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EX-32.1 - ALLIANCE BIOENERGY PLUS, INC.ex32-1.htm
EX-31.2 - ALLIANCE BIOENERGY PLUS, INC.ex31-2.htm
EX-31.1 - ALLIANCE BIOENERGY PLUS, INC.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the Quarter ended September 30, 2017

 

Commission File Number: 000-54942

 

ALLIANCE BIOENERGY PLUS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   45-4944960
(State of Organization)   (I.R.S. Employer Identification No.)

 

400 N Congress Avenue Suite 130

West Palm Beach, FL 33401

 

(Address of principal executive offices)

 

(888) 607-3555

 

Registrant’s telephone number, including area code

 

 

 

Former address if changed since last report

 

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

 

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

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and 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). [X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. 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 [  ] (Do not check if a smaller reporting company)   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]

 

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

 

Common Stock $.001 par value

 

There were 81,821,226 shares of common stock outstanding as of November 14, 2017

 

 

 

 
 

 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION  
       
ITEM 1.   INTERIM FINANCIAL STATEMENTS 3
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION 18
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23
ITEM 4.   CONTROLS AND PROCEDURES 23
       
PART II – OTHER INFORMATION  
       
ITEM 1.   LEGAL PROCEEDINGS 25
ITEM 1A.   RISK FACTORS 25
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES 25
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4.   MINE SAFETY DISCLOSURES 27
ITEM 5.   OTHER INFORMATION 27
ITEM 6.   EXHIBITS 27
       
SIGNATURES 28

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. INTERIM FINANCIAL STATEMENTS

 

Alliance BioEnergy Plus, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30, 2017   December 31, 2016 
ASSETS          
Current assets          
Cash and cash equivalents  $191,656   $49,680 
Prepaid expenses   593,922    680,813 
TOTAL CURRENT ASSETS   785,578    730,493 
PROPERTY AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION OF $189,858 AND $133,771 AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016, RESPECTIVELY   206,674    254,761 
Other assets          
Security deposits   16,305    16,305 
Capitalized costs   267,997    260,497 
Investment in and advances to an unconsolidated affiliate   7,713,704    7,756,989 
TOTAL OTHER ASSETS   7,998,006    8,033,791 
TOTAL ASSETS  $8,990,258   $9,019,045 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued liabilities  $925,873   $341,688 
Short term note payable – Related party   2,073,126    2,073,126 
Short term note payable – Other   96,570    96,570 
Convertible debentures payable – Other, net of discount of $288,464 & $73,334   605,180    88,329 
Interest payable – Related party   161,432    68,929 
Interest payable – Other   83,379    58,350 
Derivative liabilities   525,000    914,000 
Current liabilities of discontinued operations   36,148    36,148 
TOTAL CURRENT LIABILITIES   4,506,708    3,677,140 
TOTAL LIABILITIES  $4,506,708   $3,677,140 
           
STOCKHOLDER’S EQUITY          
Preferred stock; $0.001 par value; 10,000,000 shares authorized; zero shares issued and outstanding   -    - 
Common stock; $0.001 par value; 500,000,000 shares authorized; 82,031,160 shares issued and outstanding at September 30, 2017 and 71,707,493 shares issued and outstanding at December 31, 2016   82,031    71,707 
Stock subscription receivable   -    (75,000)
Additional paid-in capital   34,356,344    31,167,713 
Accumulated deficit   (29,954,825)   (25,822,515)
Total stockholder’s equity   4,483,550    5,341,905 
TOTAL EQUITY  $4,483,550   $5,341,905 
           
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY  $8,990,258   $9,019,045 

 

See accompanying notes to financial statements

 

 3 

 

 

Alliance BioEnergy Plus, Inc.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2017   2016   2017   2016 
Revenues  $-   $-   $-   $- 
                     
Operating expenses:                    
General and administrative   1,512,758    765,657    3,388,788    3,509,162 
Total operating expenses   1,512,758    765,657    3,388,788    3,509,162 
                     
Loss from operations:   (1,512,758)   (765,657)   (3,388,788)   (3,509,162)
                     
Other (income) expense:                    
Equity loss in an unconsolidated affiliate   78,967    41,104    175,656    124,781 
Loss on extinguishment of debt   220,274    -    220,274    92,440 
Change in fair value of derivative liabilities   (180,861)   -    (283,666)   - 
Interest expense – related party   31,205    895    92,563    2,665 
Interest expense and prepayment penalties – other   332,612    -    536,295    483,656 
Total other income (expense)   (482,197)   (41,999)   (741,122)   (703,542)
                     
Loss from continuing operations:  $(1,994,955)  $(807,656)  $(4,129,910)  $(4,212,704)
                     
Discontinued operations:                    
Loss from discontinued operations   -    -    2,400    3,125 
Gain on disposal of subsidiary   -    -    -    (1,163,609)
Income gain from discontinued operations:  $-   $-   $(2,400)  $1,160,484 
                     
