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SECURITIESAND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K/A

(AMENDMENT NO. 3)

 

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

 

For the fiscal year ended December 31, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From_______ to ______

 

333-179669

Commission file number

 

NEW GLOBAL ENERGY, INC.

(Exact name of small business issuer as specified in its charter)

 

Wyoming

 

45-4349842

(State of incorporation)

 

(IRS Employer Identification Number)

 

109 East 17th Street, Suite 4217

Cheyenne, WY 82001

(Address of principal executive office)

 

(307) 633-9192

(Issuer's telephone number)

 

Securities registered pursuant to Section 12(b) of the Act: NONE

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock: $.0001 Par Value

 

Title of each class Name of each exchange on which registered

 

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 (§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 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 x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, 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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

 

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2013 was approximately $8,532,100 (based on the mean between the closing bid and asked prices of the Common Stock on such date), which value, solely for the purposes of this calculation, excludes shares held by Registrant's officers and directors. Such exclusion should not be deemed a determination by Registrant that all such individuals are, in fact, affiliates of the Registrant.

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

 

APPLICABLE ONLY TO CORPORATE REGISTRANTS

 

As of February 18, 2015 there were outstanding 13,524,305 shares of New Global Energy, Inc. common stock with a par value $.0001 per share (the "Common Stock").

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 3 on Form 10-K/A (“Amendment”) is being filed to amend our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Form 10-K”), initially filed with the Securities and Exchange Commission on May 16, 2014, to correct certain derivative calculations for the years ended 12-31-12 and 12-31-13 and to change the treatment of the Company’s interest in Aqua Farming Tech, Inc. from “Discontinued Operations” to “Interest in an unconsolidated subsidiary” and incorporate those changes into previous financial statements including the Balance Sheet, Statement of Operations and Statement of Stockholders' Deficit.

 

Other than the aforementioned and certain minor punctuation and typographical corrections not referenced above, no other material changes have been made to the Form 10-K. This Amendment 3 speaks as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-K.

 

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Form 10-K, have been amended, restated and re-executed as of the date of this Amendment and are included as Exhibits 31.1/31.2 and 32.1/32.2 hereto.

 

 
2

  

PART I

     
         

Item 1.

Business

   

4

 

Item 1A.

Not Applicable

       

Item 1B.

Unresolved Staff Comments: NONE

       

Item 2.

Properties

   

7

 

Item 3.

Legal Proceedings

   

7

 

Item 4.

Mine Safety Disclosures: NONE REQUIRED

   

7

 
           

PART II

       
           

Item 5.

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

   

8

 

Item 6.

Selected Financial Data: NONE REQUIRED

    8  

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

   

8

 

Item 7A.

Quantitative and Qualitative Disclosure about Market Risks: NONE REQUIRED

       

Item 8.

Financial Statements and Supplementary Data

   

16

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   

35

 

Item 9A.

Controls and Procedures

   

35

 
           

PART III

       
           

Item 10.

Directors and Executive Officers and Corporate Governance

   

37

 

Item 11.

Executive Compensation

   

38

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

   

39

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

   

40

 

Item 14.

Principal Accountant Fees and Services

   

41

 
           

PART IV

       
           

Item 15.

Exhibits, Financial Statement Schedules

   

42

 
           

Signature

   

43

 

 

 
3

 

PART I

 

ITEM 1. BUSINESS

 

New Global Energy, Inc. (“NGE” or the “Company”) is a sustainable agriculture and aquaculture company organized as a Wyoming corporation on January 24, 2012 with executive offices located in Brevard County, Florida. The Company focuses on the use of advanced technology and farming techniques with the goal of increasing production and decreasing costs.

 

The Company is focused on internal growth and growth through the acquisition of high-growth firms, assets and properties in the Green market space; industry segments include sustainable agriculture, aquaculture, solar, biofuels and carbon credits. Management is targeting growth stage assets, operations and companies that possess proprietary market edge and demonstrate solid opportunity to scale their business. We expect to pursue special opportunities that are anticipated to accelerate shareholder value by consolidating certain tiers of the $5 Trillion per year fragmented Green and Renewable Energy industry.

 

The first portion of the Company’s development included the development of it Global Energy Plantation (“GEP”) using its Global Cell concept which combines alternative energy (source of usable energy intended to replace fuel sources without the undesired consequences of the replaced fuels) production, sustainable agriculture (practice of farming using principles of ecology, the study of relationships between organisms and their environment) and aquaculture (the farming of aquatic organisms such as fish, crustaceans, molluscs and aquatic plants). It uses non centralized power plants, primarily concentrated solar power (CSP), Jatropha (Jatropha curcas, a genus of plants shrubs or trees, the oil from which can be used for biodiesel production) based biofuels and aquaculture operations to produce power for its own use and to feed into the power grid serving local power needs while producing farm grown fish and shrimp as food products.

 

In the process of development of its business and during the last two fiscal years, the Company acquired a noncontrolling interest in Aqua Farming Tech, Inc. (“AFT”), a California corporation with aquaculture and agriculture operations in the Coachella Valley in Southern California. (see Aqua Farming Tech, Inc. below) During the fiscal years reported, the Company acquired and maintains an equity interest of 36.69% in Aqua Farming Tech, Inc. (“AFT”), a California corporation with aquaculture and agriculture operations in the Coachella Valley in Southern California. It is treated as an interest in a non-consolidated subsidiary.

 

As of May 20, 2013, the Company had completed incremental acquisitions totaling 30.74% of Aqua Farming Tech, Inc. (“AFT”) from unrelated parties. By the end of the year, the Company had completed additional incremental acquisitions from unrelated parties bringing its total ownership to 36.69%. In July of 2013 the Company, with the issuance of an additional 382,099 shares of New Global common agreed to acquire 764,199 more shares of AFT common, giving us a total of 90.5% of Aqua Farming Tech, Inc. (AFT). The increase in ownership to 90% would have required AFT to be included as a consolidated subsidiary as of that date. However, this acquisition was based upon the ability of AFT to timely deliver audited financial statements. When it became apparent that such statements would not be forthcoming, the Company rescinded the acquisition of the controlling interest in AFT based upon the failure of AFT to produce audited statements by December 31, 3013, leaving the Company with a 36.69% minority interest in AFT at year end. The Company currently owns a 36.69% unconsolidated investment interest in AFT. We do not hold any seat on the Board of Directors of AFT nor is there any actual management or control of AFT by the Company.

 

 
4

 

Global Energy Cell

 

The GEP (Global Energy Plantation) is being designed to be a stand-alone “energy cell” where nothing enters the “cell wall” except sunlight, water, and feedstock (seeds & fish). The cell is being designed to produce electrical power onsite which it feeds into the “net metering” grid. Onsite generated electricity powers all equipment, vehicles & pumps. Excess electricity is fed into the power Grid. The Global Energy Plantation is designed as a “Zero Waste” operation. All waste material is sequestered and used onsite:

 

 

·

Fish tank effluent →Jatropha Irrigation & Fertilization

     
 

·

Jatropha husk & shells →Pelletized Fuels →external combustion generators

   

Organic Fertilizer

   

Organic Pesticide

   

Fish Feed from Detoxified pellets

     
 

·

Aquaculture Products:

   

Fish Oil

   

Food Fish for market

   

Fish feed from processing wastes

     
 

·

Value Chain Products:

   

Jatropha Cuttings, Seeds, Seedlings

     
 

·

Value Chain Services:

   

Grower Purchase Contracts

   

Plantation Planning, Management & Operations

   

Harvesting, Processing, Energy Generation

 

In this sustainable symbiotic system, the plants feed the fish and the fish feed the plants. Both plants and fish yield an organic oil which is used onsite to generate electricity. An array of photovoltaic panels or concentrated solar system powers the entire plantation and feed in excess electricity into the power grid. The design of the Energy Cell has not been completed not has it been constructed and there is no assurance that the performance of these Cells will produce these expected results.

 

The Company has to date, developed system layouts with flow patterns; basic aquaculture pond material selection and design; general planting and irrigation layout and methods. Additional analysis of aquaculture and agriculture data related to the specific location with its climate conditions is required before final stocking and planting densities can be defined and initial water flow rates and irrigation plans can be finalized. In addition data from initial operations may dictate changes in design and size of various components.

 

The Company relies on unpatented proprietary know-how and other trade secrets of its Energy Cell , and employs various methods, including confidentiality agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, these methods may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology licensed, without authorization or otherwise infringe on our intellectual property rights. Additionally, we may license in the future, trade secrets, and similar proprietary rights to third parties. While we attempt to ensure that our intellectual property and similar proprietary rights are protected when entering into business relationships, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value of our intellectual property. Any litigation could be protracted and expensive and funds may not be available to pursue it.

 

 
5

  

Integration of Jatropha, Solar & Aquaculture

 

The NGE business model addresses the need to replace imported oil as an energy source. It is designed so that the key components of are all sustainable and renewable. The Global Energy Plantation model explains how these three energy components are designed to work symbiotically to contribute to an “energy cell” operation. Each of the modules can be implemented on separate, non-contiguous sites, but the Company’s design expects them to work best when working in synergy on a single site. The components of the design consist of:

 

Solar: Electrical power is a primary product of the Global Energy Plantation. Electricity, produced onsite from photovoltaic (“solar cell”) arrays or concentrated solar systems used during daylight hours, to power all plantation operations including pumps, lighting and processing equipment. In addition, onsite Diesel-powered generators, fueled by Jatropha, feed into the power grid where it is “banked” under the “net metering” provisions established by the U.S. Energy Policy Act 2005 which requires all public electric utilities to offer net metering on request to their customers.

 

Fuel: Jatropha (jatropha curcas) farm operations are expected to produce fuel oil from seeds and solid pelletized fuel from pressed seedcake. The design plans for fuel oil to extracted onsite and used to power SVO (Straight vegetable Oil) generators which “bank” electricity into the grid. The seedcake can also be used onsite as an organic pesticide and fertilizer for the Jatropha plants. Additionally, detoxified seedcake, which has superior nutritional content to soybeans, can be utilized onsite as feed for the fish. We believe that the use of these by products as feed for the fish farm operations will reduce a if not the major cost of aquaculture which is feed.

 

Fish: Aquaculture operations are designed to yield a sustainable food source in an environment where live catches decline each year. Processing the fish on site yields both a food fish product and SFO (Straight Fish Oil) which can be used to power Diesel generators onsite and “bank” electricity into the grid. Residue from fish processing is sun-dried and used as fish meal. Fish oil can also used in the nutritional industry. Effluent from the fish tanks and ponds are used to irrigate the Jatropha with a nutrient-rich broth of fertilizer.

 

MARKET FOR PRODUCTS & SERVICES:

 

The marketing and sale of the company’s products is subject to successful completion and performance of the Company’s Energy Cell Concept and as such the Company has not yet entered any of these markets and there is not assurance that expected production levels will be achieved or that there will be any revenues forthcoming.

 

Electricity: A primary market opportunity for the Company is to provide electric power generated onsite from both solar power systems and onsite diesel-powered generators fired by renewable, sustainable biofuel, Jatropha oil. The Company expects that excess power over what it uses will be sold through net metering agreements and/or power purchase agreements with commercial power providers. These agreements are generally site specific and the Company does not yet have any such agreements in place and there is not assurance the sufficient power will be produced to sell.

 

The Company has done extensive reviews of solar technologies to determine the best currently available technology. It has done initial review and testing of certain new technology solar collectors used with concentrated solar power (CSP) generation and comparison reviews of photovoltaic panel technology. It has developed proposed layouts for CSP systems with thermal storage units which can be used for solar energy production both on and off grid.

