We have no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse change in foreign currency and interest rates.

 

Exchange Rate

 

Our reporting currency is United States Dollars (“USD”). In the event we acquire any properties outside of the United States, the fluctuation of exchange rates may have positive or negative impacts on our results of operations.

 

Interest Rate

 

Interest rates in the United States are generally stable. Any potential future loans will relate mainly to acquisition of properties and will be mainly short-term. However, our debt may be likely to rise in connection with expansion and if interest rates were to rise at the same time, this could have a significant impact on our operating and financing activities. We have not entered into derivative contracts either to hedge existing risks for speculative purposes.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures.

 

We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective.

 

Management’s annual report on internal control over financial reporting.

 

Our Chief Executive Officer and our Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our Chief Executive Officer and our Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of March 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework.

 

Based on our assessment, our Chief Executive Officer and our Chief Financial Officer believe that, as of March 31, 2014, our internal control over financial reporting is not effective based on those criteria, due to the following:

 

•

Deficiencies in Segregation of Duties. Lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the disbursements related thereto due to our very limited staff, including our accounting personnel.

•

Deficiencies in the staffing of our financial accounting department. The number of qualified accounting personnel with experience in public company SEC reporting and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, by this shortage of qualified resources.

 

In light of this conclusion and as part of the preparation of this report, we have applied compensating procedures and processes as necessary to ensure the reliability of our financial reporting. Accordingly, management believes, based on its knowledge, that (1) this report does not contain any untrue statement of a material fact or omit to state a material face necessary to make the statements made not misleading with respect to the period covered by this report, and (2) the financial statements, and other financial information included in this report, fairly present in all material respects our financial condition, results of operations and cash flows for the years and periods then ended.

 

This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this report.

 

Changes in internal control over financial reporting.

 

There were no significant changes in our internal control over financial reporting during the first quarter of the year ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

AUDIT COMMITTEE

 

Our board of directors has not established an audit committee. The respective role of an audit committee has been conducted by our board of directors. We intend to establish an audit committee during the fiscal year 2014. When established, the audit committee's primary function will be to provide advice with respect to our financial matters and to assist our board of directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as its compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and our Board of Directors.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

ITEM 1A. RISK FACTORS

 

No report required

 

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

 

No report required.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

No report required.

 

ITEM 4. MINE SATEFY DISCLOSURES

 

No report required.

 

ITEM 5. OTHER INFORMATION

 

No report required.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed as part of this Quarterly Report

 

 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)	Financial Statements.

 

(b)	Exhibits required by Item 601.

 

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of August 15, 2012, by and among the Registrant, KNGS Acquisition, Inc. and Kleangas Energy Technologies, Inc. Filed as Exhibit 2.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.1	Certificate of Incorporation. Filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.2	Certificate of Amendment re 1-for-2,000 Reverse Split. Filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.3	Certificate of Designations for Series A Preferred Stock. Filed as Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.

 

3.4	Certificate of Amendment to Certificate of Incorporation. Filed as Exhibit 3.4 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.5	Certificate of Correction. Filed as Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.6	Certificate of Amendment related to Name Change. Filed as Exhibit 3.6 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.7	Certificate of Merger of KNGS Acquisition, Inc. into Kleangas Energy Technologies, Inc., a Florida corporation (the Plan of Merger referred to therein is Exhibit 2.1 to the Registration Statement). Filed as Exhibit 3.8 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
3.8	By-laws. Filed as Exhibit 3.8 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
5.1	Opinion of Barry J. Miller, Esq. Filed as Exhibit 5.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.1	Form of Stock Purchase Agreement. Filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.2	Form of Registration Rights Agreement. Filed as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.3	Exchange Agreement, dated as of August 15 2012, by and between Registrant and Richard S. Astrom. *
10.4	Promissory Note. Filed as Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.5	Pledge Agreement. Filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.6	Private Label Agreement. Filed as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.7	Employment Agreement, dated May 31, 2012, between the Registrant and Dennis J. Klein. Filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.8	Employment Agreement, dated May 31, 2012, between the Registrant and William B. Wylie
10.9	Lease, dated May 30, 2012, between the Registrant and Dennis J. Klein. Filed as Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
10.10	Share Exchange Agreement between the Registrant and Green Day Technologies Inc. dated November 23, 2013. Filed as Exhibit 10.01 to Registrant's Current Report on Form 8-K on November 29, 2013.
10.11	Sales Agency Contract dated December 27, 2013 and executed December 31, 2013 between Green Day Technologies Inc. and Peniel Trading Korea. Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K on January 27, 2014.
10.12	Purchase Order dated January 28, 2014. Filed as Exhibit 10.1 to Current Report on Form 10-K on January 31, 2014.
10.13	Equity Purchase Agreement dated February 28, 2014 between Registrant and Premier Venture Partners LLC. Filed as Exhibit 10.1 to Current Report on Form 8-K on March 6, 2014.
10.14	Registration Rights Agreement dated February 28, 2014 between Registrant and Premier Venture Partners LLC. Filed as Exhibit 10.02 to Current Report on Form 8-K on March 6, 2014.
21	List of Subsidiaries. Filed as Exhibit 21 to the Registrant’s Registration Statement on Form S-1, File No. 333-185280.
23.1	Consent of Paritz & Co.
23.2	Consent of Barry J. Miller, Esq.*
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.ins	XBRL Instance Document**
101.sch	XBRL Taxonomy Schema**
101.cal	XBRL Taxonomy Calculation Linkbase**
101.def	XBRL Taxonomy Definition Linkbase**
101.lab	XBRL Taxonomy Label Linkbase**
101.pre	XBRL Taxonomy Presentation Linkbase**

*           Filed herewith.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Kleangas Energy Technologies Inc.

a Delaware corporation

 

 

May 20, 2014		By:	/s/ Bo Linton
			Bo Linton
		Its:	CEO/President (Principal Executive Officer)
May 20, 2014		By:	/s/ Bo Linton
			Bo Linton
		Its:	Chief Financial Officer, Secretary, Treasurer (Principal Financial and Accounting Officer)