Net loss:   (1,994,955)   (807,656)   (4,132,310)   (3,052,220)
Net gain attributable to non-controlling interest:   -    (114,758)   -    (222,220)
Net loss attributable to Company:  $(1,994,955)  $(692,898)  $(4,132,310)  $(2,830,000)
                     
Basic and diluted net loss per share:                    
Continuing operations  $(0.03)  $(0.02)  $(0.06)  $(0.08)
Discontinued operations  $-   $-   $-   $0.02 
Net loss per share:  $(0.03)  $(0.02)  $(0.06)  $(0.06)
                     
Weighted average common shares outstanding:                    
Basic and Diluted   79,065,562    50,677,527    74,776,642    54,688,336 

 

See accompanying notes to financial statements

 

 4 

 

 

Alliance BioEnergy Plus, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended   Nine Months Ended 
   September 30, 2017   September 30, 2016 
Cash flows from operating activities          
Net loss from continuing operations   (4,129,910)   (4,212,704)
Net income (loss) from discontinued operations   (2,400)   1,160,484 
Net loss  $(4,132,310)  $(3,052,220)
Reconciliation of net loss to net cash used in operating activities          
Depreciation and amortization   56,087    55,178 
Amortization of non-cash compensation   285,918    584,567 
Non-cash loss extinguishment of debt   207,912    92,440 
Non-cash interest expense   441,996    82,056 
Change in fair value of derivative liabilities   (283,666)   - 
Stock based compensation for services   286,415    339,263 
Issuance of warrants for services   114,288    688,887 
Issuance of options awarded under employee, director plan   673,724    220,720 
Equity loss in an unconsolidated affiliate   175,656    124,781 
Changes in operating assets and liabilities          
Prepaid expenses   (12,713)   14,278 
Accrued interest - other   28,398    8,097 
Accounts payable and accrued liabilities   611,392    173,057 
Net cash (used in) operating activities – continuing operations   (1,544,503)   (1,829,380)
Changes in discontinued operations assets and liabilities          
Gain on disposal of subsidiary   -    (1,163,609)
Net cash (used in) operating activities – discontinued operations   (2,400)   (3,125)
Net cash (used in) operating activities   (1,546,903)   (1,832,505)
           
Cash flows from investing activities          
Purchase of property and equipment   (8,000)   (18,037)
Security deposits   -    2,660 
Capitalized costs   (7,500)   (58,476)
Advances to an unconsolidated affiliate   (132,371)   (111,376)
Net cash (used in) investing activities – continuing operations   (147,871)   (185,229)
Net cash (used in) investing activities – discontinued operations   -    - 
Net cash (used in) investing activities   (147,871)   (185,229)
           
Cash flows from financing activities          
Proceeds from issuance of common stock   987,500    2,608,994 
Proceeds from issuance of convertible debt   1,142,750    500,000 
Proceeds from short-term note payable – related party   30,000    - 
Repayment of short-term note payable – related party   (30,000)   - 
Repayment of convertible debt   (293,500)   (884,000)
Repayment of short-term note payable – other   -    (265,000)
Disgorgement of short-swing stock profits   -    6,526 
Net cash provided by financing activities – continuing operations   1,836,750    1,966,520 
Net cash provided by financing activities – discontinued operations   -    - 
Net cash provided by financing activities   1,836,750    1,966,520 
           
Net (decrease) in cash and cash equivalents   141,976    (51,214)
           
Cash and cash equivalent at beginning of the period   49,680    62,054 
Cash and cash equivalent at end of the period  $191,656   $10,840 
           
Supplemental disclosure of cash flow information          
Cash paid during the period for          
Interest  $103,633   $512,046 
Taxes   -    - 
           
Supplemental schedule of non-cash activities          
Conversion of convertible debenture to common stock  $280,607   $333,301 
Common stock issued for future services   189,000    203,267 
Warrants issued for future services   33,314    676,757 
Rescinded common stock issued under the employee, director plan   500    - 
Cashless conversion of warrants   501,195    - 

 

See accompanying notes to financial statements

 

 5 

 

 

ALLIANCE BIOENERGY PLUS, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2017

 

NOTE 1 – ORGANIZATION AND BUSINESS DESCRIPTION

 

Alliance Bioenergy Plus, Inc., (the “Company”) is a technology company focused on emerging technologies in the renewable energy, biofuels, and new technologies sectors. From inception through December 5, 2014, the Company was known as Alliance Media Group Holdings, Inc. In December 2013, a wholly owned subsidiary of the Company, AMG Renewables, LLC (“AMG Renewables”), acquired the controlling interest (51%) in AMG Energy Group, LLC (“AMG Energy”), which owns a fifty percent (50%) interest in Carbolosic, LLC (“Carbolosic”). Carbolosic holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal in acquiring the interest in AMG Energy was to develop the CTS technology to a commercial scale and then seek to license the technology to prospective licensees. In September 2014, the Company determined to focus all of the Company’s resources and personnel on the Company’s renewable energy holdings and future energy technologies and to divest the Company of its entertainment-related assets and subsidiaries. Effective December 5, 2014, amended the Company’s Articles of Incorporation to change the name of the Company to Alliance Bioenergy Plus, Inc., which more appropriately describes the Company’s new business direction.