 

 
6

  

Food Fish: The Company believes that the primary market advantaged aquaculture product in the US is the sale of live fish and shrimp, and non frozen fish fillets, limiting preferred geographic locations to those near major market areas where established markets now exist. To the extent the market dictates, the Company may enter the frozen fish fillet market. Although the Company believes that there is a significant market for the fish that it expects to produce, it does not have any purchase agreements or sales arrangements in place and whether or not the fish can be sold and at what price will be subject to market conditions at the time of the sale. There is no assurance that either a market will exist or that the price paid will produce a profit or even be sufficient to cover costs at that time.

 

The Company expects that its primary fish products will include Tilapia (both red and black Tilapia, Catfish and Silver Carp and are sold live). Tilapia is a mild white fish popular around the world. In its 2013 Report, the World Aquaculture Society shows Tilapia as the fifth most popular fish and Catfish as the seventh most popular fish consumed by weight in the United States (based on 2011 results).

 

US Tilapia consumption by weight by year has been:

 

Year

 

Metric Tons
of Live Weight

 
       

2007

   

437,000

 

2008

   

453,264

 

2009

   

465,953

 

2010

   

579,443

 

2011

   

513,361

 

2012

   

613,406

(e)

 

Jatropha Oil: The oil extracted from the kernels of the Jatropha seed by an expeller press, after filtering, can be burned without any further processing in a Lister Diesel engine. The oil can also be used as the feedstock for bioDiesel after undergoing the transesterfication process. The waste product, glycerin, can be used to fire a glycerin-powered generator, or sold into the pharmaceutical industry. Location and size of productive crops will determine whether the Company processes the oil onsite in a portable transesterfication plant, hauls the oil to a processing plan or simply wholesales the oil to a biodiesel processor.

 

As of December 31, 2013 the company did not have any employees. Our Chief Executive Officer and others who work for the company from time to time, are paid as consultants on an as needed basis.

 

NEW GLOBAL ENERGY INC. EXPANSION

 

The Company is focused on internal growth and growth through the acquisition of high-growth firms, assets and properties in the Green market space; industry segments include sustainable agriculture, aquaculture, solar, biofuels and carbon credits. Management is targeting growth stage assets, operations and companies that possess proprietary market edge and demonstrate solid opportunity to scale its business. The Company expects to scale its business through the development of the acquisition of existing farms and through the acquisition of additional farms. The Company believes that it can lower the costs of operations in anticipated acquisition through the construction of the solar generating systems and algae based feeding programs. The Company anticipate that if it is able to improve the metrics associated with the cost of production it will be able to attain a competitive advantage other farms in that market space.

 

ITEM 2. PROPERTIES:

 

The Company does not own any real property.

 

ITEM 3. LEGAL PROCEEDINGS: NONE

 

ITEM 4. MINE SAFETY DISCLOSURES: NONE REQUIRED

 

 
7

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES. 

 

The following table sets forth the range of high and low bid information for the Common Stock of the Company as reported by the OTC Markets on a quarterly basis for each of the two preceding fiscal years. The Company's shares have traded in the over-the-counter market on the OTC market. The Company's Common Stock trades under the symbol NGEY. The Company’s common stock did not trade until the fourth quarter of 2012.

 

Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors. Our Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend. No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid. We currently intend to retain any future earnings to finance future growth. Any future determination to pay dividends will be at the discretion of our Directors and will depend on our financial condition, results of operations, capital requirements and other factors the Board of Directors considers relevant.

 

The bid quotations represent inter-dealer prices and do not include retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.

 

Common Stock

 

Fiscal 2012

  High     Low  

First Quarter

 

$

-

   

$

-

 

Second Quarter

   

-

     

-

 

Third Quarter

   

-

     

-

 

Fourth Quarter

   

7.00

     

4.00

 

 

 

Fiscal 2013

  High     Low  

First Quarter

 

$

8.50

   

$

6.00

 

Second Quarter

   

9.00

     

7.00

 

Third Quarter

   

8.00

     

7.00

 

Fourth Quarter

   

7.00

     

7.00

 

 

As of December 31, 2013, there were approximately 141 holders of record of the Company's Common Stock.

 

ITEM 6. NOT REQUIRED

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. 

 

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this Form 10-K. 

 

Overview and Financial Condition

 

New Global Energy, Inc. (“NGE” or the “Company”) is a sustainable agriculture and aquaculture company organized as a Wyoming corporation on January 24, 2012 with executive offices located in Brevard County, Florida. The Company focuses on the use of advanced technology and farming techniques with the goal of increasing production and decreasing costs.

 

 
8

  

The Company is focused on internal growth and growth through the acquisition of high-growth firms, assets and properties in the Green market space; industry segments include sustainable agriculture, aquaculture, solar, biofuels and carbon credits. Management is targeting growth stage assets, operations and companies that possess proprietary market edge and demonstrate solid opportunity to scale their business. We expect to pursue special opportunities that are anticipated to accelerate shareholder value by consolidating certain tiers of the $5 Trillion per year fragmented Green and Renewable Energy industry.

 

The first portion of the Company’s development included the development of its Global Energy Plantation (“GEP”) using its Global Cell concept which combines alternative energy (source of usable energy intended to replace fuel sources without the undesired consequences of the replaced fuels) production, sustainable agriculture (practice of farming using principles of ecology, the study of relationships between organisms and their environment) and aquaculture (the farming of aquatic organisms such as fish, crustaceans, molluscs and aquatic plants). It uses non centralized power plants, primarily concentrated solar power (CSP), Jatropha (Jatropha curcas, a genus of plants shrubs or trees, the oil from which can be used for biodiesel production) based biofuels and aquaculture operations to produce power for its own use and to feed into the power grid serving local power needs while producing farm grown fish and shrimp as food products.

 

The Company is focused on internal growth and growth through the acquisition of high-growth firms, assets and properties in the Green market space; industry segments include sustainable agriculture, aquaculture, solar, biofuels and carbon credits. Management is targeting growth stage assets, operations and companies that possess proprietary market edge and demonstrate solid opportunity to scale its business. The Company expects to scale its business through the development of the acquisition of existing farms and through the acquisition of additional farms. The Company believes that it can lower the costs of operations in anticipated acquisition through the construction of the solar generating systems and algae based feeding programs. The Company anticipates that if it is able to improve the metrics associated with the cost of production it will be able to attain a competitive advantage other farms in that market space.

 

As of May 20, 2013, the Company had completed incremental acquisitions totaling 30.74% of Aqua Farming Tech, Inc. (“AFT”) from unrelated parties. AFT is a California corporation with aquaculture and agriculture operations in the Coachella Valley in Southern California. By the end of the year, the Company had completed additional incremental acquisitions from unrelated parties bringing its total ownership to 36.69%. In July of 2013 the Company, with the issuance of an additional 382,099 shares of New Global common agreed to acquire 764,199 more shares of AFT common, giving us a total of 90.5% of Aqua Farming Tech, Inc. (AFT). The increase in ownership to 90% would have required AFT to be included as a consolidated subsidiary as of that date. However, this acquisition was based upon the ability of AFT to timely deliver audited financial statements. When it became apparent that such statements would not be forthcoming, the Company rescinded the acquisition of the controlling interest in AFT based upon the failure of AFT to produce audited statements by December 31, 3013, leaving the Company with a 36.69% minority interest in AFT at year end. Subsequently, in 2014 we have maintained discussions with an unrelated party that holds approximately 62% of AFT’s shares as we remain interested in completing this purchase, subject to the terms previously negotiated, and subject to the completion of AFT’s audit.

 

Our investment in AFT is treated as an interest in a non-consolidated subsidiary. We have not and do not hold any seats on the Board of Directors of AFT, nor is there any actual management or control of AFT by the Company.

 

To addressan issue in aquafarming operations, water quality, the Company entered into a Sales and Licensing Agent Representation Agreement and a Master Cooperation Agreement with OriginOil, Inc., a Nevada corporation with offices in Los Angeles, California, covering the use and sale of OriginOil equipment by the Company. The Company has not undertaken any significant activities pursuant to this agreement as of the date of this report nor has the Company obligated itself to any financial expenditures related to this agreement.

   

Forward-looking statements such as this are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by a forward-looking statement. These risks and uncertainties include, without limitation: (1) the potential mergers may not be consummated in a timely manner, if at all; (2) the merger agreement may be terminated in circumstances that require the Company to pay a termination fee or reimburse certain expenses; (3) the diversion of management's attention from the Company's ongoing business operations; (4) the ability of the Company to retain and hire key personnel; (5) the effect of the announcement of the Merger on the Company's business relationships, operating results and business generally; (6) competitive responses to the proposed Merger; and (7) the failure to obtain the requisite approvals to the Merger, such as stockholder approval. The Company expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

 
9

 

Critical Accounting Policies and Use of Estimates

 

Use of Estimates: The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and will adjust them when determined to be appropriate. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates included in the accompanying financial statements include judgments regarding the fair value of equity method investments; the valuation of equity based transactions; the valuation of derivative liabilities and the valuation of deferred tax assets.

 

Valuation of Long-Lived Assets:Valuation of Long Lived Assets: We review the recoverability of our long lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. From our review of the carrying value of the investment in AFT as of December 31, 2013 which is our proportionate share of the net value of AFT (land, plant and equipment minus debt, minus operating losses), we concluded that our proportionate share of AFT’s value is $1,156,206 (the initial investment value of $1,463,055 minus the allocable portion of AFT’s 2013 loss of $306,849).

   

Accounting For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock: We account for obligations and instruments potentially to be settled in the Company’s stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock. The Company evaluates stock options, stock warrants, convertible debt instruments or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of FASB ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. In the case where convertible debt is converted within the original terms the general extinguishment model is followed under which fair value of the issuable shares is determined by the share price on the conversion date and any difference between the fair value of the derivative, the net book value of the debt and the fair value of the shares issuable at that date is recorded as a gain or loss. Financial instruments that are initially classified as equity that become subject to reclassification under FASB ASC 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

 

Fair Value of Financial Instruments: FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At December 31, 2013 and 2012, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.

 

Fair Value Measurements: The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

 

When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the fiscal periods ended December 31, 2013 and 2012, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

 

 
10

 

Earnings per Common Share: We compute net income (loss) per share in accordance with FASB ASC 260, Earning per Share. FASB ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

Income Taxes: We have adopted FASB ASC 740, Accounting for Income Taxes. Pursuant to FASB ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

   

Results of Operations for years ended December 31, 2013 and 2012

 

The Company had revenues for the fiscal year ended December 31, 2013 of $0.00. Selling, general and administrative expenses for the year ended December 31, 2013 were $181,385 up from $35,418 the prior year due primarily to an increase in professional and consulting expenses related to increased activity by the Company.

 

The Company recognizes interest expense and amortization of debt discount associated with loan transactions which included conversion rights and warrants as described below (see “Financing Activities”) and the derivative liability associated therewith. The Company entered into two loan transactions totaling $200,000 in the year ended December 31, 2012 and a third loan transaction in the original principal amount of $500,000 during the year ended December 31, 2013. All three included conversion rights and warrants. These notes and their provisions resulted in an Interest expense of $3,480,876 for the year ended December 31, 2012 and of $10,914,205 for the year ended December 31, 2013, the increase being attributable to the third note added in the year ended December 31, 2013.

