Attached files
| file | filename |
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| EX-95 - EXHIBIT 95 - PROGRESSIVE GREEN SOLUTIONS, INC. | v434552_ex95.htm |
| EX-21 - EXHIBIT 21 - PROGRESSIVE GREEN SOLUTIONS, INC. | v434552_ex21-1.htm |
| EX-31.1 - EXHIBIT 31.1 - PROGRESSIVE GREEN SOLUTIONS, INC. | v434552_ex31-1.htm |
| EX-32.1 - EXHIBIT 32.1 - PROGRESSIVE GREEN SOLUTIONS, INC. | v434552_ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2015
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number: 333-178652
PROGRESSIVE GREEN SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 45-3539010 | |
| (State or Other Jurisdiction of Incorporation or | (IRS Employer Identification No.) | |
| Organization) |
|
445 County Road 101, Suite E Yaphank, New York |
11980 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (631) 775-8920
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
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 Exchange 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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, as of June 30, 2015, was approximately $5,293,885. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of March 22, 2016, there were 33,086,782 shares outstanding of the registrant’s common stock.
PROGRESSIVE GREEN SOLUTIONS, INC.
INDEX
Forward-Looking Statements
This report contains various forward-looking statements regarding our business, financial condition, results of operations and future plans and projects. Forward-looking statements discuss matters that are not historical facts and can be identified by the use of words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “can,” “could,” “may,” “will,” “would” or similar expressions. In this report, for example, we make forward-looking statements regarding, among other things, our expectations about the rate of revenue growth in specific business segments and the reasons for that growth and our profitability, our expectations regarding an increase in sales, strategic traction and sales and marketing spending, uncertainties relating to our ability to compete, uncertainties relating to our ability to increase our market share, changes in coverage and reimbursement policies of third-party payers and the effect on our ability to sell our products and services, the existence and likelihood of strategic acquisitions and our ability to timely develop new products or services that will be accepted by the market.
Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.” You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Organization
Progressive Green Solutions, Inc. (the “Company” or “PGSC”) (formerly known as MarketingMobileText, Inc.) was incorporated under the laws of the State of Nevada on August 31, 2011. Unless the context requires otherwise, in this report the terms “we,” “us” and “our” refer to Progressive Green Solutions, Inc.
Share Exchange Transaction with Green Remanufacturing Solutions LLC
On March 7, 2014, the Company, then called “MarketingMobileText, Inc.”, entered into and consummated an Agreement and Plan of Share Exchange (the “Exchange Agreement”) among the Company, Slimko Holdings LLC, the principal stockholder of the Company (the “Majority Shareholder”), Green Remanufacturing Solutions LLC, a Delaware limited liability company (“GRS”), and the members of GRS (the “Exchange”). Upon consummation of the Exchange, the Company acquired all of the outstanding membership interests of GRS in exchange for the issuance of an aggregate 23,000,000 post-split shares (the “Exchange Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”). As a result of the Exchange, GRS became a wholly-owned subsidiary of the Company and adopted the business plan of GRS.
Also on March 7, 2014, the Company authorized an amendment to its Articles of Incorporation (the “Amendment”) to (i) change the name of the Company to “Progressive Green Solutions, Inc.”; (ii) increase the number of its authorized shares of capital stock from 300,000,000 shares to 310,000,000 shares, of which 300,000,000 shares were designated as common stock, par value $0.001 per share, and 10,000,000 shares were designated as “blank check” preferred stock, par value $0.001 per share (the “Preferred Stock”); and (iii) to effect a forward split such that ten (10) shares of Common Stock were issued for every one (1) share of Common Stock issued and outstanding immediately prior to the Amendment (the “Split”).
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Company Overview
The Company is the parent corporation of (i) Green Remanufacturing Solutions LLC (www.greenrsus.com), a full service returns management solution provider that specializes in the reverse logistics and asset recovery space, and (ii) Speyside Holdings LLC (www.speysideholdingsllc.com), a management company that is presently managing the operation of a quarry in Highland Mills, New York.
Green Remanufacturing Solutions LLC
Green Remanufacturing Solutions LLC is a full service returns management solution provider that develops turnkey returns solutions that streamline the returns experience and increases its clients’ ability to recapture revenues through environmentally sensible asset recovery. Key to Green Remanufacturing Solution LLC’s service offerings are as follows:
| § | Remanufacturing / refurbishment – Green Remanufacturing Solution LLC’s technicians are capable of fully disassembling a wide array of consumer returns to component form. Green Remanufacturing Solutions LLC’s technicians test and restore each component to the original equipment manufacturer’s mechanical specifications and to a like new condition for the cosmetic components. As part of this process, Green Remanufacturing Solutions LLC’s technicians put each component through a rigorous performance test to ensure each component meets the original equipment manufacturer’s reconditioned specifications. Clients that utilize Green Remanufacturing Solution LLC’s in house recovery processes are able to achieve substantial recovery rates. |
| § | Dedicated external quality assurance program – integral to Green Remanufacturing Solution LLC’s returns management solutions is Green Remanufacturing Solution LLC’s engineering and quality assurance component. Green Remanufacturing Solution LLC’s highly skilled team of product engineers, inspect, evaluate, and collect all data as it relates to product defects as part of its returns intake procedure. As part of this process, Green Remanufacturing Solution LLC’s engineers inspect returned merchandise for serial defects, manufacturing defects, shipping damage, customer abuse, and buyer remorse. The data collected is then used to assist Green Remanufacturing Solution LLC’s clients in determining the root causes of a defect or to establish trends about certain defects, which in turn enables Green Remanufacturing Solution LLC or its client to proactively manage and correct defects as well as to aid in the location of defective products at various levels within the supply chain. This value added service helps reduce the corrective action cycle time between the time of manufacture and ultimate distribution, saving Green Remanufacturing Solution LLC’s clients’ most valuable asset – its brand name. |
| § | Warranty program management – Green Remanufacturing Solution LLC’s has solutions to manage the entire reverse logistics process by simplifying the returns process through customized return center programs. Once a return is received at Green Remanufacturing Solution LLC’s return center, Green Remanufacturing Solution LLC provides the client with a detailed receiving report that contains the customer name, customer location, return authorization number, model number, serial number and condition of product received. Clients that utilize our return center eliminate costly handoffs, double handling, credit reconciliation errors, and shrinkage, which in turn leads to increase in value recovery. |
Green Remanufacturing Solution LLC’s target customers are manufacturers and retailers in the consumer products space which have traditionally been subject to either ‘destroy-in-field’ programs or ‘remit to landfill’ programs. The consumer product categories that Green Remanufacturing Solution LLC return management solutions are well suited for are as follows:
| · | Major Appliances: refrigerators, ovens, dishwashers, washers, dryers, freezers, wine coolers, beverage coolers and over the counter microwaves; |
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| · | Small Appliances: counter top microwaves, compact refrigerators, portable washers, coffee makers, espresso/cappuccino makers, toaster ovens, blenders and food processors; |
| · | Floor Care Products: Vacuums, steam cleaners and robotic vacuums; |
| · | Air Conditioning/Filtration Products: window air conditioners, thru-wall air conditioners, portable air conditioners, dehumidifiers, air purification systems, space heaters and split HVAC units; |
| · | Outdoor Power Equipment: pressure washers, compressors, generators, chain saws and lawn mowers; and |
| · | Power Tools: electric and battery operated drills, circular saws, chop saws, bench grinders and belt sanders. |
As of December 31, 2015, Green Remanufacturing Solutions LLC had 18 full-time employees. Training is performed in-house at Green Remanufacturing Solution LLC’s facility by selected management and operational teams. The Company also regularly invites manufacturers to assist and participate in product, process and procedure training. The number of employees fluctuates depending on the number and size of projects ongoing at any particular time, which may be impacted by variations in consumer return cycle.
Speyside Holdings LLC
On April 30, 2015, Speyside Holdings LLC concurrently entered into a management / purchase agreement with Highland Sand & Gravel, Inc. Highland Sand & Gravel, Inc. is the owner of a quarry in Highland Mills, New York. Per the management / purchase agreement, Speyside Holdings LLC has 12 months from April 30, 2015, plus one 6 month extension, to close on the acquisition. The negotiated purchase price is $5.5M, of which Speyside Holdings LLC has put down $200k in earnest money, $50K in key money, and has negotiated $4M in seller financing. During the pendency of the management agreement, Speyside Holdings LLC is assuming all operational responsibilities of the quarry, including all costs and expenses, and is charged with taking in all receipts from sales. In exchange for this arrangement, Speyside Holdings LLC pays a royalty to Highland Sand & Gravel, Inc. consisting of $1 per ton of material sold from the Highland Mills quarry. Upon Speyside Holdings LLC closing on the purchase agreement, the royalty to Highland Sand & Gravel, Inc. will terminate.
As of December 31, 2015, Speyside Holdings LLC had 13 full-time employees. The number of employees fluctuates depending on the number and size of projects ongoing at any particular time, which may be impacted by variations in weather conditions throughout the year.
Additional Information
Progressive Green Solutions, Inc. is required to file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Investors may read and copy any document that Progressive Green Solutions, Inc. files, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 450 F Street, N.W., Washington, DC 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access the Company’s SEC filings.
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Risk Factors Related to Our Business
We have inadequate capital and need for additional financing to accomplish our business and strategic plans.
We have very limited funds, and such funds are not adequate to develop our current business plan. Our ultimate success may depend on our ability to raise additional capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business plan from a much different and much more restricted direction, attempting to secure additional funding sources to fund its growth, borrowing money from lenders or elsewhere or to take other actions to attempt to provide funding. We cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us.
Our limited operating history does not afford investors a sufficient history on which to base an investment decision.
We are currently in the early stages of developing our business. Our operations are subject to all the risks inherent in the establishment of a new business enterprise. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays that are frequently encountered in a newly-formed company. There can be no assurance that at this time that we will operate profitably or will have adequate working capital to meet our obligations as they become due.
Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:
| · | competition; |
| · | ability to anticipate and adapt to a competitive market; |
| · | ability to effectively manage expanding operations; amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and |
| · | dependence upon key personnel to market and sell our services and the loss of one of our key managers may adversely affect the marketing of our services. |
We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected and we may not have the resources to continue or expand our business operations.
We may not be able to continue as a going concern.
We had an accumulated deficit of $4,602,913 at December 31, 2015, a net loss of $2,399,155 and net cash used in operating activities of $970,245 for the year then ended. These factors raise substantial doubt in the minds of our auditors about the Company’s ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. If the Company cannot continue as a going concern, its stockholders may lose their entire investment.
We continue to rely on major customers for most of our revenues; the loss of either customer could adversely affect our business.
Approximately 66% of our revenues are derived from a management agreement that has a finite term. We expect to be dependent on this management agreement until such time as the Company has raised the appropriate funds to close on the acquisition of Highland Sand & Gravel, Inc. by Speyside Holdings LLC, or until the termination of the management agreement, whichever occurs first. Speyside Holding LLC’s management agreement expires on October 30, 2016, and there is no guarantee that the management agreement will be renewed or that Speyside Holdings LLC will continue to engage in business after such date. Termination of the management agreement could adversely affect our business, operating results and financial condition.
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Recent worldwide and domestic economic trends and financial market conditions could adversely impact our financial performance.
The worldwide and domestic economies have experienced adverse conditions and may be subject to further deterioration for the foreseeable future. We are subject to risks associated with these adverse conditions, including economic slowdown and the disruption, volatility and tightening of credit and capital markets. This global economic situation could adversely impact our major suppliers, distributors, customers, municipalities, government, and retailers. The inability of suppliers, distributors, customers, municipalities, government, or retailers to conduct business or to access liquidity could impact our ability to sell our products and/or services.
There can be no assurance that market conditions will improve in the near future. A prolonged downturn, further worsening or broadening of the adverse conditions in the worldwide and domestic economies could affect spending patterns and purchases of our products and/or services, and create or exacerbate credit issues, cash flow issues and other financial hardships for us and for our suppliers, distributors, customers, municipalities, government, retailers and consumers. Depending upon their severity and duration, these conditions could have a material adverse impact on our business, liquidity, financial condition and results of operations. We are unable to predict the likely duration and severity of the current disruption in the financial markets and the adverse economic conditions in the U.S. and other markets.
We must maintain a relatively large inventory of our products to support customer delivery requirements, and if this inventory is lost due to theft, fire or other damage or becomes obsolete, our results of operations would be negatively impacted.
We must maintain relatively large inventories to meet customer delivery requirements for our products. We are always at risk of loss of that inventory due to theft, fire or other damage, and any such loss, whether insured against or not, could cause us to fail to meet our orders and harm our sales and operating results. Also, our inventory may become obsolete as we introduce new products, cease to produce old products or modify the design of our products’ packaging, which would increase our operating losses and negatively impact our results of operations.
Either our or our strategic partners’ failure to protect our trade secrets could compromise our competitive position and decrease the value of our brand portfolio.
We rely on trade secrets and proprietary know-how, concepts and formulas. Our methods of protecting this information may not be adequate. Moreover, we may face claims of misappropriation or infringement of third parties’ rights that could interfere with our use of this information. Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to use this proprietary information in the future and result in a judgment or monetary damages being levied against us. We do not maintain non-competition agreements with all of our key personnel or with some of our key suppliers. If competitors independently develop or otherwise obtain access to our or our strategic partners’ trade secrets, proprietary know-how or recipes, the appeal, and thus the value, of our brand portfolio could be reduced, negatively impacting our sales and growth potential.
We may face competition and pricing pressures from larger, well-financed and more recognized companies, including the manufacturers of the returned products, and we may not be able to effectively compete with such companies.