 

Commencing in March 2016, the Company restructured its energy-related holdings through the following transactions:

 

  (1) In March 2016, AMG Renewables, a wholly owned subsidiary of the Company, sold its interest in Carbolosic Plant 1 to Carbolosic Energy 1, LLLP, an unrelated third party, in exchange for satisfaction of the outstanding $1,250,000 loan and $36,488 interest between Carbolosic Plant 1 and Carbolosic Energy 1, LLLP. In connection with the transaction, an amount which the Company had prepaid to Carbolosic Energy 1, LLLP ($122,879) for future marketing and interest was eliminated in the sale.
     
  (2) In July 2016, the Company determined to restructure its energy holdings under a single wholly owned subsidiary (AMG Energy) such that AMG Energy would own: (i) the Company’s fifty percent (50%) interest of Carbolosic (which includes certain licensing rights in North America and Africa); and (ii) the Company’s 100% interest in EK Laboratories, Inc. Concurrently, the Company divested itself of its interest in Carbolosic Plant 1.

 

This restructuring was completed on September 19, 2016 when AMG Renewables merged into AMG Energy. Previously, the Company had completed transactions with certain related parties to acquire the remaining 49% of AMG Energy (which was not owned by the Company) in exchange for: (i) an aggregate of 10,240,094 shares of Company common stock; and (ii) a restructuring of the balance due under a cash payable to the minority AMG Energy Shareholders.

 

Plan of Operation

 

The Company is now developing and commercializing the licensed technology it controls through its affiliate Carbolosic, LLC. Through its wholly owned subsidiary, AMG Energy, the Company owns Ek Laboratories, Inc., and a 50% interest in Carbolosic (which includes certain licensing rights in North America and Africa). The Company has a strategy that includes the following:

 

  (1) mergers and acquisitions of existing businesses in the renewable energy and sustainable products industries;
     
  (2) sub-licensing patented technologies it controls through a master license with the University of Central Florida under affiliate Carbolosic; and
     
  (3) start-up activities focused on increasing the Company’s revenue stream, securing market share, and enhancing shareholder value.

 

 6 

 

 

NOTE 2 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. The Company has not generated any revenue, has incurred losses since inception, has a working capital deficiency of $3,721,130 and may be unable to raise further equity. At September 30, 2017, the Company had incurred accumulated losses of $29,954,825, of which approximately $20,500,588 is non-cash, since its inception. The Company expects to incur significant additional liabilities in connection with its start-up activities. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities when they become due and to generate sufficient revenues from its operations to pay its operating expenses. These financial statements do not include any adjustments related to the recoverability and classifications of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty. There are no assurances that the Company will continue as a going concern.

 

Management believes that the Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of stock or borrow additional funds. The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations, and its ability to continue in existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty

 

The Company intends to raise additional capital, sell licenses to its CTS technology and continue constructing its full-scale demonstration facility which, once operational, is expected to generate cash flow in amounts sufficient to cover the Company’s operating expenses and debt service.

 

Through its private offerings, the Company raised $6,809,394 from inception through December 31, 2016 and an additional $987,500 in the nine months ended September 30, 2017.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the Company’s majority-owned subsidiaries over which the Company exercises control. Intercompany transactions and balances were eliminated in consolidation.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of intercompany accounts and transactions. Investments in business entities in which the Company lacks control but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company’s proportionate share of net income or loss of the entity is recorded in the Consolidated Statements of Operations.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates presented and reported amounts of revenues and expenses during the reporting periods presented. Significant estimates inherent in the preparation of the accompanying Consolidated Financial Statements include estimates of impairment assessment of identifiable intangible assets and valuation allowance for deferred tax assets. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.

 

Cash and Cash Equivalents

 

All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.

 

 7 

 

 

Stock Compensation

 

The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance.

 

Stock-based Compensation Valuation Methodology

 

Stock-based compensation resulting from the issuance of common stock is calculated by reference to the valuation of the stock on the date of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option-pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock is determined by the then-prevailing closing market price. Expected volatility was based on the historical volatility of the Company’s closing day market price per share. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Daily Yield Curve Rate.