 

We charge the initial valuation of the conversion feature and warrants by offsetting the carrying value of the note up to the principal. Initial derivative values in excess of note principal are immediately charged to interest expense. Derivative valuation charged to interest expense was $10,909,438 in 2013 and $3,479,235 in 2012. Adding interest accrued during the year, the interest expense for the year ended December 31, 2012 was $3,480,876 and $10,914,205 for the year ended December 31, 2013.

 

On December 31, 2013 we conducted an impairment analysis of the carrying value of equity method investment in AFT. At the time of the analysis the total investment in AFT carried on the balance sheet consisted of the fair value of cash and common stock issued to acquire the 36.69% interest in AFT in the combined amount of $1,463,055 and advances of $214,500 in the form of notes to AFT. The total investment was reduced by the allocable portion of AFT’s 2013 loss of $306,849, bringing the net carrying value of AFT to $1,156,206.

 

In 2014 and 2015, we issued additional loans to AFT, primarily for working capital. From January 1, 2014 – December 31, 2014, we loaned AFT $589,500 in incremental amounts throughout the year. Similarly, from January 1, 2015 through the date of filing, we have loaned AFT $80,000. The total of all notes issued to AFT, including those issued in 2013, is $884,000 as of the date of this filing. The terms of the additional loans is the same as notes previously issued, 7% interest rate and one year maturity. As payments have become due for the notes issued in 2013 and early 2014, we have extended their maturity by one year.

 

 
11

 

The derivative and warrant liability at December 31, 2013 was $11,886,370, compared to $3,004,637 at December 31, 2012. The increase by $8,881,742 was due to the issuance of convertible notes and warrants in 2013.

 

Upon conversion of a note for $100,000 in 2012, the Company eliminated the derivative liability of $580,824 related to the underlying conversion feature and recognized a gain on the conversion of debt and derivative liability of $80,824. Upon conversion of a second note in the amount of $100,000 in 2013, the Company eliminated the derivative liability of $2,381,763 related to that underlying conversion feature and recognized a gain on the conversion of debt and derivative liability of $81,763 as measure by the fair value of the common stock at the date of conversion.

 

The initial derivative treatment of the convertible notes resulted in values in excess of the note. Therefore the notes were initially fully discounted. In 2013 we recognized $423,000 in initial discount and in 2012 we recognized $127,000 in initial discount. We amortize this discount to interest expense over the term of the notes. Amortization expense for 2013 and 2012 was $139,210 and $101,701, respectively.

 

The balance sheet date carrying value of convertible notes net of this discount is as follows:

 

    Dec 31,
2013
    Dec 31,
2012
 

Outstanding note balances at December 31

 

$

350,000

   

$

27,000

 

Less unamortized discount

 

(309,089

)

 

(25,299

)

Carrying Value

 

$

40,911

   

$

1,701

 

 

Liquidity and Capital Resources

 

    Cash Flows Year Ended  
    December 31,
2013
    December 31,
2012
 
         

Net Cash Used by Operating Activities

   

(181,385

)

 

$

(30,719

)

Net Cash Used by Investing Activities

   

(229,500

)

   

(54,999

)

Net Cash Generated by financing Activities 

   

423,000

     

92,679

 

Cash Ending Balance

   

19,076

     

6,961

 

 

 

Net Cash Used by Operating Activities for the year ended December 31, 2013 was $181,385, up from $30,719 for the prior year, while Net Cash generated by financing activities for the year ended December 31, 2013 were $423,000, up from $92,679 the prior year.

 

While the Company is attempting to commence operations and generate revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.

 

Off Balance Sheet Arrangements

 

The Company has no Off Balance Sheet Arrangements.

 

 
12

 

Financing Activities

 

The Company is currently pursuing the planning stage of its business plan with limited of cash outlays for operating expenses. Non cash contributions are being made by management and it would expect to continue at this rate of operation for more than 12 months without raising any additional capital. These non cash contributions include administrative services, office space, telephone, computer use and other ordinary and necessary business services involved in company operations. There are no written agreements in place to continue these contributions and the Company believes that it could continue its rate of operations for six months with or without further management contributions. The Company expects to accrue expenses related to these advances during 2014 until such time that they can be repaid.

 

In June 2012, the Company registered 200,000 Units and the shares and warrants included and underlying them with the US Securities and Exchange Commission, which offering is effective as of the date of this report. Each Unit consists of one share of common stock, one Class A warrant which includes the right to purchase one share of common stock for $5.50 for the period ending one year from date of issue and one Class B warrant with the right to purchase one share of common stock for $5.50 during the period ending three years from date of issue, of New Global Energy, Inc. Both warrants may be redeemed by the Company at $0.10 per warrant if the average mean bid and asked prices per share have been at least $7.50 on each of the 20 consecutive trading days ending on the third day before notice. The offering was a self-underwritten offering, which means that it does not involve the participation of an underwriter or broker. The Company as of this date has sold 5,700 of the units for total proceeds of $28,500.00. Because of the level of interest, the Company elected not to sell further units under this offering.

 

On January 20, 2012, the Company entered into a loan agreement with Bio-Global Resources, Inc. for the amount of $100,000 due January 20, 2014 with interest at the rate of 2.95% per annum. On September 20, 2012 and November 5, 2012, the full principal of the note was converted into an aggregate of 100,000 common shares. In addition the Lender is received 200,000 warrants to purchase common shares at a price of $1.00 per share until November 12, 2014. Subsequent to the end of the reported period the Lender exercised all of its warrants received under this note.

 

On November 15, 2012, the Company entered into a Second Loan Agreement with Bio-Global Resources, Inc., a private unrelated company in the amount of $100,000 due November 15, 2014 with interest at the rate of 2.50% per annum. During that fiscal year, the Company had drawn down $27,000 of the Loan. Bio-Global Resources, Inc. was entitled to convert any amounts outstanding on the loan after 90 days from November 15, 2012 into the Company’s common stock at the rate of $.25 per share. In addition, to the extent funds are drawn against this Loan Agreement, Bio-Global Resources, Inc. is entitled to 200,000 warrants to purchase common shares at a price of $1.00 per share until November 15, 2014. Subsequent to the reported period the Company drew down the balance of the note and later the Lender converted all of the balance on the note to common shares and exercised the warrants included. In 2012, the Company issued 100,000 shares upon the conversion of the $100,000 note.

 

In order to provide for additional operations and for the expansion of existing operations, the Company during the reported period, entered into a Loan Agreement with Bio-Global Resources, Inc., a private unrelated company in the amount of $500,000 due July 19, 2015 with interest at the rate of 6.00% per annum. As of 12-31-13, the Company had drawn down $350,000 of the face amount of the Loan. Bio-Global Resources, Inc. is entitled to convert any amounts outstanding on the loan into the Company’s common stock at the rate of $0.25 per share. In addition, to the extent funds are drawn against this Loan Agreement, Bio-Global Resources, Inc. is entitled to 200,000 warrants to purchase common shares at a price of $3.00 per share until July 19, 2018. Subsequent to the reported period, the company drew down the balance of the loan and the lender later converted all of the balance to common shares. In addition the Lender has exercised warrants to purchase 75,000 shares. In 2013, the Company issued 400,000 shares upon the conversion of a note payable of $100,000. At the end of 2013, the net carrying value of the note was $40,911. The net carrying value equals the note balance of $350,000 at the end of 2013 minus the unamortized discount of $309,089. Subsequent to the reporting period, in 2014, the outstanding balance was converted to 2,000,000 shares of common stock.

 

During the Company’s fiscal quarter ending December 31, 2014 and the fiscal quarter ending March 31, 2015, the Company borrowed an additional $285,500 from Bio-Global Resources, a private unrelated company, for operating capital under three $100,000 Promissory Notes (NP#4, NP#5 and NP#6), which carried interest at the rate of 4% and were due and payable one year from the date of the notes (October 1, 2015, October 15, 2015 and December 1, 2015, respectively). These notes carried no conversion or warrant provisions.

 

In February 2015, the Company offered to settle $208,000 outstanding under Notes NP#4, NP#5 and NP#6, for 4,160 shares of the Company’s Series A Redeemable Convertible Preferred stock. As of the filing date, this offer remains outstanding.

 

 
13

 

Contractual Obligations

 

Amount

  Due Less 1
year
    Due 1-3
years
    Due 3-5
years
    Due More
than
5 years
 
                 

Promissory Note (1)

 

$

0

   

$

350,000

   

$

0

   

$

0

 

 

 

1. As of 12-31-13 the Company was obligated on a single convertible promissory note with a face amount of $500,000 and interest at the rate of 6% per annum, for $350,000 drawn as of that date. In 2014 the Company drew down the remaining $150,000 of the face amount of the note and later in 2014 the entire note was converted to common stock.

 

During the Company’s fiscal quarter ending December 31, 2014 and the fiscal quarter ending March 31, 2015, the Company borrowed an additional $285,500 from Bio-Global Resources, a private unrelated company, for operating capital under three $100,000 Promissory Notes (NP#4, NP#5 and NP#6), which carried interest at the rate of 4% and were due and payable one year from the date of the notes (October 1, 2015, October 15, 2015 and December 1, 2015, respectively). These notes carried no conversion or warrant provisions.

 

In February 2015, the Company and Bio-Global Resources agreed to settle $208,000 of the outstanding notes under Notes NP#4, NP#5 and NP#6, in exchange for issuing 4,160 shares of the Company’s Series A Redeemable Convertible Preferred stock to Bio-Global Resources.

 

The Company has been reviewing various real property to utilize in its business plan and has been exploring the use of project finance structures to fund such acquisition and development of business activities. The Company expects to enter into such transaction or transactions during the next 12 months. There are currently no transactions under contract and there is no assurance that the company will be able to complete such transactions.

 

Investing Activities

 

During the year ended 12-31-13 the Company made several loans, evidenced by promissory notes in the total amount $214,500 to Aqua Farming Tech, Inc. in which it has a 36.69% interest. These notes carried interest payable to the Company at the rate of 7% per annum and were payable one year from the date of the note. These notes have been renewed on a year to year basis.

 

Subsequently, in 2014 and 2015, we have issued to AFT additional loans primarily for working capital. From January 1, 2014 – December 31, 2014, we loaned AFT $589,500 in incremental amounts throughout the year. Similarly, from January 1, 2015 through the date of filing, we have loaned AFT $80,000. The total of all notes issued to AFT, including those issued in 2013, is $884,000 as of the date of this filing. The terms of the additional loans is the same as notes previously issued, 7% interest rate and one year maturity. As payments have become due for the notes, we have extended their maturity by one year.

 

Commitments and Capital Expenditures 

 

The Company had no material commitments for capital expenditures as of December 31, 2013.

 

 
14

 

TERRY L. JOHNSON, CPA 

406 Greyford Lane 

Casselberry, Florida 32707 

Phone 407-721-4753 

Fax/Voice Message 866-813-3428 

E-mail cpatlj@yahoo.com

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors 

New Global Energy, Inc.,

 

I have audited the accompanying balance sheets of New Global Energy, Inc. as of December 31, 2013 and 2012 and the statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2013 and 2012.  These financial statements are the responsibility of the Company’s management.  My responsibility is to express an opinion on these financial statements based on my audit.

 

Management’s Responsibility for Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United State of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

My responsibility is to express an opinion on these consolidated financial statements based on my audits.  I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My 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, I express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.I believe that my audits provide a reasonable basis for my opinion.