Given the size of the market and the minimal barriers to entry in our business, larger, well-financed and more recognized companies may compete with us. The manufacturers themselves may also compete with us, and could have a material adverse effect on our business, operating results, and financial condition. The manufacturers may have an advantage over the business in their ability to reverse engineer a product, and would likely have internal synergies with respect to labor, parts, and supplies that could render us unable to effectively compete within the marketplace.
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We estimate that there are numerous companies engaged in the business of managing returns for the same types of products as us. Several of these entities have greater financial resources than us and as a result, we may not be able to invest comparable levels of funding into its business. There can be no assurance that we will be successful in establishing the creditability of the products and services and financial position necessary to successfully compete against the large, well-established competitors. A failure to do so could mean that we will perform substantially below its expectations and investors could lose some or all of their investment. Furthermore, existing competitors may grow their business, and new competition may enter the market over time, all of which may increase competition and our success.
We operate in highly competitive industries, and competitive pressures could have a material adverse effect on our business.
We operate in a highly competitive environment, and its outlook depends on a forecast of our share of sales based on its ability to compete with others in the marketplace. We compete on the basis of price, quality, product performance, volume, and customer service. There can be no assurance that our products and/or services will be able to compete successfully with other companies’ products and/or services. Thus, our share of industry sales could be reduced due to aggressive pricing or product strategies pursued by competitors, unanticipated raw material shortages, reconditioning difficulties, quarrying difficulties, etc. Our failure to price our products and/or services competitively, our failure to produce products and/or services at a competitive cost or an unexpected buildup in inventories, leading to severe downward pressure product prices. Changes in market acceptance of prices, changes in market requirements for price discounts or changes in competitors’ behavior could have an adverse impact on our business, results of operations and financial condition. Failure to maintain and enhance the Company’s competitive position could materially and adversely affect the Company’s business and prospects for business.
We may face quality problems from operational failures that could have a material adverse effect on our business, reputation, financial position and results of operations, and we are dependent on market acceptance of new product introductions and product innovations for continued revenue growth.
There can be no assurance that our customers will not experience operational process failures that could result in potential product, safety, regulatory or environmental risks. Such operational failures or quality issues could have a material adverse effect on our business, reputation, financial position and results of operations.
Significant raw material shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases could increase our operating costs and adversely impact the competitive positions of our products.
Our reliance on third-party suppliers, manufacturers, and service providers to secure raw materials and equipment exposes us to volatility in the prices and availability of these materials and equipment. A disruption in deliveries from third-party suppliers, manufacturers or service providers, capacity constraints, production disruptions, price increases, or decreased availability of raw materials or commodities, could have an adverse effect on our ability to meet its commitments to customers or could increase its operating costs. Quality and sourcing issues experienced by third-party providers and manufacturers can also adversely affect the quality and effectiveness of our products and services and result in liability and reputational harm.
Our business is subject to the sourcing practices of its secondary market dealers.
We sell finished products through an independent dealer network and directly to end users. Our independent dealer network carries inventory of finished products as part of ongoing operations and adjusts those inventories based on their assessments of future needs. Such adjustments can impact our results either positively or negatively. In particular, some of our secondary market dealers have the capability in the future to refurbish or remanufacture their own products. We cannot assure that these customers will continue to purchase product from us in the future.
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Our products are subject to recall for performance or safety-related issues.
Our products may be subject to recall for performance or safety-related issues. Product recalls subject us to harm to its reputation, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to a known or suspected performance issue. Any significant product recalls could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire additional qualified personnel, it may not be able to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on its ability to retain and motivate existing employees. Due to our reliance upon its skilled laborers, the failure to attract, integrate, motivate, and retain current and/or additional key employees could have a material adverse effect on our business, operating results and financial condition. We do not maintain key person life insurance for any of its laborers.
If we fail to manage growth effectively or prepare for product scalability, it could have an adversely effect on our employee efficiency, product quality, working capital levels and results of operations.
Any significant growth in the market for our products or our entry into new markets may require an expansion of our employee base for managerial, operational, financial, and other purposes. During any period of growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.
Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.
Our management team may not be able to successfully implement our business strategies.
If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.
If we are unable to retain key executives and other key affiliates, our growth could be significantly inhibited and our business harmed with a material adverse effect on our business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. Eugene Fernandez, our President, Vice President of Business Development and Interim Chief Financial Officer and Michael Cox, our Chief Operating Officer, perform key functions in the operation of our business. The loss of any of these could have a material adverse effect upon our business, financial condition, and results of operations. We do maintain key-person insurance for Michael Cox. If we lose the services of any senior management, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects.
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Our success in the future may depend on our ability to establish and maintain strategic alliances, and any failure on our part to establish and maintain such relationships would adversely affect our market penetration and revenue growth.
We may be required to establish strategic relationships with third parties. Our ability to establish strategic relationships will depend on a number of factors, many of which are outside our control, such as the competitive position of our product and marketing plan relative to our competitors. We may not be able to establish other strategic relationships in the future. In addition, any strategic alliances that we establish may subject us to a number of risks, including risks associated with sharing proprietary information, loss of control of operations that are material to developed business and profit-sharing arrangements. Moreover, strategic alliances may be expensive to implement and subject us to the risk that the third party will not perform its obligations under the relationship, which may subject us to losses over which we have no control or expensive termination arrangements. As a result, even if our strategic alliances with third parties are successful, our business may be adversely affected by a number of factors that are outside of our control.
Our financial results may not meet the expectations of investors and may fluctuate because of many factors and, as a result, investors should not rely on our revenue and/or financial projections as indicative of future results.
Fluctuations in operating results or the failure of operating results to meet the expectations investors may negatively impact the value of our securities. Operating results may fluctuate due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in operating results could cause the value of our securities to decline. Investors should not rely on revenue or financial projections or comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is possible that in future periods results of operations may be below the expectations of investors. This could cause the market price of our securities to decline.
Factors that may affect our quarterly results include:
| · | delays in sales resulting from potential customer sales cycles; |
| · | variations or inconsistencies in return on investment models and results; |
| · | delays in demonstrating product performance or installations; |
| · | changes in competition; and |
| · | changes or threats of significant changes in legislation or rules or standards that would change the drivers for product adoption. |
Our strategy may include acquiring companies which may result in unsuitable acquisitions or failure to successfully integrate acquired companies, which could lead to reduced profitability.
We may embark on a growth strategy through acquisitions of companies or operations that complement existing product lines, customers, or other capabilities. We may be unsuccessful in identifying suitable acquisition candidates, or may be unable to consummate desired acquisitions. To the extent any future acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability. Some of the risks that may affect our ability to integrate, or realize any anticipated benefits from, acquisitions include:
| · | unexpected losses of key employees or customers of the acquired company; |
| · | difficulties integrating the acquired company’s standards, processes, procedures and controls; |
| · | difficulties coordinating new product and process development; |
| · | difficulties hiring additional management and other critical personnel; |
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| · | difficulties increasing the scope, geographic diversity and complexity of our operations; |
| · | difficulties consolidating facilities, transferring processes and know-how; |
| · | difficulties reducing costs of the acquired company’s business; |
| · | diversion of management’s attention from our management; and |
| · | adverse impacts on retaining existing business relationships with customers. |
There are risks related to our internal growth and operating strategy.
Our ability to generate internal growth will be affected by, among other factors, our ability to:
| • | attract new customers; |
| • | differentiate ourselves in a competitive market by emphasizing new product development and value added services; |
| • | hire and retain employees; and |
| • | reduce operating and overhead expenses. |
Our inability to achieve internal growth could materially and adversely affect our business, financial condition, results of operations, liquidity, and cash flows. One key component of our operating strategy is to operate our businesses on a decentralized basis, with local or regional management retaining responsibility for day-to-day operations, profitability, and the internal growth of the individual business. If we do not implement and maintain proper overall business controls, this decentralized operating strategy could result in inconsistent operating and financial practices and our overall profitability could be adversely affected.
Our operating results may vary significantly from one reporting period to another and may be adversely affected by the cyclical nature of the markets we serve.
The relative demand for our products is a function of the highly cyclical construction and consumer returns industries. As a result, our revenue may be adversely affected by declines in the construction industry and/or volume of consumer returns generally and in our regional markets. Our results also may be materially affected by:
| • | the level of commercial and residential construction in our regional markets; |
| • | the availability of funds for public or infrastructure construction from local, state and federal sources; |
| • | unexpected events that delay or adversely affect our ability to deliver crushed aggregate according to our customers’ requirements; |
| • | changes in interest rates and lending standards; |
| • | changes in the mix of our customers; |
| • | the timing and cost of acquisitions and difficulties or costs encountered when integrating acquisitions; |
| • | the budgetary spending patterns of customers; |
| • | increases in construction and design costs; |
| • | power outages and other unexpected delays; |
| • | our ability to control costs and maintain quality; |
| • | employment levels; and |
| • | regional or general economic conditions. |
As a result, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or for the entire year. Furthermore, negative trends in the crushed aggregate industry or the consumer products markets could have material adverse effects on our business, financial condition, results of operations, liquidity, and cash flows.
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Our net revenue attributable to infrastructure projects could be negatively impacted by a decrease or delay in governmental spending.
Our business depends, in part, on the level of governmental spending on infrastructure projects in our markets. Reduced levels of governmental funding for public works projects or delays in that funding could adversely affect our business, financial condition, results of operations, liquidity, and cash flows.
Our business is seasonal and subject to adverse weather.
Since a segment of our business is conducted outdoors, erratic weather patterns, seasonal changes and other weather-related conditions affect our business. Adverse weather conditions, including hurricanes and tropical storms, cold weather, snow, and heavy or sustained rainfall, reduce construction activity, restrict the demand for our products, and impede our ability to efficiently produce crushed aggregates. Adverse weather conditions could also increase our costs and reduce our production output as a result of power loss, needed plant and equipment repairs, delays in obtaining permits, time required to remove water from flooded operations, and similar events. In addition, severe drought conditions can restrict available water supplies and restrict production. Consequently, these events could adversely affect our business, financial condition, results of operations, liquidity, and cash flows.
Our overall profitability is sensitive to price changes and minor variations in sales volumes.
Generally, our customers are price-sensitive. Prices for our products and services are subject to changes in response to relatively minor fluctuations in supply and demand, general economic conditions and market conditions, all of which are beyond our control. Because of the fixed-cost nature of our business, our overall profitability is sensitive to price changes and minor variations in sales volumes.
Governmental regulations, including environmental regulations, may result in increases in our operating costs and capital expenditures and decreases in our earnings.
A wide range of federal, state and local laws, ordinances and regulations apply to our operations, including the following matters:
| • | land usage; |
| • | street and highway usage; |
| • | noise levels; and |
| • | health, safety and environmental matters. |
In many instances, we must have various certificates, permits or licenses in order to conduct our business. Our failure to maintain required certificates, permits or licenses or to comply with applicable governmental requirements could result in substantial fines or possible revocation of our authority to conduct some of our operations. Delays in obtaining approvals for the transfer or grant of certificates, permits or licenses, or failure to obtain new certificates, permits or licenses, could impede the implementation of any acquisitions.
Governmental requirements that impact our operations include those relating to air quality, reclamation, mining, land use, and water quality. These requirements are complex and subject to change. Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements, or the future discovery of environmental conditions may require us to make unanticipated material expenditures. In addition, we may fail to identify, or obtain indemnification for, environmental liabilities of acquired businesses. We generally do not maintain insurance to cover environmental liabilities.
Our operations are subject to various hazards that may cause personal injury or property damage and increase our operating costs.
Operating heavy equipment, particularly in a quarry environment, exposes our operators and others to many hazards. Operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. Although we conduct training programs designed to reduce these risks, we cannot eliminate these risks. We maintain insurance coverage in amounts we believe are consistent with industry practice; however, this insurance may not be adequate to cover all losses or liabilities we may incur in our operations, and we may not be able to maintain insurance of the types or at levels we deem necessary or adequate, or at rates we consider reasonable. A partially or completely uninsured claim, if successful and of sufficient magnitude, could have a material adverse effect on us.
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The insurance policies we maintain are subject to varying levels of deductibles. If we were to experience insurance claims above our coverage, our business, financial condition, results of operations, liquidity, and cash flows might be materially and adversely affected.
We may not be able to generate sufficient cash flows to meet our debt service obligations and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash from our operations in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flow from operations and future sources of capital may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we complete an acquisition, our debt service requirements could increase. We may need to refinance or restructure all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness, including the, on commercially reasonable terms, or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity, reducing or delaying capital expenditures, strategic acquisitions, investments and alliances or restructuring or refinancing our indebtedness. We may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.
Risks Related to Our Securities
Our Executive Officers and certain stockholders possess the majority of our voting power, and through this ownership, control our Company and our corporate actions.
Our current executive officers and certain large shareholders of the Company, hold approximately 47.2% of the voting power of the outstanding shares immediately after the share exchange. These officers have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. As such our executive officers have the power to prevent or cause a change in control; therefore, without the aforementioned consent we could be prevented from entering into transactions that could be beneficial to us. The interests of our executive officers may give rise to a conflict of interest with the Company and the Company’s shareholders. For additional details concerning voting power please refer to the section below entitled “Description of Securities.”
There is a substantial lack of liquidity of our common stock and volatility risks.
Our common stock is quoted on the OTC Markets OTCQB platform under the symbol “PGSC.” The liquidity of our common stock may be very limited and affected by our limited trading market. The OTC Markets OTCQB quotation platform is an inter-dealer market much less regulated than the major exchanges, and is subject to abuses, volatilities and shorting. There is currently no broadly followed and established trading market for our common stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded.