 

The stock compensation issued for services during the nine months ended September 30, 2017, was valued on the date of issuance. The following assumptions were used in calculations of the Black-Scholes option pricing models for warrant-based stock compensation issued in the nine months ended September 30, 2017:

 

   01/01/17   02/18/17   03/31/17   04/01/17   05/03/17   06/02/17   06/30/17   07/01/17   08/01/17 
Risk-free interest rate   1.93%   1.92%   1.93%   1.93%   1.86%   1.71%   1.89%   1.89%   1.80%
Expected life   5 years    5 years    5 years    5 years    5 years    5 years    5 years    5 years    5 years 
Expected dividends   0%   0%   0%   0%   0%   0%   0%   0%   0%
Expected volatility   140.36%   138.54%   137.11%   137.11%   137.74%   136.48%   140.06%   140.06%   139.54%
ALLM common stock fair value  $0.20   $0.16   $0.11   $0.11   $0.14   $0.17   $0.38   $0.38   $0.21 
                                              
    08/11/17    09/01/17    9/15/17    09/30/17                          
Risk-free interest rate   1.78%   1.73%   1.81%   1.92%                         
Expected life   5 years    5 years    5 years    5 years                          
Expected dividends   0%   0%   0%   0%                         
Expected volatility   139.45%   135.96%   131.42%   129.30%                         
ALLM common stock fair value  $0.19   $0.17   $0.18   $0.19                          

 

Accounting and Reporting of Discontinued Operations

 

As required by the FASB ASC Subtopic 205.20, per ASU 2014-08, Discontinued Operations, a component of an entity or a group of components of an entity, or a business or nonprofit activity can be classified as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (i) the criteria in paragraph 205.20.45.1E to be classified as held for sale is met (ii) the component is disposed of by sale, or (iii) the component is disposed of other than by sale in accordance with paragraph 360.10.45.15 (for example, by abandonment or in a distribution to owners in a spinoff). Certain components to be disposed of other than by sale shall continue to be classified as “held and used” until it is disposed of, per the requirements of ASC Subtopic 360.10. Depreciation on these assets ceases upon their classification as “held and used.” The Company adopted ASU No. 2014-08 effective September 1, 2014.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets, generally 5 to 7 years. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

 8 

 

 

Convertible Instruments

 

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

 

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

 

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

 

Accounting for Derivative Instruments

 

The Company issues debentures where the number of shares into which a debenture can be converted is not fixed. For example, when a debenture converts at a discount to market based on the stock price on the date of conversion. In such instances, the embedded conversion option of the convertible debentures is bifurcated from the host contract and recorded at their fair value. In accounting for derivatives, the Company records a liability representing the estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount representing the imputed interest associated with the beneficial conversion feature. The discount is then amortized over the life of the debenture and the derivative liability is adjusted periodically according to stock price fluctuations. At the time of conversion, any remaining derivative liability is charged to additional paid-in capital. For purposes of determining derivative liability, the Company uses Black-Scholes modeling for computing historic volatility.

 

Common Stock Purchase Warrants and Other Derivative Financial Instruments

 

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide it with a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to its own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses the classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

 

Non-controlling interest in consolidated subsidiaries

 

The accompanying consolidated financial statements include the accounts of Alliance BioEnergy Plus, Inc. and those subsidiaries that the Company has the ability to control either through voting rights or means other than voting rights. For these subsidiaries, the Company records 100% of the revenues, expenses, cash flows, assets and liabilities in its consolidated financial statements. For subsidiaries that the Company controls but hold less than 100% ownership, a non-controlling interest is recorded in the consolidated income statement to reflect the non-controlling interest’s share of the net income (loss), and a non-controlling interest is recorded in the consolidated balance sheet to reflect the non-controlling interest’s share of the net assets of the subsidiary.

 

Investments in non-consolidated affiliates

 

Investments in non-consolidated affiliates are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company’s ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. When net losses from an investment are accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company’s share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

 

 9 

 

 

The Company’s investment in Carbolosic, LLC is accounted for using the equity method of accounting. The Company monitors its investment for impairment at least annually and make appropriate reductions in the carrying value if it determines that an impairment charge is required based on qualitative and quantitative information.

 

Impairment of Long Lived Assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, the Company compares the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

 

Income Taxes

 

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

 

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

 

Profit (Loss) per Common Share:

 

Basic profit (loss) per share amounts have been calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share has been calculated using the weighted-average number of common shares plus the potentially dilutive effect of securities such as outstanding options and warrants. The computation of potential common shares has been performed using the treasury stock method. The warrants and options are antidilutive for all periods presented. When net loss is reported, diluted and basic net loss per share amounts are the same as the impact of potential common shares is antidilutive.