 

Opinion

 

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New Global Energy, Inc. as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years ended December 31, 2013 and 2012 in conformity with accounting principles generally accepted in the United States.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has a minimum cash balance available for payment of ongoing operating expenses, has experienced losses from operations since inception, and it does not have a source of revenue sufficient to cover its operating costs.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Terry L. Johnson, CPA

Casselberry, Florida 

March 24, 2015

  

 
15

  

ITEM 8. FINANCIAL STATEMENTS

 

New Global Energy, Inc.

Balance Sheets

 

    December 31,
2013
    December 31,
2012
 
         

Assets

 

Current assets:

       

Cash

 

$

19,076

   

$

6,961

 

Interest receivable on short-term notes

   

4,060

     

0

 

Total current assets

   

23,136

     

6,961

 
                 

Other assets:

               

Equity method investment

 

$

1,156,206

     

54,999

 

Notes receivable

 

$

214,500

     

0

 
                 

Total Assets

 

$

1,393,843

   

$

61,960

 
                 

Liabilities and Stockholders' Deficit

 

Current liabilities:

               

Accounts payable-trade

 

$

2,000

   

$

2,000

 

Accrued expenses

   

8,908

     

4,141

 

Due to related parties

   

199

     

199

 

Derivative and warrant liability

   

11,886,379

     

3,004,637

 

Total current liabilities

   

11,897,486

     

3,010,977

 
                 

Convertible note payable, net of discount

   

40,911

     

1,701

 

Total liabilities

   

11,938,397

     

3,012,678

 
                 

Stockholders' Deficit:

               

Common stock-100,000,000 authorized $0.0001 par value 2,487,876 issued & outstanding (1,855,700 in 2012)

   

249

     

186

 

Additional paid-in capital

   

4,358,486

     

565,493

 

Accumulated deficit

 

 

(14,903,289

)

 

 

(3,516,397

)

Total stockholders' deficit

 

(10,544,554

)

   

(2,950,718

)

                 

Total Liabilities & Stockholders' Deficit

 

$

1,393,843

   

$

61,960

 

 

See Summary of Significant Accounting Policies and Notes to Financial Statements.

 

 
16

 

New Global Energy, Inc.

Statements of Operations

 

    Year Ended December 31,
2013
    Year Ended December 31,
2012
 
         

Revenue

 

$

0

   

$

0

 
                 

Costs & Expenses:

               

General & administrative

   

181,385

     

35,418

 

Total Operating Costs & Expenses

   

181,385

     

35,418

 
                 

Other (Gain) Expense:

               

Derivative and warrant fair market value (gain) charge

   

(68,933

)

   

(20,774

)

Interest expense

   

10,914,205

     

3,480,876

 

Amortization of debt discount

   

139,210

     

101,701

 

Interest income

   

(4,060

)

   

0

 

Gain on conversion of debt

   

(81,763

)

   

(80,824

)

Net loss attributable to equity method investment

   

306,849

     

0

 
                 

Total Other Expense

   

12,576,214

     

3,480,979

 
                 

Loss from continuing operations before income taxes

   

(12,757,599

)

   

(3,516,397

)

Provision for income taxes

   

0

     

0

 

Net loss

 

$

(11,386,891

)

 

$

(3,516,397

)

                 

Basic and diluted per share amounts:

               

Basic and diluted net loss

 

$

(5.08

)

 

$

(1.98

)

Weighted average shares outstanding (basic & diluted)

   

2,243,690

     

1,778,721

 

 

See Summary of Significant Accounting Policies and Notes to Financial Statements.

 

 
17

 

New Global Energy, Inc.

Statement of Cash Flows

 

    Year Ended December 31,
2013
    Year Ended December 31,
2012
 
         

Cash flows from operating activities:

       

Net Loss

 

$

(11,386,891

)

 

$

(3,516,397

)

Adjustments required to reconcile net loss to cash used in operating activities:

               

Net loss attributable to equity method investment

   

306,849

     

0

 

Derivative valuation charge (gain)

   

(68,933

)

   

(20,774

)

Gain realized upon conversion of debt

   

(81,763

)

   

(80,824

)

Amortization of debt discount

   

139,210

     

101,701

 

Derivative based interest charge

   

10,909,438

     

3,479,235

 
                 

Payables paid by related parties

   

0

     

199

 

Changes in operating assets and liabilities:

               

(Increase) decrease in interest receivable

   

(4,060

)

   

0

 

Increase (decrease) in accounts payable

   

0

     

2,000

 

Increase (decrease) in accrued expenses

   

4,767

     

4,141

 

Cash used by operating activities:

   

(181,385

)

   

(30,719

)

                 

Cash flows from investing activities:

               

Equity investment

   

(15,000

)

   

(54,999

)

Advances made under notes receivable

   

(214,500

)

   

0

 

Cash used in investing activities

   

(229,500

)

   

(54,999

)

                 

Cash flows from financing activities:

               

Proceeds from issuance of common stock

   

0

     

30,250

 

Financing costs

   

0

     

(64,571

)

Proceeds of convertible note advances

   

423,000

     

127,000

 

Cash generated by financing activities

   

423,000

     

92,679

 
                 

Change in cash

   

12,115

     

6,961

 

Cash-beginning of period

   

6,961

     

0

 

Cash-end of period

 

$

19,076

   

$

6,961

 

Cash paid during the period for:

               

Interest

 

$

0

   

$

0

 

Income taxes

 

$

0

   

$

0

 

Supplemental Cash Flow Disclosure of non-cash investing and financing activities

               

Estimated fair market value of common stock issues pursuant to debt conversions

 

$

2,400,000

   

$

600,000

 

Derivative liability eliminated upon conversion of debt

 

$

2,381,763

   

$

580,824

 

Note principal converted to common stock

 

$

100,000

   

$

100,000

 
                 

Common stock issue for equity investment

 

$

1,393,056

   

$

0

 

Debt discount recorded at issuance of convertible debt and warrants

 

$

423,000

   

$

127,000

 

 

See Summary of Significant Accounting Policies and Notes to Financial Statements.

 

 
18

 

New Global Energy, Inc.

Statement of Stockholders' Deficit

 

    Common Stock     Additional         Total Stockholders'  
        Common     paid-in     Accumulated     Equity  
    Shares     Stock     capital     Deficit     (Deficit)  
                                         

Inception January 24, 2012

   

0

   

$

0

   

$

0

   

$

0

   

$

0

 

Stock issued to founders for cash

   

1,750,000

     

175

     

1,575

             

1,750

 

Stock issued for cash

   

5,700

     

1

     

28,499

             

28,500

 

Offering costs

                   

(64,571

)

           

(64,571

)

Note and derivative liability converted to common stock

   

100,000

     

10

     

599,990

             

600,000

 

Net Loss

   

-

     

-

     

-

     

(3,516,397

)

   

(3,516,397

)

Balance at December 31, 2012

   

1,855,700

     

186

   

$

565,493

   

$

(3,516,397

)

 

$

(2,950,718

)

Stock issued to acquire equity investment

   

232,176

     

23

     

1,393,033

             

1,393,056

 

Note and derivative liability converted to common stock

   

400,000

     

40

     

2,399,960

             

2,400,000

 

Net Loss

   

-

     

-

     

-

   

(11,386,891

)

 

(11,386,891

)

Balance at December 31, 2013

   

2,487,876

   

$

249

   

$

4,358,486

   

$

(14,903,288

)

 

$

(10,544,554

)

 

See Summary of Significant Accounting Policies and Notes to Financial Statements.

 

 
19

 

NEW GLOBAL ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2013 and 2012

 

Note 1. Nature of Operations, History and Presentation:

 

Background 

 

New Global Energy, Inc. (“NGE” or the “Company”) was organized on January 24, 2012. NGE’s executive offices are located in Brevard County, Florida. The Company is focused on the development of its Global Energy Plantation (“GEP”) Platform which combines alternative energy production, sustainable agriculture and aquaculture. It anticipates the use of non-centralized power plants, primarily concentrated solar power (CSP), Jatropha based biofuels and aquaculture operations to produce power for its own use and to feed into the power grid serving local power needs while producing farm grown fish and shrimp as food products. Management has begun to execute this plan through the purchase of a noncontrolling interest in Aqua Farming Tech (AFT). The Company is in the process of raising additional equity capital to support the completion of its acquisition and development activities. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company.

 

Basis of Presentation 

 

Going Concern: The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $14,903,289and $3,516,397 at December 31, 2013 and 2012, respectively, had a net loss of $11,386,891 and $3,516,397 for the fiscal years ended December 31, 2013 and 2012, respectively, and net cash used in operating activities of $181,385 and $30,719 for the fiscal years ended December 31, 2013 and 2012, respectively, with no revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about our ability to continue as a going concern.

 

While the Company is attempting to commence operations and generate revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of public or private offerings. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.

 

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Equity Investment: 

 

The company accounts for its investment in Aqua Farming Tech, Inc. (AFT) using the equity method of accounting. The general requirement is that an investment (direct or indirect) of 20% or more of the voting stock of an investee should lead to a presumption that in the absence of evidence to the contrary an investor has the ability to exercise significant influence over an investee. New Global is not represented on the board of directors of AFT; does not participate in AFT’s policy making process and other than loans advanced to AFT, has no material intra-company transactions.

 

 
20

  

The company initially records an investment in the stock of an investee at cost, and adjusts the carrying amount of the investment to recognize its share of the earnings or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income or (losses) by New Global, and such amount reflects adjustments similar to those made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment of an investor is also adjusted to reflect the investor's share of changes in the investee's capital. Dividends received from an investee reduce the carrying amount of the investment.

 

The carrying value of New Global’s equity investment in AFT at December 31, 2013 is as follows:

 

Initial investment at cost (36.69% of common stock)

 

$

1,463,055

 

New Global's share of 2013 operating losses

   

(306,849

)

         

Total carrying value at December 31, 2013

 

$

1,156,206

 

 

Significant Accounting Policies

 

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.

 

Use of EstimatesThe preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates included in the accompanying financial statements include judgments regarding the fair value of equity method investments; the valuation of equity based transactions; the valuation of derivative liabilities, value of allowances for note receivables and the valuation of deferred tax assets. 

 

Cash and Cash EquivalentsFor financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash equivalents as of December 31, 2013 and 2012.

 

Property and Equipment: Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

 

Valuation of Long-Lived Assets: We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

 

We performed our annual impairment test related to the carrying value of the investment in AFT as of December 31, 2013, the end of our fiscal year. Although no significant adverse change in how the underlying assets are being used (primarily land, plant and equipment for use as a fish farm) nor were there any significant adverse changes in the physical condition of those assets, we concluded an impairment test was required due to AFT’s reporting of decreased sales, which resulted in current-period losses and decreased cash flow. The Company compared the value of AFT’s assets to its outstanding debt, then considered our former analysis of AFT’s long term potential, which we affirmed as unchanged, contingent on AFT’s ability to complete two years of financial audits, which we believe would allow us to move forward with an acquisition of a block of shares equaling approximately 62% of AFT’s outstanding shares, then positioning us to seek external investment capital for AFT, which we believe would allow us to bring AFT’s existing operations to capacity, expand capacity further, and introduce other products, and in the future, expand AFT’s geographic footprint. Our conclusion was that no impairment was required.

 

Notes Receivable: During the year ended December 31, 2013, the company loaned $214,500 to Aqua Farming Tech (AFT) a related party under a series of notes with principal and interest at 7% due one year from the date of each note. The Company has extended each note that has become due by one year. The Company recorded the notes receivable at the notes' net carrying value and management evaluates on an annual basis the collectability of the note. we extended each note that was due by one year.