The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for our common stock on the OTCQB may not necessarily be a reliable indicator of our fair market value. In addition, if our shares of common stock cease to be quoted, holders would find it more difficult to dispose of or to obtain accurate quotation as to the market value of, our common stock and as a result, the market value of our common stock likely would decline.
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The market price for our stock may be volatile and subject to fluctuations in response to factors, including the following:
| · | the increased concentration of the ownership of our shares by a limited number of affiliated stockholders following the share exchange may limit interest in our securities; |
| · | variations in quarterly operating results from the expectations of securities analysts or investors; |
| · | revisions in securities analysts’ estimates or reductions in security analysts’ coverage; |
| · | announcements of new attractions or services by us or our competitors; |
| · | reductions in the market share of our services; |
| · | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
| · | general technological, market or economic trends; |
| · | investor perception of our industry or prospects; |
| · | insider selling or buying; |
| · | investors entering into short sale contracts; |
| · | regulatory developments affecting our industry; and |
| · | additions or departures of key personnel. |
Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
Our common stock may never be listed on a major stock exchange.
We currently do not satisfy the initial listing standards and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.
A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations. If our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.
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Concentrated ownership of our common stock creates a risk of sudden changes in our common stock price.
The sale by any shareholder of a significant portion of their holdings could have a material adverse effect on the market price of our common stock.
Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock.
A substantial majority of the outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTCQB). A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.
If we issue additional shares or derivative securities in the future, it will result in the dilution of our existing stockholders.
Our Articles of Incorporation authorizes the issuance of up to 300,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares are designated as “blank check” preferred stock, par value $0.001 per share (the “Preferred Stock”); and (iii) to effect a forward split such that ten (10) shares of Common Stock were issued for every one (1) share of Common Stock issued and outstanding immediately prior to the Amendment (the “Split”).
Our board of directors may choose to issue some or all of such shares, or derivative securities to purchase some or all of such shares, to provide additional financing in the future.
We do not plan to declare or pay any dividends to our stockholders in the near future.
We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
The requirements of being a public company may strain our resources and distract management.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.
We may incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
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Persons associated with securities offerings, including consultants, may be deemed to be broker dealers.
In the event that any of our securities are offered without engaging a registered broker-dealer, we may face claims for rescission and other remedies. If any claims or actions were to be brought against us relating to our lack of compliance with the broker-dealer requirements, we could be subject to penalties, required to pay fines, make damages payments or settlement payments, or repurchase such securities. In addition, any claims or actions could force us to expend significant financial resources to defend our company, could divert the attention of our management from our core business and could harm our reputation.
Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.
“Penny Stock” rules may make buying or selling our common stock difficult.
Trading in our common stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.
Item 1B. Unresolved Staff Comments.
None.
Green Remanufacturing Solutions LLC is currently a party to a lease agreement for an approximately 41,533 square foot facility located at 445 County Road 101, Yaphank, New York 11980, which is set to expire on March 31, 2017. The current base rent is approximately $21,607 per month and escalates to approximately $22,351 in the final year of the lease.
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We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4. Mine Safety Disclosure
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this annual report.
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Item 5. Markets for Registrant’s Common Equity and Related Stockholder Matter.
(a) Market information
Our common stock first became quoted on the Over-the-Counter Bulletin Board under the trading symbol “MMTX” on October 25, 2012. In June 2014, the trading symbol changed to “PGSC.” The following table lists the high and low bid information for our common stock for each quarter in the fiscal years ended 2015 and 2014, respectively:
| 2015 | 2014 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| First Quarter | $ | 2.50 | $ | 0.34 | $ | - | $ | - | ||||||||
| Second Quarter | $ | 1.50 | $ | 0.15 | $ | 1.60 | $ | 0.00 | ||||||||
| Third Quarter | $ | 0.16 | $ | 0.06 | $ | 3.25 | $ | 1.15 | ||||||||
| Fourth Quarter | $ | 0.25 | $ | 0.13 | $ | 1.99 | $ | 0.26 | ||||||||
The above quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
(b) Holders
The number of record holders of our common stock as of December 31, 2015, was approximately 58 based on information received from our transfer agent, Action Stock Transfer Corp. This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name with a brokerage firm or other fiduciary.
(c) Dividends
We have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Nevada law.
(d) Securities authorized for issuance under equity compensation plans.
We have 2,146,660 shares of common stock available for issuance under the Green Remanufacturing Solutions, Inc. 2014 Equity Incentive Plan as of December 31, 2015.
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,146,660 | - | 2,146,660 | |||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 2,146,660 | - | 2,146,660 | |||||||||
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Description of Securities
Common Stock
The Company’s Amended Articles of Incorporation authorizes the issuance of 300,000,000 shares of Common Stock. Holders of Common Stock are entitled to one vote per share on each matter submitted to vote at a meeting of Company’s stockholders. Holders of Common Stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire additional shares of Common Stock or other securities. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of Common Stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share of Common Stock entitles its holder to participate ratably in all remaining assets of the Company that are available for distribution to stockholders after providing for each class of stock, if any, having preference over the Common Stock.
Holders of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights of the holders of Common Stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued.
Preferred Stock
The Company’s Amended Articles of Incorporation authorizes the issuance of 10,000,000 shares of “blank check” Preferred Stock, par value $0.001 per share, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the Company’s board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.
Recent Sales of Unregistered Securities
None.
Item 6. Selected Financial Data.
We are a smaller reporting company as defined by 17C.F.R. 229(10)(f)(i) and are not required to provide the information under this heading.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.
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Results of Operations
For the Year Ended December 31, 2015, Compared to the Year Ended December 31, 2014
The below consolidated results of operations disclosure includes the Company, Green Remanufacturing Solutions LLC, Appliancesplace.com, LLC, and Speyside Holdings LLC.
Revenues
Revenues for the year ended December 31, 2015 were approximately $4,848,534 as compared to $2,773,196 for the year ended December 31, 2014. The increase in revenues of $2,075,338, or 74.8%, is attributable to additional business from Speyside Holdings, LLC.
Current Assets
At December 31, 2015, the Company had current assets of $1,042,471 and total assets of $2,166,013 compared to December 31, 2014, when current assets were $970,421 and total assets were $1,565,836. This increase is largely related to accounts receivable relating to sales made by Speyside Holdings LLC.
Current Liabilities
Current liabilities at December 31, 2015 were $3,714,347 compared to $729,519 at December 31, 2014. At December 31, 2014, current liabilities are mainly comprised of accounts payable and customer deposits. The 409% increase in current liabilities as of December 31, 2015 is largely due to the level of repairs and upgrades associated with the operations of Speyside Holdings LLC.
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2015 was approximately $4,842,955, compared to $2,637,062 for the year ended December 31, 2014, an increase of 84%. This increase is due both to the expansion of business operations as well as the complete write off of Green Remanufacturing Solutions LLC’s inventory. The value of the inventory write-off was $174,517.
Operating Expenses
The Company’s operating expenses were approximately $ 2,254,156 for the year ended December 31, 2015, compared to $2,372,736 for the year ended December 31, 2014. The reduction of $118,580 is attributable to cost reductions at Green Remanufacturing LLC and the fact that the majority of operating expenses associated with Speyside Holdings, LLC are included in cost of goods sold.
Net Loss
For the year ended December 31, 2015, the Company had a net loss of approximately $2,399,155, or $.07 per share, compared to a net loss of $2,348,587, or $0.08 per share, for the year ended December 31, 2014. The reason for the increase is the net loss is attributable to several factors:
| 1. | Price increase for the consumer returns that Green Remanufacturing LLC was purchasing for its own account; |
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| 2. | Increased scrap rate of the consumer returns that Green Remanufacturing LLC was purchasing for its own account; |
| 3. | One-time accounting charges for inventory write-offs and bad debt write-offs. The value of these combined write offs is approximately $256,582; |
| 4. | A pivot in Green Remanufacturing Solutions LLC’s business model from purchasing returns for its own account for resale to servicing consumer returns for a fee; |
| 5. | Partial year of operations for Speyside Holdings LLC; |
| 6. | Royalty expenses that are associated with Speyside Holdings LLC’s management agreement and which are scheduled to cease upon Speyside Holding LLC closing on the Highland Sand & Gravel, Inc. asset purchase agreement; |
| 7. | Extraordinary repairs and maintenance undertaken at Speyside Holdings LLC’s operations; |
| 8. | Production inefficiencies at Speyside Holdings LLC due to aging equipment that required extraordinary repairs and maintenance; and |
| 9. | Equipment rental fees for equipment used in the operations of Speyside Holdings LLC. |
Liquidity and Capital Resources
Net Cash Used in Operating Activities
Net cash used in operating activities during the year ended December 31, 2015 was $970,243 compared to $2,309,483 used in operating activities during the year ended December 31, 2014. The decrease is related to the increase in Speyside Holdings LLC’s accounts payable.
Net Cash Used in Investing Activities
Net cash used in investing activities was $ 480,887 for the year ended December 31, 2015, compared to $155,301 for the year ended December 31, 2014. This increase is related primarily to contract deposits on Speyside Holdings LLC and CEM III LLC.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $1,389,314 and $2,452,007 for the years ended December 31, 2015 and 2014, respectively. The reduction in net cash provided is due to the Company not obtaining additional funding from public offerings of stock in 2015. Currently, additional funding is being secured from stockholder loans.
Plan of Operation
Our plan of operations over the next twelve months includes (i) focusing our operations on Speyside Holding LLC’s quarry operations; (ii) increasing sales revenue to $10,000,000; (iii) securing service contracts with consumer product manufacturers, resellers, and service providers; (iv) exploring the acquisitions of quarries, concrete plants, asphalt plants and construction companies; (v) reducing Green Remanufacturing Solution, LLC’s overhead; and (vi) exploring transportation alternatives for Speyside including in-house trucking and rail siding. In order to implement our plan of operation, we will need to obtain outside funding. Green Remanufacturing Solutions LLC’s strategic vision is so shift from purchasing consumer returns to refurbishing consumer goods for a fee. The service agreement business mode allows the Company to increase revenue without the need to purchase inventory, thereby reducing cash flow constraints. Speyside Holding LLC’s strategic vision is to close on its purchase agreement with Highland Sand & Gravel, Inc. and expand the sales of its crushed aggregate into the New York, New Jersey and Connecticut markets. The Company believes that it will need a minimum of $15,000,000 to cover its planned operations over the next 12 months.
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While we have historically been funded by management, there can be no assurance that we will be continued to be funded by management or that such funding will be provided on terms favorable to the Company.
Liquidity and Capital Resources
We will require substantial additional financing in order to execute our business expansion and development plans and we may require additional financing in order to sustain substantial future business operations for an extended period of time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our operations.
As of December 31, 2015, the Company had a cash balance of $521. The Company believes that such funds will be insufficient to fund its expenses over the next twelve months. There can be no assurance that additional capital will be available to the Company. The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company. We currently have no commitments with any person for any capital expenditures.
Using an annualized figure of $2,254,158 for our operating costs, costs are approximately $187,846 a month. Given the amount of cash currently on hand, we expect our current cash reserves to last for less than one month.
Off Balance Sheet Arrangements
As of December 31, 2015, there were no off balance sheet arrangements.
Basis of Presentation
The financial statements of the Company are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.
Going Concern
We have incurred losses since inception have net cash used from our operations through the year ended December 31, 2015. Further, the Company has inadequate working capital to maintain or develop its operations, and is dependent upon funds from private investors and the support of certain stockholders.
These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management is planning to raise necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital or in further developing its operations.
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Critical Accounting Policies
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
| (i) | Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. |
| (ii) | Inventory Obsolescence and Markdowns: The Company’s estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical results of physical inventory cycle counts. |
| (iii) | Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (A) significant under-performance or losses of assets relative to expected historical or projected future operating results; (B) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (C) significant negative industry or economic trends; (D) increased competitive pressures; (E) a significant decline in the Company’s stock price for a sustained period of time; and (F) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. |
| (iv) | Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. |
These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole 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 sources.
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Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Principles of Consolidation
The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.
The Company’s consolidated subsidiaries and/or entities are as follows:
| Name of consolidated subsidiary or entity | State or other jurisdiction of incorporation or organization | Date of incorporation or formation (date of acquisition, if applicable) (date of disposition, if applicable) | Attributable interest to Company | |||||
| Green Remanufacturing LLC | The State of Delaware | May 31, 2012 (March 7, 2014) (N/A) | 100 | % | ||||
| Appliancesplace.com, LLC | The State of New York | November 29, 2012 (March 7, 2014) (N/A) | 100 | % | ||||
| Speyside Holdings LLC | The State of Delaware | March 25, 2015 (April 23, 2015) (N/A) | 85 | % | ||||
| CEM III LLC | The State of New York | July 13, 2015 (October 1, 2015) (N/A) | 72.25 | % | ||||
The consolidated financial statements include all accounts of the Company as of and for the reporting periods then ended.
All inter-company balances and transactions have been eliminated.
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Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| · | Level 1 – Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| · | Level 2 – Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| · | Level 3 – Pricing inputs that are generally observable inputs and not corroborated by market data |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, advances on purchases, prepayments and other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis
The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
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Accounts Receivable and Allowance for Doubtful Accounts
Pursuant to FASB ASC paragraph 310-10-35-47 trade receivables that management has the intent and ability to hold for the foreseeable future shall be reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for doubtful accounts. The Company follows FASB ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9 Losses from uncollectible receivables shall be accrued when both of the following conditions are met: (a) Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been impaired at the date of the financial statements, and (b) The amount of the loss can be reasonably estimated. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable. The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included in general and administrative expenses, if any.