 

Fair Value Measurements

 

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

 

The estimated fair value of certain financial instruments, payables to related parties, and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

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

 

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

 

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

 

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

 

The Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using a Black-Scholes option-pricing model with the following assumption inputs:

 

   December 31, 2016   September 30, 2017 
Annual dividend yield   -    - 
Expected life (years)   4.30    0.50 – 0.10  
Risk-free interest rate   1.93%   0.96%
Expected volatility   24% - 163%   22% - 157%

 

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Fair Value Measurements at

   December 31, 2016
   Using Fair Value Hierarchy
   Level 1   Level 2    Level 3 
Liabilities          
Embedded derivative liabilities – (Warrant)           794,000 
Embedded derivative liabilities – (Debenture)           120,000 
Total          $914,000 

 

  

Fair Value Measurements at

   September 30, 2017
   Using Fair Value Hierarchy
   Level 1   Level 2    Level 3 
Liabilities             
Embedded derivative liabilities – (Warrant)          - 
Embedded derivative liabilities – (Debenture)           525,000 
Total          $525,000 

 

For the nine months ended September 30, 2017, the Company recognized a loss of $283,666 on the change in fair value of its derivative liabilities. At September 30, 2017, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 825-10.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

NOTE 4 – INVESTMENT IN UNCONSOLIDATED AFFILIATE

 

On December 26, 2013, AMG Renewables, LLC, a Florida limited liability company (“AMG Renewables”), a wholly-owned subsidiary of the Company, acquired the controlling interest (51%) in AMG Energy Group, LLC a Florida limited liability company (“AMG Energy”) from certain related parties and subsequently acquired the remaining 49% in 2016. AMG Energy owns a fifty percent (50%) interest of Carbolosic, LLC, a Delaware limited liability company (“Carbolosic”), which holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The results of AMG Renewables and AMG Energy are consolidated in the Company’s financial statements. AMG Energy’s investment in Carbolosic is accounted for using the equity method of accounting.

 

The following is a condensed balance sheet of the unconsolidated affiliate as of September 30, 2017 and December 31, 2016 and a comparative statement of operations for the three and nine months ending September 30, 2017 and 2016.

 

 11 

 

 

Condensed Balance Sheet of Non-Consolidated Affiliates
         
    June 30, 2017    December 31, 2016 
ASSETS          
Current Assets          
Cash and cash equivalents  $175   $199 
Total Current Assets   175    199 
Other Assets          
Prepaid Expenses   -    - 
Total Other Assets   -    - 
TOTAL ASSETS  $175   $199 
           
LIABILITIES AND STOCKHOLDERS EQUITY          
Current Liabilities          
Accounts payable and accrued liabilities  $621,711   $406,475 
Interest payable   49,922    31,309 
Current notes payable   775,162    657,585 
TOTAL CURRENT LIABILITIES   1,446,795    1,095,369 
           
STOCKHOLDERS EQUITY          
Accumulated deficit   (1,446,620)   (1,095,170)
TOTAL EQUITY   (1,446,620)   (1,095,170)
           
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY  $175   $199 

 

Condensed Statement of Operations of Non-Consolidated Affiliates
         
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2017   2016   2017   2016 
                 
Revenues  $-   $-   $-   $- 
                     
Operating Expenses                    
Royalties   17,500    17,500    52,500    52,500 
General and administrative   133,554    59,671    280,060    180,934 
Total operating expenses   (151,054)   (77,171)   (332,560)   (233,434)
                     
Other expenses                    
Interest expense   6,879    5,037    18,890    13,640 
Total other expenses   (6,879)   (5,037)   (18,890)   (13,640)
                     
Loss from operations  $(157,933)  $(82,208)  $(351,450)  $(247,074)

 

NOTE 5 – DEBT

 

Short Term Notes Payable - Related Parties

 

Throughout 2013, the Company issued unsecured short-term notes payable to various related parties, including officers and directors of the Company, with a term of one year, which have since been extended and are coming due June 1, 2018. As of September 30, 2017, there was one consolidated note outstanding to Palm Beach Energy Solutions, LLC. The note has an outstanding principal balance of $71,000 and bears interest at a rate of 5% per annum. As of September 30, 2017, and December 31, 2016, the total interest accrued on the note was $15,251 and $12,596 respectively.

 

In July 2016, the Company issued six (6) short-term notes payable to related parties in conjunction with the Company’s acquisition of the remaining 49% of AMG Energy Group. These notes have a value of $2,002,126 and accrue interest at a rate of six percent (6%) per annum. As of September 30, 2017, and December 31, 2016, the total interest accrued on the notes was $146,181 and $56,333 respectively. All of the notes were due on August 4, 2017, but were extended until the earlier of: (i) an additional 12 months; or (ii) the Company’s first recorded revenue.

 

In January and September 2017, the Company secured a $20,000 and $10,000 short-term bridge loan from a shareholder of the Company. These notes accrued interest at a rate of five percent (5%) per annum and were repaid within 30 days of issuance.

 

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Short Term Notes Payable – Other

 

In July 2016, the Company issued a short-term note payable to a third party in conjunction with the Company’s acquisition of the remaining 49% of AMG Energy Group. The note has a principal balance of $96,570 and accrues interest at a rate of six percent (6%) per annum. As of September 30, 2017, and December 31, 2016, the total interest accrued on the note was $7,128 and $2,794 respectively. The note was due on August 4, 2017, but has been extended until the earlier of: (i) an additional 12 months; or (ii) the Company’s first recorded revenue.