 

Subsequently, in 2014 and the first two months of 2015, we issued additional loans to AFT, primarily for working capital. From January 1, 2014 – December 31, 2014, we loaned AFT $589,500 in incremental amounts throughout the year. Similarly, from January 1, 2015 through the date of filing, we have loaned AFT $80,000. The total of all notes issued to AFT, including those issued in 2013, is $884,000 as of the date of this filing. The terms of the additional loans is the same as notes previously issued, 7% interest rate and one year maturity. As payments have become due for the notes issued in 2014, we have extended their maturity by one year.

 

 
21

  

Stock Based Compensation: Stock-based awards are accounted for using the fair value method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 718, Share-Based Payments. Our primary type of share-based compensation consists of stock and warrants. We use the Black-Scholes option pricing model in valuing warrants. The inputs for the valuation analysis of the warrants or options include the market value of the Company’s common stock, the estimated volatility of the Company’s common stock, the exercise price of the warrants or options and the risk free interest rate. The Company had no stock based compensation as of December 31, 2013 and 2012.

 

Accounting For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock: We account for obligations and instruments potentially to be settled in the Company’s stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock. The Company evaluates stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of FASB ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. In the case where convertible debt is converted within the original terms the general extinguishment model is followed under which fair value of the issuable shares is determined by the share price on the conversion date and any difference between the fair value of the derivative, the net book value of the debt and the fair value of the shares issuable at that date is recorded as a gain or loss. Financial instruments that are initially classified as equity that become subject to reclassification under FASB ASC 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

 

The common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised, expire or the related rights have been waived. These common stock purchase warrants do not trade in an active securities market. The Company estimates the fair value of these warrants using the Black-Scholes pricing model. The Company has recorded a derivative liability related to all warrants issued in connection with the three convertible debt instruments.

 

If a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the straight-line method which approximates the effective interest rate method. The Company had no instruments that required recognition of a BCF in either fiscal years ended December 31, 2013 or 2012 as all convertible debt instruments required derivative accounting treatment.

 

Fair Value of Financial Instruments: FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At December 31, 2013 and 2012, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.

 

 
22

  

Fair Value Measurements: The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:

 

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2: Inputs to the valuation methodology include:

 

 

-

Quoted prices for similar assets or liabilities in active markets;

 

 

 
 

-

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

 

 
 

-

Inputs other than quoted prices that are observable for the asset or liability;

 

 

 
 

-

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

 

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the fiscal periods ended December 31, 2013 and 2012, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

 

The following table summarizes assets and liabilities remeasured at fair value on a recurring basis as of December 31, 2013 and 2012:

 

    December 31, 2013  

Description of assets:

  Level 1     Level 2     Level 3     Total  

Equity Method Investment

 

$

-

   

$

-

   

$

-

   

$

-

 

Description of liabilities:

                               

Derivatives

 

$

-

   

$

-

   

$

11,886,379

   

$

11,886,379

 

 

 

    December 31, 2012  

Description of assets:

  Level 1     Level 2     Level 3     Total  

None

 

$

-

   

$

-

   

$

-

   

$

-

 

Description of liabilities:

                               

Derivatives

 

$

-

   

$

-

   

$

3,004,637

   

$

3,004,637

 

 

Earnings per Common Share: We compute net income (loss) per share in accordance with FASB ASC 260, Earning per Share. FASB ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

 
23

  

Income Taxes: We have adopted FASB ASC 740, Accounting for Income Taxes. Pursuant to FASB ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

 

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

 

Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. FASB ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.

 

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

 

FASB ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.

 

Uncertain Tax Positions 

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of FASB ASC 740-10, Accounting for Uncertain Income Tax Positions, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2012. We are not under examination by any jurisdiction for any tax year. At December 31, 2013 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FASB ASC 740-10.

 

 
24

 

Recent Accounting Pronouncements

 

On June 10, 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10 , which eliminates development stage reporting requirements under FASB ASC 915, as well as amends provisions of existing variable interest entity guidance under ASC 810. Additionally, the ASU indicates that the lack of commencement of principal operations represents a risk and uncertainty and, accordingly, is subject to the disclosure requirements of FASB ASC 275. As a result of the changes, existing development stage entity presentation and disclosure requirements are eliminated. The presentation and disclosure changes to FASB ASC 915 are effective for public entities for annual periods beginning after December 15, 2014, and the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015. The Company has adopted these provisions and enhanced disclosure of risks and uncertainties as required.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern . The new standard requires management of public and private companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. Management will also be required to evaluate and disclose whether its plans alleviate that doubt. The standard requires management to evaluate, for each reporting period, whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. We do not expect the adoption of the ASU to have a significant impact on our consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We are carefully evaluating our existing revenue recognition practices to determine whether any contracts in the scope of the guidance will be affected by the new requirements. The effects may include identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction price to each separate performance obligation. We will also establish practices to determine when a performance obligation has been satisfied, and recognize revenue in accordance with the new requirements. The new standard is effective for us on January 1, 2017. Early adoption is not permitted. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are currently evaluating the transition method that will be elected.

 

 
25

 

The Company has implemented all new relevant accounting pronouncements that are in effect through the date of these financial statements. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Note 2. Stockholders' Equity:

 

Common Stock 

 

We are currently authorized to issue up to 100,000,000 shares of $ 0.0001 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1 vote basis.

 

Recent Issuances:

 

2012

 

In January 2012 we issued 1,750,000 common shares to three individuals as founders in exchange for $1,750 in cash.

 

In connection with an offering of common stock the company issued 5,700 common shares in June, 2012 to approximately 50 individuals in exchange for $28,500 in cash. The costs of the offering were $64,571. In addition to the common shares, the subscribers also received 5,700 “A” warrants and 5,700 “B” warrants. The “A” warrants are exercisable at $5.50 per share and expired June 2013. The “B warrants are exercisable at $6.00 per share and expire June 2015.

 

The company issued 100,000 shares upon the conversion of the principal of a note payable for $100,000. The common shares issued in this conversion were valued at the fair value of $6.00 per share. See Note 3, NP #1, for a further discussion of the accounting for this conversion under the general extinguishment model.

 

2013

 

In April 2013 we issued 232,176 shares of common stock valued at the fair value of $6.00 per share, with an aggregate value of $1,393,056 for the acquisition of approximately 35.19% of Aqua Farming Tech (AFT) common stock (see note 5).

 

In June 2013 we issued 400,000 shares upon the conversion of a note payable for $100,000. The common shares issued in this conversion were valued at $6.00 per share. See Note 3, NP #2, for a further discussion of the accounting for this conversion under the general extinguishment model.

 

2015

 

In February 2015 we issued 4,160 shares of the Company’s Series A Redeemable Convertible Preferred stock to Bio-Global Resources to settle $208,000 of outstanding notes that were drawn upon in the three month periods ending December 31, 2104 and March 31, 2015.

 

Stock Options

 

There are no employee or non-employee options grants.

 

Warrants

 

In conjunction with the June 2012 common stock offering, a total of 5,700 Class “A” Warrants and 5,700 Class “B” Warrants were issued to the individuals who purchased a unit. The A warrants are exercisable at $5.50 per share. The B warrants are exercisable at $6,00 per share. The A warrants have an exercise term of 1 year while the B warrants have a term of 3 years within which to exercise. Either series may be redeemed by the Company at $0.10 per warrant if the average mean bid and asked prices per share have been at least $7.50 on each of the 20 consecutive trading days ending on the third day before notice. The stock price criteria was met in three different periods of time during 2013, however the Company did not opt to redeem the warrants.

 

In conjunction with the issuance of the three convertible notes payable (see Note 3), a total of 600,000 detachable warrants were issued with exercise prices ranging from $1.00 to $3.00 per share, all for a term of 3 years from the date of issue. The exercise price of these warrants is to be adjusted in the event that the Company issues or sells any shares of common stock, options, warrants or any convertible instruments (other than exempted issuances) at an effective price per share which is less than the exercise price of these warrants. Accordingly, in accordance with FASB ASC 815, the Company has accounted for these warrants as derivative liabilities (See Note 4).

 

Preferred Stock

 

Effective January 22, 2015, the Company designated 25,000 shares of the Company’s Preferred Stock as “Series A Redeemable Convertible Preferred Stock”.

 

 
26

 

The following table summarizes common stock warrants issued and outstanding:

 

    Warrants     Weighted
average
exercise
price
    Aggregate
intrinsic
value
    Weighted
average
remaining contractual
life (years)
 
                 

Outstanding at January 1, 2012

   

-

     

-

     

-

     

-

 

Granted

   

411,400

     

1.13

     

2,002,850

     

-

 

Exercised

   

-

     

-

     

-

     

-

 

Forfeited

   

-

     

-

     

-

     

-

 

Expired

   

-

     

-

     

-

     

-

 
                                 

Outstanding at December 31, 2012

   

411,400

   

$

1.13

   

$

2,002,850

     

2.45

 
                             

-

 

Granted

   

200,000

     

3.00

     

600,000

     

-

 

Exercised

   

-

     

-

     

-

     

-

 

Forfeited

   

-

     

-

     

-

     

-

 

Expired

   

(5,700

   

5.50

     

2,850

     

-

 

Outstanding at December 31, 2013

   

605,700

   

$

1.71

   

$

2,600,000

     

1.83

 

 

Warrants exercisable at December 31, 2013:

 

Exercise prices

 

Number of
shares

   

Weighted
average
remaining
life (years)

   

Exercisable
number of
shares

 

$1.00

   

400,000

     

1.47

     

400,000

 

$3.00

   

200,000

     

2.55

     

200,000

 

$6.00

   

5,700

     

1.42

     

5,700

 

 

Note 3. Convertible Long-Term Debt:

 

During 2012, we issued two convertible promissory notes totaling $200,000 (NP#1 and NP#2). During 2013 we issued one convertible promissory note for $500,000 (NP# 3). Each of the three notes was issued with warrants and contains both standard dilution (i.e. dividends, stock splits and mergers) and non-standard dilution (price protection) clauses. Pursuant to the terms of the notes, both the exercise price of the warrants and the conversion price of the notes will be reset (“Down Round Provision”) in the event the company issues shares, convertible securities, options or warrants entitling the recipient to subscribe for or purchase shares at a price per share less than the fixed conversion or exercise price then in effect. Accordingly, management determined that the embedded conversion feature should be treated as a derivative and warrants should be treated as a liability (see discussion of this determination and resulting valuations and accounting for derivatives in Note 4).

 

NP# 1-for up to $100,000, was issued January 25, 2012, bears interest at 2.95% per annum until paid or converted and matures January 25, 2014. The note allows for incremental draws in order to meet future working capital demands. Any or all of the outstanding balance of the note may be converted at the option of the holder at any time into common stock of the company at an initial conversion price of $1.00 per share. The note was issued with 200,000 detachable warrants that allow the holder to purchase up to a like amount of common stock at an initial exercise prices of $1.00. The warrants carry a three year exercise period that expires January 25, 2015. During 2012, upon of issuance of the convertible notes, the Company bifurcated the embedded conversion feature and recorded a derivative liability of $583,769 (the estimated fair market value at the date of grant based on the Black Scholes pricing model) on the convertible notes, $100,000 of which was allocated as debt discount up to the original note principal, and the remainder of $483,769 was charged as interest expense at the date of issuance. At the same time, the Company recorded a warrant liability of $1,190,288 (the estimated fair market value at the date of grant based on the Black Scholes pricing model) on the associated warrants issued, which was offset to interest expense at that date.