Pursuant to FASB ASC paragraph 310-10-35-41 Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged off in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall be recorded when received. The Company charges off its trade account receivables against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The Company recorded a provision for doubtful accounts of $85,000 to allow for any amounts which may be unrecoverable, which is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends.
Inventories
Inventory Valuation
The Company values inventories, consisting of raw materials, consumables, packaging material, finished goods, and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method for raw materials and packaging materials and the weighted average cost method for finished goods. Cost of finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates; (ii) estimates of future demand; (iii) competitive pricing pressures; (iv) new product introductions; (v) product expiration dates; and (vi) component and packaging obsolescence.
Inventory Obsolescence and Markdowns
The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. Other significant estimates include the allocation of variable and fixed production overheads. While variable production overheads are allocated to each unit of production on the basis of actual use of production facilities, the allocation of fixed production overhead to the costs of conversion is based on the normal capacity of the Company’s production facilities, and recognizes abnormal idle facility expenses as current period charges. Certain costs, including categories of indirect materials, indirect labor and other indirect manufacturing costs which are included in the overhead pools are estimated. The management of the Company determines its normal capacity based upon the amount of operating hours of the manufacturing machinery and equipment in a reporting period.
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Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| Estimated Useful Life (Years) | ||||
| Leasehold improvement (*) | 3-6 | |||
| Property and equipment | 7-15 | |||
| Software | 3 | |||
| Management Agreement (^) | 1.5 | |||
(*) Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.
(^) Amortized on a straight-line basis over the term of the Management Agreement or its termination date, whichever is shorter.
Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted Section 360-10-35 of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
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Pursuant to ASC Paragraphs 360-10-45-4 and 360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses.
Leases
Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.
In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee’s incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee’s incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Operating leases primarily relate to the Company’s leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
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Pursuant to Section 850-10-20 the related parties include (a.) affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); (b.) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c.) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d.) principal owners of the Company; (e.) management of the Company; (f.) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g.) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c.) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d.) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Product Warranty
The Company estimates future costs of warranty obligations in accordance with ASC 460-10, which requires an entity to disclose and recognize a liability for the fair value of the obligation it assumes upon issuance of a warranty. As of the fourth quarter of 2015, GRS LLC is no longer purchasing product for its own account and reconditioning said product for resale with a GRS LLC warranty. Prior to the fourth quarter of 2015, GRS LLC would warrant most of its reconditioned product for a specific period of time, usually 30 – 90 days but sometimes one year, from the date of purchase, for certain covered reasons. The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty. The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.
The Company has incurred de minimis warranty costs in connection with its sales for the reporting period ended December 31, 2015 due to the short duration of its warranty period and it no longer purchasing consumer returns for its own account for reconditioning and resale.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
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Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Non-controlling Interest
The Company follows paragraph 810-10-65-1 of the FASB Accounting Standards Codification to report the non-controlling interest in the consolidated balance sheets within the equity section, separately from the Company’s stockholders’ equity. Non-controlling interest represents the non-controlling interest holder’s proportionate share of the equity of the Company’s majority-owned subsidiary. Non-controlling interest is adjusted for the non-controlling interest holder’s proportionate share of the earnings or losses and other comprehensive income (loss), if any, and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.
Revenue Recognition
The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the transport company and title transfers upon shipment; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.
Net sales of products represent the invoiced value of goods, net of sales taxes. The Company is not subject to charge sales tax as the Company sells to wholesale distributors and is thereby exempt from charging sales tax. Sales or Output sales tax is borne by customers in addition to the invoiced value of sales and Purchase or Input sales tax is borne by the Company in addition to the invoiced value of purchases to the extent not exempt due to the purpose of the acquisition. As the Company is a remanufacturer of consumer returns and a seller to wholesalers, all goods purchased for the use in the remanufacturing process are exempt of input sales tax.
Shipping and Handling Costs
The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under the guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services.
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Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.
Pursuant to ASC Paragraphs 505-50-30-2 and 505-50-30-11 share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date: (a) The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); or (b) The date at which the counterparty’s performance is complete. If the Company’s common shares are traded in one of the national exchanges the grant-date share price of the Company’s common stock will be used to measure the fair value of the common shares issued, however, if the Company’s common shares are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
Pursuant to ASC Paragraph 718-10-55-21 if an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:
| a. | The exercise price of the option. |
| b. | The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment termination behavior: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
| c. | The current price of the underlying share. |
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| d. | The expected volatility of the price of the underlying share for the expected term of the option. Pursuant to ASC Paragraph 718-10-55-25 a newly publicly traded entity might base expectations about future volatility on the average volatilities of similar entities for an appropriate period following their going public. A nonpublic entity might base its expected volatility on the average volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise similar entities in a fair value measurement. Pursuant to paragraph 718-10-S99-1 if shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. The Company uses the average historical volatility of the comparable companies over the expected term of the share options or similar instruments as its expected volatility. |
| e. | The expected dividends on the underlying share for the expected term of the option. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
| f. | The risk-free interest rate(s) for the expected term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option’s contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model. |
Pursuant to ASC paragraph 505-50-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.
Deferred Tax Assets and Income Taxes Provision
Until March 6, 2014, Green Remanufacturing Solutions, LLC was treated as a pass through entity for federal income tax purposes, i.e. members of an LLC are taxed separately on their distributive share of the LLC’s earnings (loss) whether or not that income is actually distributed.
Effective March 7, 2014, the Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Speyside Holdings, LLC is treated as a partnership for federal income tax purposes.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
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The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax years that remain subject to examination by major tax jurisdictions
The Company discloses tax years that remain subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.
Limitation on Utilization of NOLs due to Change in Control
Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.
Pro forma income tax information (unaudited)
Prior to March 7, 2014, the date of acquisition, Green Remanufacturing Solutions, LLC was a LLC, treated as a partnership for federal income tax purposes. The operating results of the LLC were included in the income tax returns of the member of LLC for income tax purposes.
There were no difference between net loss reported as the LLC or as a C Corporation and there were no income tax provision for the reporting period ended December 31, 2014 or 2013 as the Company incurred net operating loss for both reporting periods would the Company have always been incorporated as a C Corporation upon its incorporation.
The unaudited pro forma income tax amounts, income tax provision, deferred tax assets, and the valuation allowance of deferred tax assets included in the accompanying income tax provision note reflect the income tax provision which would have been recorded as if the LLC had been incorporated as a C Corporation upon its incorporation.
Earnings per Share
Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
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Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.
There were no potentially dilutive common shares outstanding for the reporting period ended December 31, 2015 or 2014.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (the “Indirect Method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments
Segment Information
The Company follows Topic 280 of the FASB Accounting Standards Codification for segment reporting. Pursuant to Paragraph 280-10-50-1 an operating segment is a component of a public entity that has all of the following characteristics: (a). It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). (b). Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. (c). Its discrete financial information is available. In accordance with Paragraph 280-10-50-5 the term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the segments of a public entity. Often the chief operating decision maker of a public entity is its chief executive officer or chief operating officer, but it may be a group consisting of, for example, the public entity’s president, executive vice presidents, and others. Pursuant to Paragraph 280-10-50-10 a public entity shall report separately information about each operating segment that meets both of the following criteria: (a). Has been identified in accordance with paragraphs 280-10-50-1 and 280-10-50-3 through 50-9 or results from aggregating two or more of those segments in accordance with the following paragraph; and (b). Exceeds the quantitative thresholds in paragraph 280-10-50-12. In accordance with Paragraph 280-10-50-12 a public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds: (a). Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments. (b). The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either: 1. The combined reported profit of all operating segments that did not report a loss, or 2. The combined reported loss of all operating segments that did report a loss. (c). Its assets are 10 percent or more of the combined assets of all operating segments. Pursuant to Paragraphs 280-10-50-22 and 280-10-50-29, a public entity shall report a measure of profit or loss and total assets for each reportable segment and provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following: (a). The basis of accounting for any transactions between reportable segments. (b). The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income (loss) before income tax provision, extraordinary items, and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). (c). The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). (d). The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss. (e). The nature and effect of any asymmetrical allocations to reportable segments.
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Subsequent Events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):
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| a. | Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans) |
| b. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations |
| c. | Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. |
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:
| a. | Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern |
| b. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations |
| c. | Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.
In January 2015, the FASB issued the FASB Accounting Standards Update No. 2015-01 “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”).
This Update eliminates from GAAP the concept of extraordinary items and the requirements in Subtopic 225-20 for reporting entities to separately classify, present, and disclose extraordinary events and transactions.
The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.
In February 2015, the FASB issued the FASB Accounting Standards Update No. 2015-02 “Consolidation (Topic 810) - Amendments to the Consolidation Analysis” (“ASU 2015-02”) to improve certain areas of consolidation guidance for reporting organizations (i.e., public, private, and not-for-profit) that are required to evaluate whether to consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (e.g., collateralized debt/loan obligations).
All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments:
| · | Eliminating the presumption that a general partner should consolidate a limited partnership. |
| · | Eliminating the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable Interest Entity (VIE) consolidation models from four to two (including the limited partnership consolidation model). |
| · | Clarifying when fees paid to a decision maker should be a factor to include in the consolidation of VIEs. Note: a VIE is a legal entity in which consolidation is not based on a majority of voting rights. |
| · | Amending the guidance for assessing how related party relationships affect VIE consolidation analysis. |
| · | Excluding certain money market funds from the consolidation guidance. |
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The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.
In April 2015, the FASB issued the FASB Accounting Standards Update No. 2015-03 “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”).
To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.
For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
In July 2015, the FASB issued the FASB Accounting Standards Update No. 2015-11 “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
In August 2015, the FASB issued the FASB Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”). The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by 17 C.F.R. 229(10)(f)(i) and are not required to provide the information under this heading.
The required Financial Statements and the notes thereto are contained in a separate section of this report beginning with the page following the signature page.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2015, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Notwithstanding the foregoing, we have identified the following material weakness in our disclosure procedures:
| · | Audit Committee and Financial Expert – The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process. |
There can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management; and |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
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(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
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Item 10. Directors, Executive Officers, and Corporate Governance.
The following table sets forth: (1) names and ages of all persons who presently are and who have been selected as directors and executive officers of the Registrant; (2) all positions and offices with the Registrant held by each such person; (3) any period during which he or she has served as such:
| Name | Age | Position with the Company | ||
| Eugene Fernandez | 54 | President, Vice President of Business Development, Interim Chief Financial Officer, Director | ||
| Michael Cox | 32 | Chief Operating Officer, Director | ||
| Slawek Mochalski | 46 | Vice President of Remanufacturing Operations | ||
| Anthony Williams | 70 | Director |
Eugene Fernandez, 54, President, Vice President of Business Development, Interim Chief Financial Officer and Director. Mr. Fernandez has served in an executive role since June 2012. Mr. Fernandez comes from a long business career that had him operating in both the private and public sectors. During Mr. Fernandez’s career, he has led a number of startups, raised multiple rounds of private and venture capital and has successfully launched new products that were sold to consumer and enterprise customers. Mr. Fernandez has served as the President of BlueGreen Farms, a real estate development company and construction company, and has spearheaded the development of an agricultural company. Mr. Fernandez holds a B.S. in Business Management from Dominican College.
Michael Cox, 32 Chief Operating Officer and Director. Mr. Cox joined GRS in January 2013 and is responsible for business development, corporate strategy and strategic partnerships. Mr. Cox is an attorney admitted to practice law in New York. Prior to joining GRS in 2013, Mr. Cox represented public and private entities in corporate and regulatory matters. Michael holds a B.S. in Economics from The Pennsylvania State University and a J.D. from Hofstra University School of Law.
Anthony Williams, 70, Director. Anthony Williams is member of the Dentons U.S., LLP’s New York office. He focuses on commercial transactions, including mergers and acquisitions, private equity investments and financings for U.S. and non-U.S. clients. He also counsels domestic and multi-national corporations on all securities law topics and corporate finance matters. In addition to his extensive transactional practice, he acts as general counsel to family offices and private foundations and advises on all of their legal and business needs. After working in its Hong Kong office and founding its San Francisco office, Mr. Williams served as Chairman of Coudert Brothers LLP from 1993 to 2001. He has deep international experience in financial management, investments, accounting and business development. He is a veteran of the United States Army. Mr. Williams holds an A.B., cum laude, from Harvard University and a J.D., from the New York University School of Law, where he served as the Managing Editor of the New York University Journal of International Law.
Slawek Mochalski, 46, Vice President of Remanufacturing Operations. Mr. Mochalski has served as Vice President of Operations of Green Remanufacturing Solutions LLC since 2012. Over the past two decades, Mr. Mochalski has developed his proprietary remanufacturing processes and has employed them for some of the largest consumer product manufacturers in the world including, Whirlpool, Haier, Frigidaire, General Electric, Royal Appliance Manufacturing Company, Bissell, Inc., Fantom Technologies, The Hoover Company, Karcher USA, and Aero Inflatable Products. Mr. Mochalski was the Vice President of Production at Consumer Product Services LLC from 2004 to 2011, where he was director of operations, operating and managing return centers exceeding 200,000 square feet with staff approaching 400.