 

Convertible Debt

 

On April 25, 2016, the Company entered into a 12-month convertible debenture with JMJ Financial with a principal balance of $555,556. The note carries a 10% one-time interest charge, a 10% original issue discount, and a 75% warrant coverage of the amount funded, totaling an aggregate value of $416,666 [$555,556 x 75% = $416,666]. The note may only be paid up to 98% of the balance due within the first 180 days at a 30% premium. After 180 days, the note cannot be repaid without the holder’s consent. The note is convertible after 180 days at a 25% discount to the lowest trade price in the preceding 10 trading days. Per the warrant coverage feature, the Company issued the investor 1,388,886 warrants with a 5-year term and a cashless exercise price equal to the lesser of $0.30 per share or the lowest trade price in the 10 preceding trading days. The warrant agreement also contains a down-round ratchet provision allowing the holder to increase its warrant count. The number of warrants to issue is calculated by dividing the aggregate value by the lower of $0.30 or the lowest trade price in the 10 preceding trading days. As of September 30, 2017, JMJ Financial has converted $393,892 at $0.135825 per share into 2,900,000 shares of common stock and $200,000 at $0.103125 per share into 1,939,394 shares of common stock. In addition, JMJ Financial has exercised its warrant agreement ratchet rights, resulting in 3,067,668 [$416,666 / $0.135825 = 3,067,668] warrants outstanding. As of September 30, 2017, the holder had exercised warrants to purchase 11,043 of Company common stock and exercised its cashless conversion feature on the remaining warrants resulting in 1,340,201 shares of common stock issued. As of September 30, 2017, and December 31, 2016, these agreements were valued at $0 and $580,000 along with a total derivative liability of $20,000 and $334,000, respectively. This note is currently in default and is accruing compounding quarterly interest at a rate of eighteen percent (18%) per annum.

 

In January 2017, the Company entered into a convertible debenture with Power Up Lending Group, Ltd., with a principal balance of $153,500 due and payable on or before October 29, 2017. The note carries an original issue discount of $3,500 and accrues interest at a rate of 12% per annum and is convertible into the Company’s common stock at a 39% discount on the average of the lowest three trading prices during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting every 30 days to a maximum of 130% of the then outstanding principal and interest balance due, if the note is paid back within 180 days. In July 2017, the Company paid the debenture in full with a payment of $211,293, which represented a $153,500 principal payment and $57,593 in interest and penalties.

 

In February 2017, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $165,000 due and payable on October 2, 2017. The note carries an 8% one-time interest charge, a $15,000 original issue discount and a 35% conversion discount to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of the holder. In addition, the Company provided 150,000 inducement shares to secure the note, and may have to provide additional shares on the note’s six-month anniversary if the Company’s share price declines. These inducement shares were valued at $27,000 and are being amortized over the life of the note. The note can be repaid, without prepayment penalties, within the first 90 days. Thereafter, the note will incur a 120% prepayment penalty of the then outstanding principal and interest due. As of September 30, 2017, Lucas Hoppel has converted $9,106 at $0.091100 per share into 100,000 shares of common stock and has converted an additional $71,500 at $0.089375 per share into 800,000 shares of common stock. The conversion feature of this debenture has been valued and as of September 30, 2017, carries a derivative liability of $110,000.

 

In February 2017, the Company entered into a convertible debenture with Labry’s Fund LLP, with a principal balance of $140,000 due and payable on August 18, 2017. The note carries an original issue discount of $23,000 and accrues interest at a rate of 12% per annum and is convertible into the Company’s common stock at a 50% discount to the lowest trade price during the previous thirty trading days prior to the date of the note or prior to date of conversion, after 180 days, in whole or in part at the option of the holder. The note can be repaid, without prepayment penalties, within the first 180 days. In addition, the Company provided a warrant agreement to purchase up to 250,000 shares of common stock, with a term of 5 years and an exercise price of $0.35 per share of common stock. Using a Black-Scholes option-pricing model, this agreement was valued at $33,265 and is being amortized over the life of the agreement. In August 2017, the Company paid the debenture in full with a payment of $147,502, which represented a $140,000 principal payment and $7,502 in interest and penalties.

 

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In April 2017, the Company entered into a convertible debenture with Auctus Fund, LLC with a principal balance of $117,750 due and payable on or before December 22, 2017. The note carries an original issue discount of $17,750, accrues interest at a rate of 12% per annum and is convertible into the Company’s common stock at a 50% discount on the lowest trading price during the twenty-five trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting after 90 days to a maximum of 135% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days. The conversion feature of this debenture has been valued and as of September 30, 2017 carries a derivative liability of $220,000.