 

 
27

  

In September 2012, in accordance with the original terms of the note, at the option of the note holder, $75,000 of the balance of this note was converted at $1.00 per share into 75,000 shares of common stock. At the date of conversion, the entire derivative liability associated with the bifurcated conversion feature of NP #1 was marked-to-market, resulting in an increase of $3,090; to a total derivative liability of $586,859. The $3,090 change was recorded as a derivative valuation charge in the Statement of Operations. In accordance with accounting guidance over debt extinguishment, the Company followed the general extinguishment model and recorded a gain on extinguishment of debt and the derivative liability in the amount of $65,144, resulting from the removal of the $25,000 net book value of the note principal converted ($75,000 gross principal less $50,000 of unamortized debt discount) and elimination of the 75% proportionate share of the derivative liability, or $440,144, offset by the addition of the value of the 75,000 shares of common stock issued at their fair value at the date of conversion, estimated at $450,000 (based on the estimated fair market price of $6.00 per share). The proportionate amount of the unamortized remainder of the original debt discount of $50,000 was written off to interest expense at the date of conversion.

 

In November 2012, in accordance with the original terms of the note, at the option of the note holder, the $25,000 remaining balance of this note was converted at $1.00 per share into 25,000 shares of common stock. At the date of conversion, the remaining derivative liability associated with the bifurcated conversion feature of NP #1 was marked-to-market, resulting in a decrease of $6,035, to a total derivative liability of $140,680. The $6,035 change was recorded as a derivative valuation gain in the Statement of Operations. In accordance with accounting guidance over debt extinguishment, the Company followed the general extinguishment model and recorded a gain on extinguishment of debt and the derivative liability in the amount of $15,680, resulting from the removal of the $10,416 net book value of the note principal converted ($25,000 gross principal less $14,584 of unamortized debt discount) and elimination of the remaining derivative liability of $140,680, offset by the addition of the value of the 25,000 shares of common stock issued at their fair value at the date of conversion, estimated at $150,000 (based on the estimated fair market price of $6.00 per share). The proportionate amount of the unamortized remainder of the original debt discount of $14,584 was written off to interest expense at the date of conversion.

 

NP# 2-for up to $100,000, was issued November 15, 2012, bears interest at 2.50% per annum until paid or converted and matures November 15, 2014. The note allows for incremental draws in order to meet future working capital demands. Any or all of the outstanding balance of the note may be converted at the option of the holder at any time into common stock of the company at an initial conversion price of $0.25 per share. The note was issued with 200,000 detachable warrants that allow the holder to purchase up to a like amount of common stock at an initial exercise prices of $1.00. The warrants carry a three year exercise period that expires November 15, 2015. During 2012, upon of issuance of $27,000 of the convertible notes, the Company bifurcated the embedded conversion feature and recorded a derivative liability of $641,902 (the estimated fair market value at the date of grant based on the Black Scholes pricing model) on the convertible notes, $27,000 of which was allocated as debt discount up to the original note principal, and the remainder of $614,902 was charged as interest expense at the date of issuance. During 2013, upon of issuance of an additional $73,000 of the convertible notes, the Company bifurcated the embedded conversion feature and recorded a derivative liability of $1,786,315 (the estimated fair market value at the date of grant based on the Black Scholes pricing model) on the convertible notes, $73,000 of which was allocated as debt discount up to the original note principal, and the remainder of $1,713,315 was charged as interest expense at the date of issuance. During 2012, at the inception of the original note facility, the Company recorded a warrant liability of $1,190,276 on the associated warrants issued (the estimated fair market value at the date of grant based on the Black Scholes pricing model), which was offset to interest expense at that date.

 

 
28

  

On June 19, 2013, in accordance with the original terms of the note, at the option of the note holder, the $100,000 balance of this note was converted at $0.25 per share into 400,000 shares of common stock. At the date of conversion, the entire derivative liability associated with the bifurcated conversion feature of NP #2 was marked-to-market, resulting in an increase of $45,311, to a total derivative liability of $2,381,763. The $45,311 change was recorded as a derivative valuation charge in the Statement of Operations. In accordance with accounting guidance over debt extinguishment, the Company followed the general extinguishment model and recorded a gain on extinguishment of debt and the derivative liability in the amount of $81,763, resulting from the removal of the $9,000 net book value of the note principal converted ($100,000 gross principal less $91,000 of unamortized debt discount) and elimination of the derivative liability of $2,381,763, offset by the addition of the value of the 400,000 shares of common stock issued at their fair value at the date of conversion, estimated at $2,400,000 (based on the estimated fair market price of $6.00 per share). The proportionate amount of the unamortized remainder of the original debt discount of $91,000 was written off to interest expense at the date of conversion.

 

NP# 3-for up to $500,000, was issued July 19, 2013, bears interest at 6.0% per annum until paid or converted and matures July 19, 2015. The note allows for incremental draws in order to meet future working capital demands. Any or all of the outstanding balance of the note may be converted at the option of the holder at any time into common stock of the company at an initial conversion price of $0.25 per share. The note was issued with 200,000 detachable warrants that allow the holder to purchase up to a like amount of common stock at an initial exercise prices of $3.00. The warrants carry a three year exercise period that expires July 19, 2016. At December 31, 2013 the company had drawn down $350,000 and had unused credit of $150,000. During 2013, upon of issuance of the convertible notes, the Company bifurcated the embedded conversion feature and recorded a derivative liability of $8,351,051 (the estimated fair market value at the date of grant based on the Black Scholes pricing model) on the convertible notes, $350,000 of which was allocated as debt discount up to the original note principal, and the remainder of $8,001,051 was charged as interest expense at the date of issuance. At the same time, the Company recorded a warrant liability of $1,195,072 on the associated warrants issued (the estimated fair market value at the date of grant based on the Black Scholes pricing model), which was offset to interest expense at that date.

 

The notes are similar and contain customary negative covenants for loans of this type, including limitations on the Company’s ability to declare dividends, repurchase stock or warrants, make loans and investments in excess of $100,000, dispose of assets and enter into mergers and acquisition transactions. Events of default under the notes are described below and include breaches of the Company’s obligations under the notes and other agreements relating to the transaction. Upon an event of default, all outstanding principal plus all accrued and unpaid interest become immediately due and payable. As of December 31, 2013, the Company is not in default on any of its debt covenants.

 

Possible events constituting default are as follows: 

 

 

·

Failure to pay upon demand

 

·

Incur a judgment greater than $50,000

 

·

Make an assignment for the benefit of creditors

 

·

Bankruptcy or Insolvency

 

·

Any merger, liquidation, dissolution or winding up of business unless any successor expressly assumes the obligation

  

A summary of the notes and activity is as follows: 

 

    NP# 1     NP# 2     NP# 3  

Issuance Date

  01/25/12     11/15/12     07/19/13  

Maturity Date

  01/25/14     11/15/14     07/19/15  

Interest rate

   

2.95

%

   

2.50

%

   

6.00

%

Balance at January 24, 2012 (inception)

 

$

0

   

$

0

   

$

0

 

Advances

   

100,000

     

27,000

     

-

 

Conversion to common stock

   

(100,000

)

   

-

     

-

 

Balance at December 31, 2012

   

-

     

27,000

     

-

 

Advances

   

-

     

73,000

     

350,000

 

Conversion to common stock

   

-

     

(100,000

)

   

-

 

Balance at December 31, 2013

 

$

0

   

$

0

   

$

350,000

 

 

 
29

  

At December 31, 2013 and 2012 the Company has recognized $6,408 and $1,641, respectively, in accrued interest expense related to the convertible notes.

 

Initially, all the notes were fully discounted as a result of the bifurcation of the embedded derivative. The notes are carried net of any unamortized discount. The discount is amortized to interest expense over the remaining term of the notes using the straight-line method. Such amortization resulted in $139,210 and $101,701 being charged to interest expense in 2013 and 2012, respectively. The following represents the activity related to debt discounts recorded on convertible notes payable:

 

    NP #1     NP #2     NP #3  

Balance at January 24, 2012 (inception)

 

$

-

   

$

-

   

$

-

 

Discount recorded at issuance

   

100,000

     

27,000

     

-

 

Scheduled amortization

   

(35,416

)

   

(1,701

)

   

-

 

Immediate recognition at conversion of underlying note

   

(65,484

)

   

-

     

-

 

Balance at December 31, 2012

   

-

     

25,299

     

-

 

Discount recorded at issuance

   

-

     

73,000

     

350,000

 

Scheduled amortization

   

-

     

(7,299

)

   

(40,911

)

Immediate recognition at conversion of underlying note

   

-

     

(91,000

)

   

-

 

Balance at December 31, 2013

 

$

-

   

$

-

   

$

309,089

 

 

The balance sheet date carrying value of convertible notes is as follows:

 

    Dec 31,
2013
    Dec 31,
2012
 

Outstanding note balances

 

$

350,000

   

$

27,000

 

Less unamortized discount

   

(309,089

)

   

(25,299

)

Carrying Value

 

$

40,911

   

$

1,701

 

 

The remaining carrying value at December 31, 2013 is entirely related to the principal of NP #3, net of the unamortized debt discount. The original maturity of NP #3 was in 2015 however this balance, and an incremental $150.000 issued under this note payable in 2014, was converted in full to common shares during 2014. See further discussion in Note 8.

 

Note 4. Derivative and Warrant Liabilities

 

Embedded Conversion Feature

 

To properly account for the convertible notes payable discussed in Note 3, the Company performed a detailed analysis to obtain a thorough understanding of the transaction. The Company reviewed FASB ASC 815, to identify whether any equity-linked features in the notes are freestanding or embedded. The notes were then analyzed in accordance with FASB ASC ASC 815 to determine if the embedded conversion feature should be bifurcated and accounted for at fair value and remeasured at fair value in income. The Company determined that the embedded conversion feature met the requirements for bifurcation pursuant to FASB ASC 815 due to the “Down Round Provision” and therefore accounted for the embedded conversion features of the notes as derivative liabilities. Changes in fair value of the derivative financial instruments are recognized in the Company’s statement of operations as a derivative valuation gain or loss.

 

 
30

  

The calculated value of the embedded conversion feature resulted in a value greater than the value of the debt and as such, the total discount was limited to the original value of the related note principal. The convertible debt is recorded net of the discount. Any excess value of the initial derivative liability over the discount amount was charged to interest expense at the date of the notes’ inception.

 

Warrants

 

The current and previous convertible debt was issued with an aggregate of 600,000 detachable warrants to purchase the Company’s common stock. Each warrant entitles the holder to purchase one share at prices ranging from $1.00 to $3.00 and they expire at various dates in 2016.The exercise price of these warrants and the conversion rate of the debt is to be adjusted in the event that the Company issues or sells any shares of common stock, options, warrants or any convertible instruments (other than exempted issuances) at an effective price per share which is less than the exercise price of these warrants. Accordingly, in accordance with FASB ASC 815, the Company has accounted for these warrants as liabilities.