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Audit Committee
Our board of directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Instead the board of directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act. The Company intends on establishing an Audit Committee composed of independent directors of the Company. The audit committee’s duties would be to recommend to the Company’s board of directors the engagement of independent auditors to audit the Company’s financial statements and to review its accounting and auditing principles. The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of the Company’s board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Compensation Committee
Our board of directors does not have a separate compensation committee responsible for determining executive and director compensation. Instead, the board of directors fulfills this function, and each member of the board participates in the determination. Given the small size of the Company and its board, plus the Company’s limited resources, locating, obtaining and retaining additional independent directors is extremely difficult. In the absence of independent directors, the board does not believe that creating a separate compensation committee would result in any improvement in the compensation determination process. Accordingly, the board of directors has concluded that the Company and its stockholders would be best served at this time by having the entire board of director’s act in place of a compensation committee. When acting in this capacity, the board does not have a charter.
Code of Ethics
We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic. Our code of ethics is filed as an exhibit to this Form 10-K.
Item 11. Executive Compensation.
Executive Compensation
The following Summary Compensation Table shows certain compensation information for each of the Named Executive Officers. Compensation data is shown for the years ended December 31, 2015 and 2014. This information includes the dollar value of base salaries, bonus awards, the number of stock options granted, and certain other compensation, if any, whether paid or deferred.
| Name and Principal Position | Year | Salary | Bonus | Equity Awards | Option Awards | All Other Compensation | Total | |||||||||||||||||||||
| Eugene Fernandez (1)(2) | 2015 | 13,000 | - | - | - | - | - | |||||||||||||||||||||
| 2014 | - | - | - | - | - | - | ||||||||||||||||||||||
| Michael C. Cox (1)(2) | 2015 | 13,000 | - | - | - | - | ||||||||||||||||||||||
| 2014 | 69,231 | - | - | - | - | 69,231 | ||||||||||||||||||||||
| Slawek Mochalski | 2015 | 91,404 | - | - | - | - | 91,404 | |||||||||||||||||||||
| 2014 | 101,961 | - | - | - | - | 101,961 | ||||||||||||||||||||||
(1) On April 23, 2015, the Company approved employment agreements with Eugene Fernandez as President and Michael Cox as Chief Operating Officer. Messrs. Fernandez and Cox agreed to three year terms each at a salary of $120,000 per year, plus customary benefits and the opportunity for bonuses and equity grants.
(2) As of December 31, 2015, Messrs. Fernandez and Cox each agreed to defer and accrue $48,000 of salary.
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Director Compensation
The members of our board of directors did not receive compensation for their services as directors for the year ended December 31, 2015.
The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of December 31, 2015.
| Option awards | Stock awards | |||||||||||||||||||||||||||||||||
| Name and
Principal Position | Number of
Securities Underlying Unexercised Options Exercisable | Number
of Securities Underlying Unexercised Options Unexercisable | Option
Exercise Price ($) | Option
Expiration Date | Number
of Shares or Units of Stock that Have Not Vested | Market
Value of Shares or Units of Stock that Have Not Vested | Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested | Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested | ||||||||||||||||||||||||||
| - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table presents information concerning the beneficial ownership of the shares of our common stock as of December 31, 2015, by: (i) each of our named executive officers and current directors, (ii) all of our current executive officers and directors as a group and (iii) each person we know to be the beneficial owner of 5% of more of our outstanding shares of common stock. Unless otherwise specified, the address of each beneficial owner listed in the table is c/o 445 County Road 101, Suite E, Yaphank, New York 11980.
| Name | Number of Shares Beneficially Owned | Percent of Class (1) | ||||||
| Eugene Fernandez (2) | 9,393,338 | 28.4 | % | |||||
| Michael Cox (3) | 3,195,000 | 9.7 | % | |||||
| Slawek Mochalski | 883,200 | 2.7 | % | |||||
| Anthony Williams (4) | 2,152,130 | 6.5 | % | |||||
| Bober Family Trust | 2,177,600 | 6.6 | % | |||||
| Officers and Directors as a Group (4 persons) | 15,623,668 | 47.2 | % | |||||
| (1) | Based upon 33,086,782 shares of common stock outstanding as of December 31, 2015. |
| (2) | Includes 2,502,120 shares held by Mr. Fernandez individually, 4,811,820 shares held by SDG Group Holdings LLC, 1,979,930 shares held by Thunnus Thynnus Consulting LLC and 99,488 shares held by FLS 3, Inc., over which Mr. Fernandez holds voting and dispositive power over. |
| (3) | Includes 2,350,000 shares held by EF Trust and 845,000 shares held by Canyon Bound LLC, over which Mr. Cox holds voting and dispositive power. |
| (4) | Includes 2,152,130 shares held by Stonehenge Holdings LLC. |
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Item 13. Certain Relationships and Related Transactions and Director Independence
Director Independence
We currently use NASDAQ’s general definition for determining director independence, which states that “independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, that, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director.
Eugene Fernandez, a principal of the Company, has previously loaned $950,000 to the offering’s placement agent’s parent company, Canterbury Securities Holdings, Inc., all of which amount remains due and owing.
Item 14. Principal Accountant Fees and Services
Audit Fees
Audit Fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. This category includes fees related to the performance of audits and attest services not required by statute or regulations, and accounts consultations regarding the application of GAAP to proposed transactions. The aggregate Audit Fees billed for the fiscal years ended December 31, 2015 and December 31, 2014, were $25,000 and $25,000, respectively.
Audit Related Fees
The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2015 and December 31, 2014, were $-0- and $-0-, respectively.
Tax Fees
Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns. The aggregate Tax Fees billed for the fiscal years ended December 31, 2015 and December 31, 2014, were $10,285 and $-0-, respectively.
Audit Committee Pre-Approval Policies and Procedures
Effective May 6, 2003, the SEC adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
| · | approved by our audit committee; or |
| · | entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. |
| 41 |
We do not have an audit committee. Our board of directors pre-approves all services provided by our independent auditors.
Item 15. Exhibits, Financial Statements Schedules.
(b) Exhibits
| Exhibit No. | Description | |
| 2.1 | Agreement and Plan of Share Exchange, dated March 7, 2014, by and among MarketingMobileText, Inc., Green Remanufacturing Solutions LLC, Slimko Holdings LLC and the members of Green Remanufacturing Solutions LLC (as filed as Exhibit 2.1 to the Current Report on Form 8-K filed on March 13, 2014) | |
| 3.1 | Amended and Restated Articles of Incorporation (as filed as Exhibit 3.1 to the Current Report on Form 8-K filed on April 18, 2014) | |
| 3.2 | Amended and Restated Bylaws (as filed as Exhibit 3.2 to the Current Report on Form 8-K filed on January 7, 2015) | |
| 10.1 | Green Remanufacturing Solutions, Inc. 2014 Employee Incentive Stock Option Plan (as filed as Exhibit 10.1 to the Current Report on Form 8-K filed on March 13, 2014) | |
| 10.2 | Form of Subscription Agreement (as filed as Exhibit 4.1 to the Current Report on Form 8-K filed on March 13, 2014) | |
| 14.1 | Code of Ethics (as filed as Exhibit 14.1 to the Form 10-K filed on May 8, 2015) | |
| 21.1 | Subsidiaries of the Registrant * | |
| 31.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002 * | |
| 32.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** | |
| 95 | Mine Safety Disclosures Required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. * | |
| 101.INS | XBRL Instance * | |
| 101.SCH | XBRL Taxonomy Extension Schema * | |
| 101.CAL | XBRL Taxonomy Extension Calculation * | |
| 101.DEF | XBRL Taxonomy Extension Definition * | |
| 101.LAB | XBRL Taxonomy Extension Labels * | |
| 101.PRE | XBRL Taxonomy Extension Presentation * |
| * | filed herewith |
| ** | furnished herewith |
| 42 |
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PROGRESSIVE GREEN SOLUTIONS, INC. | ||
| Date: March 23, 2016 | By: | /s/ Eugene Fernandez |
| Eugene Fernandez | ||
| President and Interim Chief Financial Officer (Principal Executive Officer and (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
/s/ Eugene Fernandez |
President and Interim Chief Financial Officer (Principal | March 23, 2016 | ||
| Eugene Fernandez | Executive Officer and Principal Financial and Accounting Officer) | |||
| Financial Officer (Principal Financial Officer) (Principal Accounting Officer) and Director | March 23, 2016 | |||
| /s/ Michael Cox | Chief Operating Officer and Director | March 23, 2016 | ||
| Michael Cox | ||||
| /s/ Anthony Williams | Director | March 23, 2016 | ||
| Anthony Williams |
| 43 |
Progressive Green Solutions, Inc.
December 31, 2015 and 2014
Index to the Consolidated Financial Statements
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Progressive Green Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Progressive Green Solutions, Inc. (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we 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 were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company had an accumulated deficit at December 31, 2015, a net loss and net cash used in operating activities for the year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Li and Company, PC
Li and Company, PC
Skillman, New Jersey
March 23, 2016
| F-2 |
Progressive Green Solutions, Inc.
Consolidated Balance Sheets
| December 31, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 521 | $ | 62,337 | ||||
| Accounts receivable, net | 1,007,099 | 255,779 | ||||||
| Inventories, net | - | 603,155 | ||||||
| Prepayments and other current assets | 34,851 | 49,150 | ||||||
| Total current assets | 1,042,471 | 970,421 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Property and equipment | 395,138 | 102,580 | ||||||
| Accumulated depreciation | (40,112 | ) | (10,793 | ) | ||||
| Property and equipment, net | 355,026 | 91,787 | ||||||
| SOFTWARE AND HARDWARE | ||||||||
| Software and hardware | 207,081 | 190,731 | ||||||
| Accumulated amortization | (85,677 | ) | (45,138 | ) | ||||
| Software and hardware, net | 121,404 | 145,593 | ||||||
| LEASEHOLD IMPROVEMENTS | ||||||||
| Leasehold improvements | 698,213 | 563,267 | ||||||
| Accumulated amortization | (338,016 | ) | (239,925 | ) | ||||
| Leasehold improvements, net | 360,197 | 323,342 | ||||||
| MANAGEMENT AGREEMENT | ||||||||
| Management agreement | 50,000 | - | ||||||
| Accumulated amortization | (22,778 | ) | - | |||||
| Management agreement, net | 27,222 | - | ||||||
| OTHER ASSETS | ||||||||
| Security deposits | 34,693 | 34,693 | ||||||
| Deposit on potential purchases | 225,000 | - | ||||||
| Total other assets | 259,693 | 34,693 | ||||||
| Total assets | $ | 2,166,013 | $ | 1,565,836 | ||||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 2,180,370 | $ | 448,980 | ||||
| Factor Advance | 192,710 | - | ||||||
| Customer deposits | - | 239,660 | ||||||
| Notes payable -related parties | 1,123,501 | - | ||||||
| Advances from stockholders | 32,339 | 500 | ||||||
| Advances from third party | 117,264 | - | ||||||
| Deferred rent, current portion | 46,252 | 40,379 | ||||||
| Equipment loan, current portion | 21,911 | - | ||||||
| Total current liabilities | 3,714,347 | 729,519 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Deferred rent, net of current portion | 14,265 | 68,764 | ||||||
| Equipment loan, net of current portion | 69,001 | - | ||||||
| Total non-current liabilities | 83,266 | 68,764 | ||||||
| Total liabilities | 3,797,613 | 798,283 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY (DEFICIT) | ||||||||
| Preferred stock par value $0.001: 10,000,000 shares authorized; none issued or outstanding | - | - | ||||||
| Common stock par value $0.001: 300,000,000 shares authorized; 33,086,782 shares issued and outstanding | 33,087 | 33,087 | ||||||
| Additional paid-in capital | 2,999,636 | 2,999,636 | ||||||
| Accumulated deficit | (4,602,912 | ) | (2,265,170 | ) | ||||
| Total Progressive Green Solutions, Inc. stockholders' equity (deficit) | (1,570,189 | ) | 767,553 | |||||
| Non-Controlling Interest | (61,411 | ) | - | |||||
| Total equity (deficit) | (1,631,600 | ) | 767,553 | |||||
| Total liabilities and equity (deficit) | $ | 2,166,013 | $ | 1,565,836 | ||||
See accompanying notes to the consolidated financial statements.
| F-3 |
Progressive Green Solutions, Inc.
Consolidated Statements of Operations
| For the Year | For the Year | |||||||
| Ended | Ended | |||||||
| December 31, 2015 | December 31, 2014 | |||||||
| NET REVENUE | $ | 4,848,534 | $ | 2,773,196 | ||||
| COST OF GOODS SOLD | ||||||||
| Cost of goods sold | 4,668,438 | 2,360,368 | ||||||
| Inventory obsolescence and markdowns | 174,517 | 276,694 | ||||||
| COST OF GOODS SOLD | 4,842,955 | 2,637,062 | ||||||
| GROSS MARGIN | 5,579 | 136,134 | ||||||
| OPERATING EXPENSES: | ||||||||
| Salaries and wages | 674,943 | 781,190 | ||||||
| Professional fees | 341,245 | 488,259 | ||||||
| Rent and occupancy | 516,803 | 628,153 | ||||||
| Selling, general and administrative | 721,165 | 475,134 | ||||||
| Total operating expenses | 2,254,156 | 2,372,736 | ||||||
| LOSS FROM OPERATIONS | (2,248,577 | ) | (2,236,602 | ) | ||||
| OTHER (INCOME) EXPENSE: | ||||||||
| Other (income) expense | 40,441 | (1,674 | ) | |||||
| Interest expense | 28,070 | - | ||||||
| Bad debt expense | 82,065 | 113,659 | ||||||
| Other (income) expense, net | 150,576 | 111,985 | ||||||
| LOSS BEFORE INCOME TAX PROVISION | (2,399,153 | ) | (2,348,587 | ) | ||||
| INCOME TAX PROVISION | - | - | ||||||
| NET LOSS | (2,399,153 | ) | (2,348,587 | ) | ||||
| Net loss attributable to non-controlling interest | (61,411 | ) | - | |||||
| Net loss attributable to PGS Inc. stockholders | $ | (2,337,742 | ) | $ | (2,348,587 | ) | ||
| Net loss per common share - Basic and diluted | $ | (0.07 | ) | $ | (0.08 | ) | ||
| Weighted average common shares outstanding - Basic and diluted | 33,086,782 | 29,720,405 | ||||||
See accompanying notes to the consolidated financial statements.
| F-4 |
Progressive Green Solutions, Inc.