 

In April 2017, the Company entered into a convertible debenture with EMA Financial, LLC with a principal balance of $150,000 due and payable on or before March 15, 2018. The note carries an original issue discount of $28,000, accrues interest at a rate of 10% per annum and is convertible into the Company’s common stock at a 35% discount on the lowest trading price during the 15 trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting after 90 days to a maximum of 130% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days. The conversion feature of this debenture has been valued and as of September 30, 2017, carries a derivative liability of $175,000.

 

In May 2017, the Company entered into a convertible debenture with Crown Bridge Partners, LLC with a principal balance of $58,000 due and payable on or before May 4, 2018. The note carries an original issue discount of $9,500, accrues interest at a rate of 10% per annum and is convertible into the Company’s common stock at a 40% discount on the lowest trading price during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting every 30 days to a maximum of 135% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days.

 

In May 2017, the Company entered into a convertible debenture with GS Capital Partners Partners, LLC with a principal balance of $115,000 due and payable on or before May 9, 2018. The note carries an original issue discount of $5,750, accrues interest at a rate of 8% per annum and is convertible into the Company’s common stock at a 28% discount on the lowest trading price during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting after 90 days to a maximum of 125% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days.

 

In June 2017, the Company entered into a convertible debenture with Power Up Lending Group, Ltd with a principal balance of $53,000 due and payable on or before March 20, 2018. The note carries an original issue discount of $3,000, accrues interest at a rate of 8% per annum and is convertible into the Company’s common stock at a 39% discount on the average lowest three day trading price during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting after 60 days to a maximum of 130% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days.

 

In July 2017, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $110,000 due and payable on January 15, 2018. The note carries an 8% one-time interest charge, a $10,000 original issue discount and a 35% conversion discount to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of the holder. In addition, the Company provided 150,000 inducement shares to secure the note, and may have to provide additional shares on the note’s 6-month anniversary if the Company’s share price declines. These inducement shares were valued at $54,000 and are being amortized over the life of the note. The note can be repaid, without prepayment penalties, within the first 90 days. Thereafter, the note will incur a 120% prepayment penalty of the then outstanding principal and interest due.

 

In July 2017, the Company entered into a convertible debenture with Power Up Lending Group, Ltd. with a principal balance of $153,000 due and payable on or before April 30, 2018. The note carries an original issue discount of $3,000 and accrues interest at a rate of 8% per annum and is convertible into the Company’s common stock at a 39% discount on the average of the lowest three trading prices during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting every 30 days to a maximum of 130% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days.

 

In August 2017, the Company entered into a convertible debenture with Crown Bridge Partners, LLC with a principal balance of $52,500 due and payable on or before August 2, 2018. The note carries an original issue discount of $1,500, accrues interest at a rate of 10% per annum and is convertible into the Company’s common stock at a 40% discount on the lowest trading price during the ten trading days prior to conversion, after 180 days, in whole or in part at the option of the holder. The note also carries a prepayment penalty, adjusting every 30 days to a maximum of 135% of the then outstanding principal and interest balance due, if the note is paid back within the first 180 days.

 

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Derivative Liabilities

 

The embedded conversion features of the above convertible notes payable and warrants contain discounted conversion prices and should be recognized as derivative instruments. Such embedded conversion features should be bifurcated and accounted for at fair value. As of the nine months ended September 30, 2017 and the year ended December 31, 2016, the Company had a derivative liability balance of $525,000 and $914,000, respectively. The Company uses the Black-Scholes option-pricing model to calculate derivate liability.

 

Fair Value of Embedded Derivative Liabilities: 
     
December 31, 2015  $- 
Addition   1,275,547 
Converted   (494,721)
Change in Fair Market Value   7,313 
As of December 31, 2016  $914,000 
Addition   395,861 
Converted   (501,195)
Changes in fair value of derivative liabilities   (283,666)
As of September 30, 2017  $525,000 

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

The total number of shares of capital stock, which the Company has authority to issue, is 510 million, 500 million of which are designated as common stock at $0.001 par value (the “Common Stock”) and 10 million of which are designated as preferred stock par value $0.001 (the “Preferred Stock”). As of September 30, 2017, the Company had 82,031,160 shares of Common Stock issued and outstanding and no shares of Preferred Stock were issued. Holders of shares of Common stock shall be entitled to cast one vote for each share held at all stockholders’ meetings for all purposes, including the election of directors. The Common Stock does not have cumulative voting rights. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend. The Company has yet to designate any rights, preferences and privileges for any of its authorized Preferred Stock.

 

In April 2016, the Company entered into a 12-month convertible debenture with JMJ Financial. To obtain the note, the Company issued the holder 1,388,886 warrants with a five year term and a cashless exercise price equal to the lesser of $0.30 per share or the lowest trade price in the 10 preceding trading days. In the year ending December 31, 2016, JMJ Financial exercised its warrant agreement ratchet rights, thus rescinding 1,388,886 warrants and reissuing 3,067,668 warrants. SEE NOTE 5. There have been no ratchet right adjustments during the nine months ended September 30, 2017. As of September 30, 2017 and December 31, 2016, the holder had exercised all 3,056,625 and 11,043 warrants to acquire 1,340,201 and 11,043 shares of Company common stock respectively. JMJ Financial’s warrant agreement has been fully exercised.