 

The Company values its warrant derivatives and simple conversion option derivatives using the Black-Scholes option-pricing model. Assumptions used include:

 

 

·

risk-free interest rate- 0.15%-.0.36%

 

·

warrant life is the remaining contractual life of the warrants,

 

·

expected volatility-319% to 334%,

 

·

expected dividends-none

 

·

exercise prices as set forth in the agreements,

 

·

common stock price of the underlying share on the valuation date, and

 

·

number of shares to be issued if the instrument is converted

 

The aggregate fair value of the warrants and the conversion feature was determined to be $3,542,005 and $8,344,374, respectively, at December 31, 2013. The following table summarizes the changes in the derivative liabilities for 2012 and 2013 and as of December 31 of each year:

 

    Warrants     Conversion
Feature
    Totals  

Fair value at January 1, 2012

 

$

-

   

$

-

   

$

-

 

Initial fair value – issuance of NP #1 and warrants

   

1,190,288

     

583,769

     

1,774,057

 

Initial fair value – issuance of NP #2 and warrants

   

1,190,276

     

641,902

     

1,832,178

 

Adjustments to fair value at dates of conversion – NP #1

   

-

     

(2,945

)

   

(2,945

)

Conversion – NP #1

   

0

     

(580,824

)

   

(580,824

)

Adjustment to fair value at December 31, 2012

   

(16,686

)

   

(1,143

)

   

(17,829

)

Fair value at December 31, 2012

   

2,363,878

     

640,759

     

3,004,637

 

Initial fair value – incremental issuance of NP #2

   

-

     

1,786,315

     

1,786,315

 

Initial fair value – issuance of NP #3 and warrants

   

1,195,072

     

8,351,051

     

9,546,123

 

Adjustments to fair value at date of conversion – NP #2

   

-

     

(45,311

)

   

(45,311

)

Conversion – NP #2

   

-

     

(2,381,763

)

   

(2,381,763

)

Adjustment to fair value at December 31, 2013

   

(16,945

)

   

(6,677

)

   

(23,622

)

Fair value at December 31, 2013

   

3,542,005

     

8,344,374

     

11,886,379

 

 

Upon conversion of NP #1 in 2012, the Company eliminated the remainder of the derivative liability related to that conversion feature and recognized a gain on the conversion of debt and derivative liability of $80,824. Upon conversion of NP #2 in 2013, the Company eliminated the remainder of the derivative liability related to that conversion feature and recognized a gain on the conversion of debt and derivative liability of $81,763.

 

 
31

  

Note 5. Acquisition of Equity interest in Aqua Farming Tech, Inc. (AFT):

 

As of May 20, 2013, the Company had completed incremental acquisitions totaling 30.74% of Aqua Farming Tech, Inc. (“AFT”) from unrelated parties. By the end of the year, the Company had completed additional incremental acquisitions from unrelated parties bringing its total ownership to 36.69%. In July of 2013 the Company, with the issuance of an additional 382,099 shares of New Global common agreed to acquire 764,199 more shares of AFT common, giving us a total of 90.5% of Aqua Farming Tech, Inc. (AFT). The increase in ownership to 90% would have required AFT to be included as a consolidated subsidiary as of that date. However, this acquisition was based upon the ability of AFT to timely deliver audited financial statements. When it became apparent that such statements would not be forthcoming, the Company rescinded the acquisition of the controlling interest in AFT based upon the failure of AFT to produce audited statements by December 31, 3013, leaving the Company with a 36.69% minority interest in AFT at year end. The Company currently owns a 36.69% unconsolidated investment interest in AFT. We do not hold any seat on the Board of Directors of AFT nor is there any actual management or control of AFT by the Company. Subsequently, we have maintained discussions with an unrelated party that holds approximately 62% of AFT’s shares as we remain interested in completing this purchase, subject to the terms previously negotiated, and subject to the completion of AFT’s audit.

 

The Company advanced $214,500 to AFT in the form of a series of promissory notes The notes bear interest at 7% and are due one year from the date of issuance. As the notes became due in 2013, and subsequently in 2014, we have extended their maturity by one year.

 

Subsequently, in 2014 and the first two months of 2015, we have issued additional notes to AFT. From January 1, 2014 through December 31, 2014, we issued $589,500 in incremental amounts throughout the year. Similarly, from January 1, 2015 through the date of filing, we issued to AFT a total of $80,000. The total of all notes issued to AFT, including those issued in 2013, is $884,000 as of the date of this filing. The terms of the additional notes is the same as the notes previously issued: 7% interest rate and one year maturity. As payments have become due for the notes issued in 2014, we have extended their maturity by one year.

 

The company evaluated potential consolidation under FASB ASC 810 “Variable Interest Entities”. The company concluded that AFT qualifies as a VIE and does not meet any scope exceptions. Management has concluded, however, that upon evaluation of criteria such as equity ownership, absorption of future losses and lack of ability to direct and control certain aspects of AFT’s operations the company is not the primary beneficiary as of December 31, 2013 and is not required to consolidate or combine the financial statements of AFT for fiscal year 2013. Subsequently, we will reevaluate the need to consolidate AFT’s financials for the year ending 2014.

 

We performed our annual impairment test related to the carrying value of the investment in AFT as of December 31, 2013, the end of our fiscal year. Although no significant adverse change in how the underlying assets are being used (primarily land, plant and equipment for use as a fish farm) nor were there any significant adverse changes in the physical condition of those assets, we concluded an impairment test was required due to AFT’s reporting of lower than expected sales, which resulted in current-period losses and lower than expected cash flow. The Company compared the value of AFT’s assets to its outstanding debt, then considered our former analysis of AFT’s long term potential, which we affirmed as unchanged, contingent on AFT’s ability to complete two years of financial audits, which we believe would allow us to move forward with an acquisition of a block of shares equaling approximately 62% of AFT’s outstanding shares, then position us to seek external investment capital for AFT, which we believe would allow us to bring AFT’s existing operations to capacity, expand capacity further and introduce additional aquaculture products, and in the future, expand AFT’s geographic footprint.

 

Summary Financial Data for Aqua Farming Tech, Inc. (AFT)

 

 
32

 

The following table provides summary financial data for AFT for the year ended December 31, 2013

 

AFT Summarized Balance Sheet as of December 31, 2013

 

Assets

Current Assets

 

$

50,068

 

Non-Current Assets

 

$

584,236

 

Total Assets

 

$

634,304

 
       

Liabilities and Equity

Current Liabilities

 

$

193,664

 

Non-Current Liabilities

 

$

1,786,659

 

Total Liabilities

 

$

1,980,323

 
       

Net Equity

 

$

(1,346,019

)

Total Liabilities and Equity

 

$

634,304

 
       

AFT Summarized Statement of Operations for the Period Ending December 31, 2013

Revenue

 

$

239,100

 

Gross Profit (Loss)

 

$

(186,421

)

Income (Loss) from Continuing Operations

 

$

(988,810

)

Net Income (Loss)

 

$

(988,810

)

       

Redeemable Stock and Non-Controlling Interests

Redeemable stock

   

0

 

Non-Controlling interests

   

0

 

 

Note 6. Income Taxes:

 

The provision for income taxes for the periods ended December 31, 2013 and 2012 assumes a 34% effective tax rate for federal income taxes. The company has no state tax liability.

 

    December 31,  
   

2013

   

2012

 

Currently payable:

           

Federal

 

$

0

   

$

0

 

Taxable income-Federal

 

$

0

   

$

0

 
                 

State

 

$

0

   

$

0

 

Taxable income-State

 

$

0

   

$

0

 

Total currently payable

 

$

0

   

$

0

 

 

Tax Rate Reconciliation Table

 

      December 31,  
     

2013

     

2012

 
                 

 U.S. Statutory Rate

   

34

%

   

34

%

 Less valuation allowance

   

-34

%

   

-34

%

 Effective Tax Rate

   

0

%

   

0

%

 

The company has deferred tax assets at December 31, 2013 and 2012 as follows:

 

    Dec 31, 2013     Dec 31, 2012  

Individual components giving rise to the deferred tax assets are as follows:

       

Future tax benefit arising from net operating loss carryovers

 

$

5,067,118

   

$

12,993

 

Less valuation allowance

 

(5,067,118

)

   

(12,993

)

Net deferred

 

$

-

   

$

-

 

 

 
33

  

The Company provided a valuation allowance equal to the deferred income tax assets for the fiscal years ended December 31, 2013 and 2012, respectively, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.

 

 At December 31, 2013, the Company had approximately $15,000,000 in Federal and State tax loss carryforwards that can be utilized in future periods to reduce taxable income, and begin to expire in 2032. Pursuant to Internal Revenue Code Section 382, the future utilization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future.

 

In the normal course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740-10-15. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2013, tax year 2012 remains open for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.

 

Note 7. Earnings Per Share:

 

    Fiscal Years December 31,  
   

2013

   

2012

 
                 

Net loss attributable to common shareholders

 

$

(11,386,891

)

 

$

(3,516,397

)

                 

Basic weighted average outstanding shares of common stock

   

2,243,690

     

1,778,721

 

Dilutive effect of options and warrants

   

-

     

-

 

Diluted weighted average common stock and common stock equivalents

   

2,243,690

     

1,778,721

 
                 

Earnings (loss) per share:

               

Basic and diluted

 

$

(5.08

)

 

$

(1.98

)

 

Note 8. Contractual Obligations:

 

The Company does not have any obligations for real property nor any ongoing contractual obligations. The Company does not have any employees and consultants are retained on an as needed basis.

 

Note 9. Lawsuits and Litigation:

 

In the ordinary course of business, we may from time to time be involved in pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. Currently, there are no pending or threatened lawsuits against us.

 

Note 10. Subsequent Events:

 

During 2014, the Company borrowed an incremental $150,000 under NP#3 (see Note 3). The total outstanding borrowings at that point was $500,000 under NP#3, which was subsequently converted into shares of 2,000,000 shares of common stock in accordance with the original terms of the note. The Company amended its articles of incorporation authorizing 20,000,000 shares of preferred stock subject to designation of preferences. The Company issued 2,000,000 common shares for conversion and satisfaction of a promissory note (NP#3), 475,000 shares for the exercise of warrants and 450,000 common shares for the payment of services. The Company issued common shares for the purchase of assets including: 1,250,043 shares for a 43.66% Net Revenue Interest in and to the net revenues from aquaculture operations; 1,529,412 common shares for a 27.35% Net Revenue Interest in aquaculture operations and a 7.6% interest in and to a Farm and Crop Lease, and 4,871,750 common shares for a 91.56% interest in and to a Farm and Crop Lease.

 

During the Company’s fiscal quarter ending December 31, 2014 and the fiscal quarter ending March 31, 2015, the Company borrowed an additional $285,500 for operating capital from Bio-Global Resources, a private unrelated company, under three $100,000 Promissory Notes (NP#4, NP#5 and NP#6), which carried interest at the rate of 4% and were due and payable one year from the date of the notes (October 1, 2015, October 15, 2015 and December 1, 2015, respectively). These notes carried no conversion or warrant provisions.

 

In February 2015, the Company and Bio-Global Resources agreed to settle $208,000 of the outstanding notes under Notes NP#4, NP#5 and NP#6, in exchange for issuing 4,160 shares of the Company’s Series A Redeemable Convertible Preferred stock to Bio-Global Resources.

 

From January 1 2014 – December 31, 2014, we loaned $589,500 in incremental amounts to Aqua Farming Tech, Inc. (AFT) throughout the year. Similarly, from January 1, 2015 through the date of filing, we loaned AFT $80,000. The total of notes issued to AFT is $884,000 as of the date of this filing. The terms of the additional loans is the same as notes previously issued, 7% interest rate and one year maturity. As payments have become due for notes issued, we have extended their maturity by one year.

 

Effective January 20, 2014, the Company authorized 20,000,000 shares of preferred stock subject to designation of preferences, special rights, restrictions and/or other rights and qualifications to be set by the Board of Directors.