Consolidated Statement of Changes in Equity (Deficit)
For the Year Ended December 31, 2014 and 2015
| Progressive Green | ||||||||||||||||||||||||||||
| Common Stock Par Value $0.001 | Additional | Stockholders' | Non-controlling | Total | ||||||||||||||||||||||||
| Number of Shares | Amount | Paid-in capital | Accumulated Deficit | Equity (Deficit) | Interest | Equity (Deficit) | ||||||||||||||||||||||
| Balance, December 31, 2013 | 23,000,000 | $ | 23,000 | $ | 2,304,392 | $ | (2,455,569 | ) | $ | (128,177 | ) | $ | - | $ | (128,177 | ) | ||||||||||||
| Net loss for the period from January 1, 2014 through March 7, 2014 | (83,417 | ) | (83,417 | ) | (83,417 | ) | ||||||||||||||||||||||
| Reclassification of undistributed retained earnings as of March 7, 2014 to additional paid-in capital | (2,538,986 | ) | 2,538,986 | - | - | |||||||||||||||||||||||
| Reverse acquisition adjustment | 4,560,000 | 4,560 | (6,273 | ) | (1,713 | ) | (1,713 | ) | ||||||||||||||||||||
| Issuance of common shares for cash at $0.75 per share, net of issuance cost | 5,024,348 | 5,024 | 3,636,601 | 3,641,625 | 3,641,625 | |||||||||||||||||||||||
| Issuance of common shares to placement agent plus fees | 502,434 | 503 | (396,098 | ) | (395,595 | ) | (395,595 | ) | ||||||||||||||||||||
| Net loss for the period from March 7, 2014 through December 31, 2014 | (2,265,170 | ) | (2,265,170 | ) | (2,265,170 | ) | ||||||||||||||||||||||
| Balance, December 31, 2014 | 33,086,782 | 33,087 | 2,999,636 | (2,265,170 | ) | 767,553 | - | 767,553 | ||||||||||||||||||||
| Net loss | (2,337,742 | ) | (2,337,742 | ) | (61,411 | ) | (2,399,153 | ) | ||||||||||||||||||||
| Balance, December 31, 2015 | 33,086,782 | $ | 33,087 | $ | 2,999,636 | $ | (4,602,912 | ) | $ | (1,570,189 | ) | $ | (61,411 | ) | $ | (1,631,600 | ) | |||||||||||
See accompanying notes to the consolidated financial statements.
| F-5 |
Progressive Green Solutions, Inc.
Consolidated Statements of Cash Flows
| For the Year | For the Year | |||||||
| Ended | Ended | |||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Net loss before non-controlling interest | $ | (2,399,153 | ) | $ | (2,348,587 | ) | ||
| Adjustments to reconcile net loss before non-controlling interest to net cash used in operating activities | ||||||||
| Depreciation expense | 29,319 | 7,818 | ||||||
| Amortization expense, software | 40,539 | 31,730 | ||||||
| Amortization expense, leasehold improvement | 98,091 | 95,432 | ||||||
| Amortization expense,management agreement | 22,778 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (751,320 | ) | 21,824 | |||||
| Inventories | 603,155 | (54,880 | ) | |||||
| Prepayments and other current assets | 14,299 | (1,970 | ) | |||||
| Accounts payable and accrued expenses | 1,660,335 | (409,653 | ) | |||||
| Customer deposits | (239,660 | ) | 239,660 | |||||
| Deferred rent | (48,626 | ) | 109,143 | |||||
| Net cash used in operating activities | (970,243 | ) | (2,309,483 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (125,646 | ) | (62,018 | ) | ||||
| Purchase of leasehold improvements | (63,891 | ) | (69,639 | ) | ||||
| Purchase of software and hardware | (16,350 | ) | (23,644 | ) | ||||
| Management agreement | (50,000 | ) | - | |||||
| Deposit on potential purchase | (225,000 | ) | - | |||||
| Net cash used in investing activities | (480,887 | ) | (155,301 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Advances from (repayment to) stockholders | 31,839 | (565,636 | ) | |||||
| Proceeds from(repayment to) notes payable - related parties | 1,047,501 | (226,674 | ) | |||||
| Advances from third party | 117,264 | |||||||
| Factor Advance | 192,710 | |||||||
| Proceeds from issuance of common stock | - | 3,244,317 | ||||||
| Net cash provided by financing activities | 1,389,314 | 2,452,007 | ||||||
| Net change in cash | (61,816 | ) | (12,777 | ) | ||||
| Cash at beginning of the reporting period | 62,337 | 75,114 | ||||||
| Cash at end of the reporting period | $ | 521 | $ | 62,337 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| Non-Cash Financing and Investing Activities: | ||||||||
| Accrued liabilities for leasehold improvements | $ | 71,055 | $ | - | ||||
| Property and equipment purchased with debt | $ | 166,912 | $ | - | ||||
See accompanying notes to the consolidated financial statements.
| F-6 |
Progressive Green Solutions, Inc.
December 31, 2015 and 2014
Notes to the Consolidated Financial Statements
Note 1 - Organization and Operations
Progressive Green Solutions, Inc.
Progressive Green Solutions, Inc. (the “Company”) was incorporated on August 26, 2011, under the laws of the State of Nevada as MarketingMobileText, Inc. which subsequently changed its corporate name to Progressive Green Solutions, Inc.
On March 7, 2014, the Company acquired all of the membership interests of Green Remanufacturing Solutions LLC (“GRS LLC”) in exchange for 23,000,000 newly issued post-split shares of the Company’s common stock (the “Exchange”). In connection with the Exchange, the Company adopted the business plan of GRS, and amended its Articles of Incorporation to change its name to Progressive Green Solutions, Inc., effectuate a forward-split on a ten for one basis and increase its authorized capital stock to 300,000,000 shares of common stock and 10,000,000 shares of blank check preferred stock.
As a result of the controlling financial interest of the former members of GRS LLC, for financial statement reporting purposes, the merger between the Company and GRS LLC has been treated as a reverse acquisition with GRS LLC deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse acquisition is deemed a capital transaction and the net assets of GRS LLC (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of GRS LLC which are recorded at their historical cost. The equity of the Company is the historical equity of GRS LLC retroactively restated to reflect the number of shares issued by the Company in the transaction.
Green Remanufacturing Solutions, Inc.
Green Remanufacturing Solutions, Inc. (“GRS Inc.”) was incorporated on June 27, 2011, under the laws of the State of New York. GRS Inc. specialized in reverse logistics, repair and recovery, engineering/quality assurance, warehousing and fulfillment, secondary market sales and e-commerce for retailers and manufacturers of major appliances, small appliances, floor care products, air-conditioning/filtration products, power tools and outdoor power equipment products.
Green Remanufacturing Solutions LLC
Green Remanufacturing Solutions LLC (“GRS LLC”) was formed on May 31, 2012, under the laws of the State of Delaware. The sole purpose of GRS LLC was to carry-on GRS Inc.’s business in the form of a limited liability company. The assets and liabilities of GRS Inc. were carried forward to the Company at their historical costs on the date of conversion. On September 5, 2013 a Certificate of Merger was filed with the State of New York Department of State, Division of Corporations, merging GRS Inc. and the Company into the Company.
Applianceplace.com, LLC
Applianceplace.com, LLC was formed on November 29, 2012 under the laws of the State of New York and is 100% owned by the Company.
Speyside Holdings LLC
Speyside Holdings LLC was formed on March 25, 2015 under the laws of the State of Delaware and is 85% owned by the Company. On April 23, 2015, the Company acquired eighty-five (85%) of Speyside Holdings LLC (“Speyside”).
On April 30, 2015, Speyside entered into a Professional Management Agreement (the “Management Agreement”) with Highland Sand & Gravel, Inc. (“Highland”) whereby Speyside would operate a sand and gravel quarry owned by Highland in consideration for a fixed fee based on the tonnage of material sold and a minimum guaranteed payment of $12,000 per month. A one-time non-refundable fee of $50,000 was paid to Highland upon the execution of this Management Agreement and is being amortized over the term of the Management Agreement. The term of the Management Agreement is for twelve (12) months with Speyside’s option to extend the Management Agreement an additional six (6) months.
| F-7 |
Also on April 30, 2015, Speyside entered into a Purchase and Sale Agreement with Highland to acquire all of the real and personal property of Highland.
CEM III LLC
CEM III LLC (“CEM”) was formed on July 13, 2015 under the laws of the State of New York and is 85% owned by Speyside. On October 1, 2015, CEM entered into a Contract for Sale of Real Estate with Grace E. Wolf Family Limited Partnership (“Wolf”) to acquire an approximately 30-acre parcel of real property for use in connection with Speyside’s operations. CEM is currently inactive.
Note 2 - Significant and Critical Accounting Policies and Practices
The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
| (i) | Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business; |
| (ii) | Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. |
| (iii) | Inventory Obsolescence and Markdowns: The Company’s estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical results of physical inventory cycle counts. |
| (iv) | Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (A) significant under-performance or losses of assets relative to expected historical or projected future operating results; (B) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (C) significant negative industry or economic trends; (D) increased competitive pressures; (E) a significant decline in the Company’s stock price for a sustained period of time; and (F) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. |
| F-8 |
| (v) | Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. |
These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole 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 sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Principles of Consolidation
The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.
The Company’s consolidated subsidiaries and/or entities are as follows:
|
Name of consolidated subsidiary or entity |
State or other jurisdiction of incorporation or organization |
Date of incorporation or formation (date of disposition, if applicable) |
Attributable interest to Company |
|||||
| Green Remanufacturing LLC | The State of Delaware | May 31, 2012 (March 7, 2014) (N/A) |
100 | % | ||||
| Applianceplace.com, LLC | The State of New York | November 29, 2012 (March 7, 2014) (N/A) |
100 | % | ||||
| Speyside Holdings LLC | The State of Delaware | March 25, 2015 (April 23, 2015) (N/A) |
85 | % | ||||
| CEM III LLC | The State of New York | July 13, 2015 (October 1, 2015) (N/A) |
72.25 | % | ||||
| F-9 |
The consolidated financial statements include all accounts of the Company and consolidated subsidiaries and/or entities as of and for the reporting periods then ended.
All inter-company balances and transactions have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| · | Level 1 – Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| · | Level 2 – Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| · | Level 3 – Pricing inputs that are generally observable inputs and not corroborated by market data |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, accounts payable and accrued expenses, advances from third party and deferred rent approximate their fair values because of the short maturity of these instruments.
The Company’s equipment loans approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at December 31, 2015.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis
The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
| F-10 |
Accounts Receivable and Allowance for Doubtful Accounts
Pursuant to FASB ASC paragraph 310-10-35-47 trade receivables that management has the intent and ability to hold for the foreseeable future shall be reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for doubtful accounts. The Company follows FASB ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9 Losses from uncollectible receivables shall be accrued when both of the following conditions are met: (a) Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been impaired at the date of the financial statements, and (b) The amount of the loss can be reasonably estimated. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable. The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included in general and administrative expenses, if any.
Pursuant to FASB ASC paragraph 310-10-35-41 Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged off in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall be recorded when received. The Company charges off its trade account receivables against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The Company recorded a provision for doubtful accounts of $85,000, which is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends.
Inventories
Inventory Valuation
The Company values inventories, consisting of raw materials, consumables, packaging material, finished goods, and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method for raw materials and packaging materials and the weighted average cost method for finished goods. Cost of finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates; (ii) estimates of future demand; (iii) competitive pricing pressures; (iv) new product introductions; (v) product expiration dates; and (vi) component and packaging obsolescence.
Inventory Obsolescence and Markdowns
The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. Other significant estimates include the allocation of variable and fixed production overheads. While variable production overheads are allocated to each unit of production on the basis of actual use of production facilities, the allocation of fixed production overhead to the costs of conversion is based on the normal capacity of the Company’s production facilities, and recognizes abnormal idle facility expenses as current period charges. Certain costs, including categories of indirect materials, indirect labor and other indirect manufacturing costs which are included in the overhead pools are estimated. The management of the Company determines its normal capacity based upon the amount of operating hours of the manufacturing machinery and equipment in a reporting period.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| F-11 |
| Estimated Useful Life (Years) | ||||
| Leasehold improvement (*) | 3-6 | |||
| Property and equipment | 7-15 | |||
| Software | 3 | |||
| Management Agreement(^) | 1.5 |
(*) Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.
(^) Amortized on a straight-line basis over the term of the Management Agreement or its termination date, whichever is shorter.
Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted Section 360-10-35 of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-35-29 through 35-36 Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall include only the future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset (asset group). Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall incorporate the entity’s own assumptions about its use of the asset (asset group) and shall consider all available evidence. The assumptions used in developing those estimates shall be reasonable in relation to the assumptions used in developing other information used by the entity for comparable periods, such as internal budgets and projections, accruals related to incentive compensation plans, or information communicated to others. However, if alternative courses of action to recover the carrying amount of a long-lived asset (asset group) are under consideration or if a range is estimated for the amount of possible future cash flows associated with the likely course of action, the likelihood of those possible outcomes shall be considered. A probability-weighted approach may be useful in considering the likelihood of those possible outcomes. Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall be made for the remaining useful life of the asset (asset group) to the entity. For long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value.