 

Effective January 22, 2015, the Company designated 25,000 shares of the Company’s Preferred Stock as “Series A Redeemable Convertible Preferred Stock”.

 

 
34

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 

 

None

 

ITEM 9A. INTERNAL CONTROLS AND PROCEDURES.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our Company is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Perry West, our Chief Executive Officer and our Principal Accounting Officer, is responsible for establishing and maintaining disclosure controls and procedures for our Company.

 

Our management has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2013 (under the supervision and with the participation of the Chief Executive Officer and the Principal Accounting Officer), pursuant to Rule13a-15(b) promulgated under the Exchange Act. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, our Company's Chief Executive Officer and Principal Accounting Officer have concluded that our Company's disclosure controls and procedures were not effective as of December 31, 2013 due to the lack of sufficient personnel to assure segregation of duties and lack of a GAAP accounting professional on staff. Management with the assistance of its Securities Counsel will closely monitor all future filings to ensure completeness of all Company filings.

 

The term "internal control over financial reporting" is defined as a process designed by, or under the supervision of the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's 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 the assets of the registrant;

 

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

 

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

 

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

 
35

  

Our management, with the participation of the Chief Executive Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control -- Integrated Framework. Based on this evaluation, our Company's Chief Executive Officer and Principal Accounting Officer have concluded that our Company's disclosure controls and procedures were not effective as of December 31, 2013 due to the following: Company's disclosure controls and procedures were not effective as of December 31, 2013 due to the lack of sufficient personnel to assure segregation of duties and the lack of a GAAP accounting professional on staff. As a result, we did not adequately test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis. In addition, we did not properly evaluate the accounting and valuation for certain convertible debt and the equity linked instruments embedded within convertible debt. Furthermore, we did not properly evaluate the requirement to provide summary financial data of our significant equity method investee. While Management has reviewed the financial statements and underlying information included in this Annual Report on Form 10-K in detail and believes the procedures performed are adequate to fairly present our financial position, results of operations and cash flows for the periods presented in all material respects, the deficiency in accounting personnel that existed in fiscal 2013 could have led to an error in the original accounting of the estimated fair market value of certain equity instruments.

 

Remediation of Material Weaknesses. 

 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5), or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. While management believes that the Company’s financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US GAAP, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

 

 

·

We plan to obtain and hire additional accounting personnel, and continue to enhance our internal finance and accounting organizational structure. 

   

 

·

We may hire a third party consultant who has the required background and experience in accounting principles generally accepted in the United States of America and with SEC rules and regulations.

   

 

·

We are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting functions.

   

 

·

We are in the process of strengthening our internal policies and enhancing our processes for ensuring consistent treatment and recording of reserve estimates and that validation of our conclusions regarding significant accounting policies and their application to our business transactions are carried out by personnel with an appropriate level of accounting knowledge, experience and training.

 

While we have not yet remediated these material weaknesses, we will continue our remediation efforts during fiscal 2015.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.

 

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

 

The Company's management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

 
36

  

PART III

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The directors and executive officers of the Company for the reported period are as follows: 

 

Name

 

Age

 

Position

         

Perry D. West

 

66

 

Director, Chairman of the Board and CEO/President

 

Perry D. West, President, CEO, Vice President, Secretary and Chairman of the Board of Directors

 

Mr. West has been an officer and director of the Company since its inception. During the last five years, he has been engaged in the practice of law as well as being a Director of VoiceLift, Inc., a business VoIP telephone company. Formerly, he was Chairman and Chief Executive Officer of Interactive Technologies Corporation; a NASDAQ listed Technology Company developing interactive digital media and interactive television. Earlier, he served as Vice Chairman and Executive Vice President/General Counsel of American Financial Network, another NASDAQ company. Mr. West was previously Chairman of the Board and Chief Executive Officer of Cambridge Energy Corporation, a public oil and gas Exploration and Production company; he was a former partner in the consulting firm of Cambridge Equity, Inc. an international business consulting firm. Mr. West has been director and officer of a number of small private companies including Nanogen Power Systems, LLC, a concentrated solar power company, Homeport, LLC, a financial products developer; GETG, Inc., an alternative energy company, TriMark Explorations, Ltd. a mining company and Highlight Networks, Inc. a small public company engaged in wireless network development. Mr. West was admitted to the practice of law in Florida in 1974. He was graduated with a Bachelor of Arts degree from The Florida State University in 1968 and with a Juris Doctorate degree from The Florida State University College of Law in 1974. He was graduated from the Army Engineer Officer Candidate School and served as an officer with the United States Army Security Agency. Mr. West was selected as an officer and Director of the Company based upon his considerable experience with growth and development of early stage companies, both public and private including general management and technology development and growth.

 

 
37

  

Section 16(a) Beneficial Ownership Reporting Compliance. A review of forms submitted to the registrant with respect to the most recent fiscal year indicates that there are no persons who failed to file a form or forms required by Section 16(a) of the Securities Exchange Act.

 

Code of Ethics. The Company had not adopted a Code of Ethics applicable to its principal executive, financial, and accounting officers and persons performing similar functions as of December 31, 2013. Subsequently, on January 20, 2014, the Company adopted a Code of Ethics and the Board of Directors was given authority and discretion to implement the Code of Ethics.

 

Compensation Committee. The Company does not have a compensation committee. The company’s Directors serve as its audit committee.

 

There was no director compensation paid during the fiscal year.

 

Lack of Independent Directors. The Company’s Directors are not independent Directors as that term is defined in section 803 of the listing standards of the NYSE AMEX. No Director is a “financial expert” as that term is defined in the regulations of the Securities and Exchange Commission.

 

Note 11. Certain Relationships and Related Transactions

 

During the years ended December 31, 2013 and 2012, the Company paid related parties for the following expenses:

 

    Consulting Fees  
    Years Ending  
    December 31,     December 31,  

Related Party

  2013     2012  

 

 

 

 

 

Perry Douglas West Chartered

 

$

107,000

   

$

53,200

 

 

Perry Douglas West Chartered is wholly owned by Perry D. West, who serves as President, CEO and Chairman of the Company.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to the chief executive officer of the Company, December 31, 2013 and 2012:

 

       

Summary Compensation Table

 
       

Annual Compensation

   

Payouts

       

Name and

Principal Position

 

Fiscal

Year

 

Salary

   

Bonus

   

Other Annual Compensation

   

Underlying
Options

   

All Other Compensation

 

Perry D. West, President/CEO

 

2013*

   

0

     

0

     

0

     

0

     

0

 

 

*Mr. West received separate attorneys fees for legal work performed for the Company during the year.

 

 
38

 

Options/Stock Appreciation Rights

 

There were no stock options and stock appreciation rights ("SARs") granted to executive officers during the fiscal year ended December 31, 2013 (since inception).

 

Note: No bonus has been paid or distributed in this reporting period or fiscal 2013.

 

Director Compensation

 

The Company does not have any standard arrangements pursuant to which directors of the Company are compensated for services provided as a director. All directors are entitled to reimbursement for expenses reasonably incurred in attending Board of Directors' meetings. There have been no distributions of Stock to the Board Members as of the end of December 31, 2013 (since inception)

 

Compensation Agreements, Termination of Employment and Change-in-Control Arrangements: 

 

Compensation Committee Interlocks and Insider Participation. The Company’s Directors act as its compensation committee. During the year ended December 31, 2013, none of the Company’s officers was a Director of another entity, which other entity had one of its executive officers serving as one of the Company’s Directors.

 

Compensation of Directors During Year Ended December 31, 2013. The Company does not compensate its Directors for acting as such.

 

Long-Term Incentive Plans. The Company does not provide its officers or employees with pension, stock appreciation rights, long-term incentive or other plans.

 

Employee Pension, Profit Sharing or other Retirement Plans. The Company does not have a defined benefit, pension, nor profit sharing plan, nor does it offer a 401(k) plan.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth information concerning ownership of common stock, as of December 31, 2013, by each person known by the Company to be the beneficial owner of more than 5% of the common stock, each director and executive officer, and by all directors and executive officers of the Company as a group.

 

Name of beneficial owner

 

Status

 

Shares
Beneficially
Owned

   

Percentage
of Class

 
                 

Perry D. West

 

Director, President and CEO

   

1,000,000

     

44.62

%

Diversified Equities, Inc.

 

5% Shareholder 

   

468,173

     

20.8

%

 

 
39

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

 

Directors

 

Perry D. West

 

Director, Chairman, President and CEO

   

Bio-Global Resources, Inc.

 

Related person

 

Perry D. West. At inception Mr. West purchased 1,000,000 shares of the company’s common stock for $1,000.00

 

John Potter and Susan Potter. At inception Mr. Potter and his daughter Susan Potter purchased 375,000 shares of the company’s common stock each for $375.00.

 

Bio-Global Resources, Inc., a third party unrelated company converted $100,000 of a convertible promissory note to 100,000 common shares of the company at a conversion price of $1.00 per share. It later entered into a second loan transaction of $100,000, of which $100,000 has been drawn down by the Company. In order to provide for additional operations and for the expansion of existing operations, the Company during the reported period, entered into a Loan Agreement with Bio-Global Resources, Inc., a private unrelated company in the amount of $500,000 due July 19, 2015 with interest at the rate of 6.00% per annum. As of 12-31-13, the Company had drawn down $350,000 of the face amount of the Loan. Bio-Global Resources, Inc. is entitled to convert any amounts outstanding on the loan after 90 days from July 23, 2013 into the Company’s common stock at the rate of $0.25 per share. In addition, to the extent funds are drawn against this Loan Agreement, Bio-Global Resources, Inc. is entitled pro rata to a 200,000 warrants to purchase common shares at a price of $3.00 per share until July 19, 2018.

 

 (see Financing Activities in Management’s Discussion and Analysis)

 

 
40

 

ITEM 14. PRINCIPAL ACCOUNTANT FEEES AND SERVICES 

 

(1) Audit Fees: The Company’s principal accountant has billed for Audit services $19,375 for the Year ended 2013 and $10,000 for 2012.

 

(2) Audit Related Fees:

 

None 

 

(3) Tax Fees:

 

None 

 

(4) All Other Fees:

 

None

 

 
41

 

PART IV - OTHER INFORMATION

 

ITEM 15. Exhibits, Financial Statement Schedules.

 

a) Exhibits

 

3.1

 

Articles of Incorporation. (Incorporated by reference-S-1 Registration)

3.2

 

By Laws (Incorporated by reference-S-1 Registration)

4.1

 

Class A Warrant Certificate (Incorporated by reference-S-1 Registration)

4.1

 

Class B Warrant Certificate (Incorporated by reference-S-1 Registration)

5.1

 

Opinion of Legality (Incorporated by reference-S-1 Registration)

10.1

 

Convertible Promissory Note with Warrants (Incorporated by reference-S-1 Registration)

10.2

 

Legal Services Agreement (Incorporated by reference-S-1 Registration)

23

 

Consents of Experts and Counsel

23.1.2

 

Hartley Moore Accountancy Corporation

31.1.2

 

Section 302 Certification By Chief Executive Officer and Principal Financial Officer

32.1.2

 

Section 906 Certification of Principal Executive Officer and Principal Financial Officer

 

 
42

 

SIGNATURES

 

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

 

 

NEW GLOBAL ENERGY, INC.

 
       

Dated: March 25, 2015

By:

/s/ Perry D. West

 
   

Perry D. West

 
   

CEO and Director

 

 

 

43