Pursuant to ASC Paragraphs 360-10-45-4 and 360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses.
| F-12 |
Leases
Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.
In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee’s incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee’s incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Operating leases primarily relate to the Company’s leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include (a.) affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); (b.) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c.) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d.) principal owners of the Company and members of their immediate families; (e.) management of the Company and members of their immediate families;; (f.) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g.) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Pursuant to ASC Paragraphs 850-10-50-1 and 50-5 financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. The disclosures shall include: (a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c.) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d.) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
| F-13 |
Product Warranty
The Company estimates future costs of warranty obligations in accordance with ASC 460-10, which requires an entity to disclose and recognize a liability for the fair value of the obligation it assumes upon issuance of a warranty. As of the fourth quarter of 2015, GRS LLC is no longer purchasing product for its own account and reconditioning said product for resale with a GRS LLC warranty. Prior to the fourth quarter of 2015, GRS LLC would warrant most of its reconditioned product for a specific period of time, usually 30 – 90 days but sometimes one year, from the date of purchase, for certain covered reasons. The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty. The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.
The Company has incurred de minimis warranty costs in connection with its sales for the reporting period ended December 31, 2015 due to the short duration of its warranty period and it no longer purchasing consumer returns for its own account for reconditioning and resale.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Non-controlling Interest
The Company follows paragraph 810-10-65-1 of the FASB Accounting Standards Codification to report the non-controlling interest in the consolidated balance sheets within the equity section, separately from the Company’s stockholders’ equity. Non-controlling interest represents the non-controlling interest holder’s proportionate share of the equity of the Company’s majority-owned subsidiary. Non-controlling interest is adjusted for the non-controlling interest holder’s proportionate share of the earnings or losses and other comprehensive income (loss), if any, and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.
Revenue Recognition
The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the transport company and title transfers upon shipment; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.
| F-14 |
Net sales of products represent the invoiced value of goods, net of sales taxes. The Company is not subject to charge sales tax as the Company sells to wholesale distributors and is thereby exempt from charging sales tax. Sales or Output sales tax is borne by customers in addition to the invoiced value of sales and Purchase or Input sales tax is borne by the Company in addition to the invoiced value of purchases to the extent not exempt due to the purpose of the acquisition. As the Company is a remanufacturer of consumer returns and a seller to wholesalers, all goods purchased for the use in the remanufacturing process are exempt of input sales tax.
Shipping and Handling Costs
The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under the guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC paragraphs 505-50-25-6 and 505-50-25-7, a grantor shall recognize the goods acquired or services received in a share-based payment transaction when it obtains the goods or as services are received. A grantor may need to recognize an asset before it actually receives goods or services if it first exchanges share-based payment for an enforceable right to receive those goods or services. Nevertheless, the goods or services themselves are not recognized before they are received. If fully vested, nonforfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, nonforfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.
Pursuant to ASC Paragraphs 505-50-30-2 and 505-50-30-11 share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date: (a) The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); or (b) The date at which the counterparty’s performance is complete. If the Company’s common shares are traded in one of the national exchanges the grant-date share price of the Company’s common stock will be used to measure the fair value of the common shares issued, however, if the Company’s common shares are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
Pursuant to ASC Paragraph 718-10-55-21 if an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:
| F-15 |
| a. | The exercise price of the option. |
| b. | The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment termination behavior: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
| c. | The current price of the underlying share. |
| d. | The expected volatility of the price of the underlying share for the expected term of the option. Pursuant to ASC Paragraph 718-10-55-25 a newly publicly traded entity might base expectations about future volatility on the average volatilities of similar entities for an appropriate period following their going public. A nonpublic entity might base its expected volatility on the average volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise similar entities in a fair value measurement. Pursuant to paragraph 718-10-S99-1 if shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. The Company uses the average historical volatility of the comparable companies over the expected term of the share options or similar instruments as its expected volatility. |
| e. | The expected dividends on the underlying share for the expected term of the option. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
| f. | The risk-free interest rate(s) for the expected term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option’s contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model. |
Pursuant to ASC paragraph 505-50-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.
Deferred Tax Assets and Income Taxes Provision
Prior to March 7, 2014, GRS LLC was treated as a partnership for federal income tax purposes, i.e. members of an LLC are taxed separately on their distributive share of the LLC’s earnings (loss) whether or not that income is actually distributed.
Effective March 7, 2014, the Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
| F-16 |
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Limitation on Utilization of NOLs due to Change in Control
Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.
Pro forma income tax information (unaudited)
Prior to March 7, 2014, the date of acquisition, Green Remanufacturing Solutions, LLC was a LLC, treated as a partnership for federal income tax purposes. The operating results of the LLC were included in the income tax returns of the members of LLC for income tax purposes.
There was no difference between net loss reported as the LLC or as a C Corporation and there was no income tax provision for the reporting period ended December 31, 2014 as the Company incurred net operating loss for the reporting period would the Company have always been incorporated as a C Corporation upon its incorporation.
Earnings per Share
Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from net income (loss). The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation. Pursuant to ASC Paragraphs 260-10-45-40 through 45-42 convertible securities shall be reflected in diluted EPS by application of the if converted method. The convertible preferred stock or convertible debt shall be assumed to have been converted at the beginning of the period (or at time of issuance, if later). In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive.
| F-17 |
There were no potentially dilutive common shares outstanding for the reporting period ended December 31, 2015 or 2014.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (the “Indirect Method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments
Segment Information
The Company follows Topic 280 of the FASB Accounting Standards Codification for segment reporting. Pursuant to Paragraph 280-10-50-1 an operating segment is a component of a public entity that has all of the following characteristics: (a). It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). (b). Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. (c). Its discrete financial information is available. In accordance with Paragraph 280-10-50-5 the term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the segments of a public entity. Often the chief operating decision maker of a public entity is its chief executive officer or chief operating officer, but it may be a group consisting of, for example, the public entity’s president, executive vice presidents, and others. Pursuant to Paragraph 280-10-50-10 a public entity shall report separately information about each operating segment that meets both of the following criteria: (a). Has been identified in accordance with paragraphs 280-10-50-1 and 280-10-50-3 through 50-9 or results from aggregating two or more of those segments in accordance with the following paragraph; and (b). Exceeds the quantitative thresholds in paragraph 280-10-50-12. In accordance with Paragraph 280-10-50-12 a public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds: (a). Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments. (b). The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either: 1. The combined reported profit of all operating segments that did not report a loss, or 2. The combined reported loss of all operating segments that did report a loss. (c). Its assets are 10 percent or more of the combined assets of all operating segments. Pursuant to Paragraphs 280-10-50-22 and 280-10-50-29, a public entity shall report a measure of profit or loss and total assets for each reportable segment and provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following: (a). The basis of accounting for any transactions between reportable segments. (b). The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income (loss) before income tax provision, extraordinary items, and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). (c). The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). (d). The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss. (e). The nature and effect of any asymmetrical allocations to reportable segments.
Subsequent Events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
| F-18 |
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):
| a. | Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans) |
| b. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations |
| c. | Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. |
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:
| a. | Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern |
| b. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations |
| c. | Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.
In July 2015, the FASB issued the FASB Accounting Standards Update No. 2015-11 “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
| F-19 |
In August 2015, the FASB issued the FASB Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”). The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.
Note 3 – Going Concern
The Company elected to adopt early application of Accounting Standards Update No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the financial statements, the Company had an accumulated deficit at December 31, 2015, a net loss and net cash used in operating activities for the year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is continuing operations and hopes to generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to generate sufficient revenue 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 its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Inventories
Inventories consisted of the following:
| December 31, 2015 | December 31, 2014 | |||||||
| Raw materials | - | $ | 306,298 | |||||
| Finished goods | - | 403,551 | ||||||
| Inventory reserve | - | (106,694 | ) | |||||
| $ | 603,155 | |||||||
The Company recorded $174,517 and $276,694 inventory obsolescence and slow moving adjustments for the year ended December 31, 2015 and 2014, respectively.
Note 5 – Property, Equipment, Leasehold Improvement, Software and Hardware and Management Agreement
(i) Impairment
The Company completed its annual impairment testing of property and equipment and determined that there was no impairment as the fair value of property and equipment, exceeded their carrying values at December 31, 2015.
(ii) Depreciation and Amortization Expense
Depreciation and amortization expense were $190,727 and $134,980 for the reporting period ended December 31, 2015 and 2014, respectively.
| F-20 |
Note 6 – Related Party Transactions
Related parties
Related parties with whom the Company had transactions are:
| Related Parties | Relationship | |
| Eugene Fernandez | President, interim CFO, and significant stockholder of the Company. | |
| Anthony Williams | Chairman of the Board of Directors of the Company and significant stockholder of the Company. | |
| Michael Christopher Cox | COO and significant stockholder of the Company. | |
| DGS Group LLC | An entity owned and controlled by a significant stockholder of the Company. | |
| Stonehenge Holdings LLC | An entity owned and controlled by a significant stockholder of the Company. | |
| FLS 3, Inc. | An entity owned and controlled by a significant stockholder of the Company. |
Screening Plant Purchase Agreement
On June 19, 2015, the Company, via its majority owned subsidiary, Speyside Holdings LLC, purchased a screening plant from FLS 3, Inc. FLS 3, Inc. is an entity solely owned by Eugene Fernandez, a major shareholder, President and acting CFO of the Company. The screening plant was sold by FLS 3, Inc. to Speyside Holdings LLC for $160,000. FLS 3, Inc. delivered the screening plant and a bill of sale to Speyside Holdings LLC and Speyside Holdings LLC tendered $41,000 and a promissory note for $119,000 to FLS 3, Inc. The promissory note bears an interest rate of 5% per annum and is due on demand.
Advances from Stockholders
From time to time, the stockholders of the Company advance funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.
| F-21 |
Notes Payable - Stockholders
Notes payable - Stockholders consisted of the following:
| December 30, 2015 | December 31, 2014 | |||||||
| On January 30, 2015 the Company issued a promissory note to a stockholder to memorialize (i) the receipt of the funds in the amount of $9,800 and (ii) the terms of note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 9,800 | - | |||||
| On various dates between the months of January and June 2015, the Company issued 17 promissory notes to the same stockholder to memorialize (i) the receipt of the funds in the aggregate amount of $128,150 and (ii) the terms of the notes. Pursuant to the terms and conditions, the notes accrue simple interest at 5% per annum until the notes are fully repaid. The notes are due on demand. Nine of these notes remain outstanding. | $ | 73,900 | ||||||
| On April 3, 2015 the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $50,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 50,000 | - | |||||
| On May 11, 2015, the Company issued a note to a stockholder to memorialize (i) the availability of funds in the amount of $500,000 or the amount disbursed to the company and (ii) the terms of the note. As of September 30, 2015, $500,000 has been disbursed to the Company. Pursuant to the terms and conditions, the note accrues interest at the rate of LIBOR (90 day) plus the Margin (4%) per annum and interest payments are due monthly. The note is due May 8, 2016. | $ | 500,000 | - | |||||
| On June 19, 2015, the Company issued a note to a stockholder to acknowledge (i) the loan balance of $140,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues compound interest at 5% per annum and is due on demand. On various dates in November, payments were made to the shareholder totaling $43,000. The current balance due on this note is $76,000 | $ | 76,000 | - | |||||
| On July 10, 2015, the Company issued a note to, memorialize (i) the receipt of funds in the amount of $10,000 and (ii) the terms of note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. The current balance due on this note is $5,000 | $ | 5,000 | - | |||||
| On August 21, 2015, the Company issued a grid note to a stockholder to memorialize (i) the receipt of funds in the amount of $19,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 19,000 | - | |||||
| On August 26, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $10,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 10,000 | - | |||||
| On September 1, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $10,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 10,000 | - | |||||
| On September 4, 2015, the Company modified the grid note dated August 21, 2015 to a stockholder to memorialize (i) the receipt of funds in the amount of $7,500 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 7,500 | - | |||||
| On September 11, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $4,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 4,000 | - | |||||
| On September 14, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $30,000 and (ii) the terms of the note. Pursuant to the terms and conditions, the note accrues simple interest at 5% per annum and is due on demand. | $ | 30,000 | - | |||||
| On September 23, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $60,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 60,000 | - | |||||
| On October 5, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $25,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 25,000 | - | |||||
| On November 3, 2015, the Speyside Holdings LLC issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $8,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 8,000 | - | |||||
| F-22 |
| On November 4, 2015, the Speyside Holdings LLC issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $1,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 1,000 | - | |||||
| On November 5, 2015, the Speyside Holdings LLC issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $2,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 2,000 | - | |||||
| On November 6, 2015, the Speyside Holdings LLC issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $25,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 25,000 | - | |||||
| On November 25, 2015, the Company issued a note to memorialize (i) the receipt of funds in the amount of $10,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 10,000 | ||||||
| On December 17, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $125,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 125,000 | - | |||||
| On various dates of December 2015, the Company issued 5 promissory notes to the same stockholder to memorialize (i) the receipt of the funds in the aggregate amount of $59,301 and (ii) the terms of the notes. Pursuant to the terms and conditions, the notes accrue simple interest at 5% per annum until the notes are fully repaid. The notes are due on demand. All of these notes remain outstanding. | $ | 59,301 | - | |||||
| On December 31, 2015, the Company issued a note to a stockholder to memorialize (i) the receipt of funds in the amount of $13,000 and (ii) the terms of the note. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and is due on demand. | $ | 13,000 | - | |||||
| $ | 1,123,501 | $ | - |
Note 7 – Equipment Loan
On November 25, 2015 Speyside purchased an excavator for $108,300; $15,600 in cash and financing of $92,700. The loan has forty-eight payments of $2,088.93 per month, commencing December 2015 and expiring in November 2019 with an annual interest rate of 3.9%.
| F-23 |
Equipment loan consisted of the following:
| December 31, 2015 | December 31, 2014 | |||||||
| (i) On November 25, 2015 Speyside purchased an excavator for $108,300; $15,600 in cash and financing of $92,700. The loan has forty-eight payments of $2,088.93 per month, commencing December 2015 and expiring in November 2019 with an annual interest rate of 3.9%. | 90,912 | - | ||||||
| Less current maturities | (21,911 | ) | (- | ) | ||||
| Total capital lease obligations, net of current maturities | $ | 69,001 | $ | - | ||||
The future minimum payments under this equipment loan at December 31, 2015 were as follows:
| Year ending December 31: | ||||
| 2016 | 25,067 | |||
| 2017 | 25,067 | |||
| 2018 | 25,067 | |||
| 2019 | 22,978 | |||
| Total capital lease obligation payments | 98,179 | |||
| Less amounts representing interest | (7,267 | ) | ||
| Present value of total future capital lease obligation payments | $ | 90,912 | ||
| Less current maturities of capital lease obligation | (21,911 | ) | ||
| Capital lease obligation, net of current maturities | $ | 69,001 |
Note 8 – Commitments and Contingencies
Operating Lease
Operating Lease - Yaphank Facility
On August 10, 2011, effective September 1, 2011, Green Remanufacturing Solutions of NY, Inc. entered into a lease for warehouse space expiring on March 31, 2017 (the “Yaphank Lease”). On January 10, 2013 the Green Remanufacturing Solutions of NY, Inc. amended the Yaphank Lease to expand its demised. On August 1, 2013, Green Remanufacturing Solutions of NY, Inc. assigned the Yaphank Lease, as amended to Green Remanufacturing Solutions LLC. On February 24, 2016, Green Remanufacturing Solutions LLC amended the Yaphank Lease (effective September 29, 2015) to reduce the demised area.
Future base rent minimum payments required under this non-cancelable operating lease were as follows:
| Year ending December 31: | ||||
| 2015 | 370,903 | |||
| 2016 | 265,981 | |||
| 2017 | 67,053 | |||
| $ | 703,937 |
| F-24 |
Equipment Leases
During the interim period ended September 30, 2015, the Company entered into two equipment rental contracts with purchase option for heavy machinery to be used in its quarry operations. As of December 31, 2015, Management has decided to return one of these pieces of equipment. The cost of the machine that remains at the quarry is $575,000. If Management pursues the purchase option, $20,000 of rental payments paid per month will be applied toward the purchase price.
Employment Agreements – Officers
On April 23, 2015, the Company entered into an employment agreement with Eugene Fernandez as Chief Executive Officer of the Company. According to the agreement which has an initial term of three years with automatic one year renewals, Mr. Fernandez will receive the following in connection with his position:
| ● | Base salary of $120,000. |
| ● | Eligibility to receive an annual cash bonus. |
| ● | Receipt of 5 Class B Units of Speyside Holdings LLC. |
On April 23, 2015, the Company entered into an employment agreement with Michael Cox as Chief Operating Officer of the Company. According to the agreement which has an initial term of three years with automatic one year renewals, Mr. Cox will receive the following in connection with his position:
| ● | Base salary of $120,000. |
| ● | Eligibility to receive an annual cash bonus. |
| ● | Receipt of 5 Class B Units of Speyside Holdings LLC. |
Note 9 –Stockholders’ Equity (Deficit)
Shares Authorized
The total number of shares of all classes of stock which the Company is authorized to issue is Three Hundred and Ten Million (310,000,000) shares of which Ten Million (10,000,000) shares shall be Preferred Stock, par value $0.001 per share, and Three Hundred Million (300,000,000) shares shall be Common Stock, par value $0.001 per share.
Common Stock
Amendment to the Articles of Incorporation to Effectuate a Reverse Stock Split
Effective March 7, 2014, the Board of Directors and the majority voting stockholders adopted and approved a resolution to amend its Articles of Incorporation to effectuate a forward split such that 10 shares of Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to the Amendment (the “Split”).
All shares and per share amounts in the financial statements have been adjusted to give retroactive effect to the stock Split.
Issuance of Common Stock
During the calendar year ended December 31, 2015, the Company sold no shares of its Common Stock.
Note 10 – Concentrations and Credit Risk
Customers and Credit Concentrations
Total net sales to any customer did not account for more than 10% of total sale for the year ended December 31, 2015. As of December 31, 2015, two customers accounted for 30% of Accounts Receivable.
Customer concentrations and credit concentrations for the year ended December 31, 2014 are as follows:
| F-25 |
| Net Sales | Account Receivable | |||||||
| Twelve Months Ended | Twelve Months Ended | |||||||
| December 31, 2014 | December 31, 2014 | |||||||
| Customer A | 10 | % | 3 | % | ||||
| Customer B | 9 | % | - | % | ||||
| Customer C | 9 | % | 10 | % | ||||
| Customer D | 6 | % | 12 | % | ||||
| Customer E | 4 | % | 22 | % | ||||
| Customer F | 3 | % | 11 | % | ||||
| 41 | % | 58 | % | |||||
Vendor Concentrations
Vendor purchase concentrations and accounts payable concentration as follows:
| Net Purchases | Accounts Payable | |||||||||||||||
| The year ended | At | |||||||||||||||
| December 31, 2015 | December 31, 2014 | December 31, 2015 | December 31, 2014 | |||||||||||||
| Vendor A | 3 | % | 61 | % | 12 | % | 42 | % | ||||||||
| Vendor B | - | % | 14 | % | 3 | % | 26 | % | ||||||||
| Vendor C | 1 | % | 8 | % | 3 | % | 21 | % | ||||||||
| 4 | % | 83 | % | 18 | % | 89 | % | |||||||||
Note 11 – Segment Reporting
Reportable segments are components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The Company operates in the following business segments:
| i. | Parent: the Company is responsible for the overall management of its returns management segment and quarry operations segment. |
| ii. | Returns management: through the Company’s wholly owned subsidiary, Green Remanufacturing Solutions LLC, this segment engages in reverse logistics, remanufacturing, repair and recovery, engineering/quality assurance, warehousing and fulfillment, secondary market sales and e-commerce for retailers and manufacturers of consumer goods. |
| F-26 |
| iii. | Quarry operations: through a company that the Company is a majority owner of, Speyside Holdings LLC, this segment engages in the production and sale of crushed stone and aggregates to the New York City metro area. |
The Company measures the segment profit or loss and segment assets for each reportable segment as follows:
| a. | The basis of accounting for any transactions between reportable segments: The Company allows reportable segments to freely negotiate the terms and conditions of and carries out, on an arm’s-length basis, any transactions between reportable segments; |
| b. | The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income before income taxes, extraordinary items, and discontinued operations: There are no material differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income (loss) as the Company presently allocates minimal centrally incurred costs to the parent; |
| c. | The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets: There were no difference between the measurements of the reportable segments’ assets and the public entity’s consolidated assets as the Company does not have any jointly used assets; |
| d. | The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss: this is the first period that the Company is engaging in segment reporting; |
| e. | The nature and effect of any asymmetrical allocations to reportable segments: There were no asymmetrical allocations to reportable segments as the Company does not allocate depreciation expense to a reportable segment without allocating the related depreciable assets to that reportable segment. |
F-27
| Progressive Green Solutions, Inc. | |||||||||||||||
| Assets by Segments | |||||||||||||||
| December 31, 2015 | |||||||||||||||||
| Parent | Returns | Quarry Operations | Total | ||||||||||||||
| ASSETS | |||||||||||||||||
| CURRENT ASSETS | |||||||||||||||||
| Cash | $ | - | $ | - | $ | 360 | $ | 360 | |||||||||
| Accounts receivable, net | 68455 | 938,644 | 1,007,099 | ||||||||||||||
| Inventories, net | - | - | |||||||||||||||
| Advances to related party | - | ||||||||||||||||
| Advance on purchases | - | - | |||||||||||||||
| Prepayments and other current assets | 12,526 | 10,763 | 11,562 | 34,851 | |||||||||||||
| Total current assets | 12,526 | 79,218 | 950,566 | 1,042,310 | |||||||||||||
| PROPERTY AND EQUIPMENT | |||||||||||||||||
| Property and equipment | 102,580 | 292,558 | 395,138 | ||||||||||||||
| Accumulated depreciation | (20,199 | ) | (19,913 | ) | (40,112 | ) | |||||||||||
| Property and equipment, net | 82,381 | 272,645 | 355,026 | ||||||||||||||
| SOFTWARE AND HARDWARE | |||||||||||||||||
| Software and hardware | 190,731 | 16350 | 207,081 | ||||||||||||||
| Accumulated amortization | (83,284 | ) | (2,393 | ) | (85,677 | ) | |||||||||||
| Software and hardware, net | 107,447 | 13,957 | 121,404 | ||||||||||||||
| LEASEHOLD IMPROVEMENTS | |||||||||||||||||
| Leasehold improvements | 563,267 | 134,946 | 698,213 | ||||||||||||||
| Accumulated amortization | (338,016 | ) | (338,016 | ) | |||||||||||||
| Leasehold improvements, net | 225,251 | 134,946 | 360,197 | ||||||||||||||
| MANAGEMENT AGREEMENT | |||||||||||||||||
| Management agreement | 50,000 | 50,000 | |||||||||||||||
| Accumulated amortization | (22,778 | ) | (22,778 | ) | |||||||||||||
| Management agreement, net | 27,222 | 27,222 | |||||||||||||||
| OTHER ASSETS | |||||||||||||||||
| Security deposits | 34,693 | 34,693 | |||||||||||||||
| Deposit on potential purchase | 200,000 | 200,000 | |||||||||||||||
| Total other assets | 34,693 | 200,000 | 234,693 | ||||||||||||||
| Total assets | $ | 12,526 | $ | 528,990 | $ | 1,599,336 | $ | 2,140,852 | |||||||||
See accompanying notes to the consolidated financial statements.
F-28
| Progressive Green Solutions, Inc. | |||||||||||||
| Operations by Segment | |||||||||||||
| For the Twelve Months | ||||||||||||||||
| Ended | ||||||||||||||||
| December 31, 2015 | ||||||||||||||||
| Parent | Returns Management | Quarry Operations | Total | |||||||||||||
| NET REVENUE | $ | - | $ | 1,652,382 | $ | 3,196,075 | $ | 4,848,457 | ||||||||
| COST OF GOODS SOLD | ||||||||||||||||
| Cost of goods sold | 1,637,889 | 3,204,586 | 4,842,475 | |||||||||||||
| COST OF GOODS SOLD | - | 1,637,889 | 3,204,586 | 4,842,475 | ||||||||||||
| GROSS MARGIN | - | 14,493 | (8,511 | ) | 5,982 | |||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Salaries and wages | 126,282 | 437,994 | 110,667 | 674,943 | ||||||||||||
| Professional fees | 179,376 | 22,683 | 139,186 | 341,245 | ||||||||||||
| Rent and occupancy | - | 444,440 | 72,363 | 516,803 | ||||||||||||
| Selling, general and administrative | 99,214 | 345,485 | 276,188 | 720,887 | ||||||||||||
| Total operating expenses | 404,872 | 1,250,602 | 598,404 | 2,253,878 | ||||||||||||
| LOSS FROM OPERATIONS | (404,872 | ) | (1,236,109 | ) | (606,915 | ) | (2,247,896 | ) | ||||||||
See accompanying notes to the consolidated financial statements.
F-29
Note 12 – Deferred Assets and Income Tax Provision
Deferred Tax Assets
At December 31, 2015, the Company has available for federal income tax purposes a net operating loss (“NOL”) carry-forwards of approximately $4,602,912 that may be used to offset future taxable income through the fiscal year ending December 31, 2035. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying consolidated financial statements since the Company believes that the realization of its net deferred tax asset of approximately $1,564,990 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a full valuation allowance.
Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding the probability of its realization. The valuation allowance increased by $794,832 and $770,158 for the years ended December 31, 2015 and 2014, respectively.
Components of deferred tax assets are as follows:
| December 31, 2015 | December 31, 2014 | |||||||
| Net deferred tax assets – Non-current: | ||||||||
| Expected income tax benefit from NOL carry-forwards | $ | 1,564,990 | $ | 770,158 | ||||
| Less valuation allowance | $ | (1,564,990 | ) | $ | (770,158 | ) | ||
| Deferred tax assets, net of valuation allowance | $ | - | $ | - | ||||
| F-30 |
Income Tax Provision
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
| For the year ended December 31, 2015 | For the year ended December 31, 2014 | |||||||
| Federal statutory income tax rate | 34.0 | % | 34.0 | % | ||||
| Change in valuation allowance on net operating loss carry-forwards | (34.0 | )% | (34.0 | )% | ||||
| Effective income tax rate | 0.0 | % | 0.0 | % | ||||
Note 13 – Subsequent Events
The Company has evaluated all events that occur after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that the following reportable subsequent event was required to be disclosed:
During the months of January 2016 through March 2016, The Company issued 37 notes to stockholders to memorialize (i) the receipt of funds totaling $318,700 and (ii) the terms of the notes. Pursuant to the terms and conditions the note accrues simple interest at 5% per annum and are due on demand.
| F-31 |