 

In October 2016, the Company commenced a new offering of units valued at $0.20 per share. Each unit consist of one share of common stock and a five year Series E warrant convertible to one common share at an exercise price of $0.45. As of September 30, 2017, and December 31, 2016, the Company sold 4,587,500 and 2,200,050 units for aggregate proceeds of $987,500 and $390,010, respectively. The offering is ongoing.

 

In the nine months ended September 30, 2017, the Company issued an aggregate of 2,056,032 shares of its common stock for services valued at $470,415.

 

In the nine months ended September 30, 2017, the Company issued an aggregate of 1,030,000 warrants for services. Using a Black-Scholes asset-pricing model, these warrants were valued at $147,602. These warrant agreements have terms of five years with exercise prices ranging from $0.35 to $2.00 per share.

 

In the nine months ended September 30, 2017, the Company issued options under its Employee & Directors Stock Option Plan to purchase an aggregate of 4,346,684 shares of common stock for a period of five years at an exercise price ranging from $0.13 - $0.21. Using a Black-Scholes asset-pricing model, these agreements were valued at $673,724. In addition, the Company rescinded 500,000 shares of common stock issued to a former employee under the Employee, Director Plan.

 

In the nine months ended September 30, 2017, principal and interest in the amount of $280,607 was converted into 2,839,934 shares of common stock. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of the convertible debt instruments set out above, the fair value of the stock was greater than the conversion price, and therefore a total value of $207,912 was attributed to the beneficial conversion features.

 

 15 

 

 

NOTE 7 – SEGMENT INFORMATION

 

The company operates in one segment and does not have any revenue to date.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

Lease

 

The Company has leased office space pursuant to a lease for a period of 36 months from August 5, 2015, through July 31, 2018. Annual rent commenced at approximately $48,925 per annum and increases on a year-to-year basis by 3% over the base year. In addition, the Company is obligated to pay an amount equal to 3.76% of the operating expenses of the building together with sales tax on all amounts.

 

EK Laboratories leases office and warehouse space in Longwood, FL, which serves as the Company’s research and demonstration facility. The lease period is for 36 months from February 1, 2015, through January 31, 2018. Annual rent commences at approximately $70,620 per annum and increases on a year-to-year basis by 5% over the prior year. The Company also has the right to purchase the property during the lease term.

 

Rent expense for the three months ended September 30, 2017 and September 30, 2016 were $32,361 and $31,775 respectively, while the rent expense for the nine months ended September 30, 2017 and September 30, 2016 were $96,523 and $94,787 respectively.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

Related Transactions

 

Aside from the short-term notes payable issued to related parties that are described in NOTE 5, there have been no related party transaction in the nine months ended September 30, 2017.

 

The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.

 

NOTE 10 – DISCONTINUED OPERATIONS

 

On September 1, 2014, the Company decided to focus on its renewable energy holdings and future energy technologies, and to divest itself of its entertainment-related assets and subsidiaries. The Company made this decision because the entertainment business was no longer commercially viable, whereas the energy business represented a better economic opportunity. Specifically, the Board decided to discontinue operations of its entertainment-related subsidiaries, including but not limited to: Prelude Pictures Entertainment, LLC; AMG Live, LLC; AMG Restaurant Operations, LLC (including The New York Sandwich Co.); AMG Music, LLC; AMG Releasing, LLC; and AMG Television, LLC.

 

In March 2016, AMG Renewables, a wholly owned subsidiary of the Company, sold its interest in Carbolosic Plant 1 to Carbolosic Energy 1, LLLP (an unrelated third party), in exchange for satisfaction of the outstanding $1,250,000 loan and $36,488 interest between Carbolosic Plant 1 and Carbolosic Energy 1, LLLP. In connection with the transaction, an amount which the Company had prepaid to Carbolosic Energy 1, LLLP ($122,879) for future marketing and interest was eliminated in the sale.

 

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Below is a reconciliation of the total assets and liabilities of the discontinued operations, which are presented separately on the balance sheet.

 

   September 30, 2017   December 31, 2016 
         
Carrying amounts of major classes of assets included as part of discontinued operations          
Prepaid expenses   -    - 
Total assets of the discontinued operation  $-   $- 
           
Carrying amounts of major classes of liabilities included as part of discontinued operations          
Accounts payable and accrued liabilities  $36,148   $36,148 
Total liabilities of the discontinued operation  $36,148   $36,148 

 

Below is a reconciliation of the net loss of the discontinued operations, which are presented separately on the statement of operations.

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2017   2016   2017   2016 
Major line items constituting pretax profit (loss) of discontinued operations                    
Revenue   -    -    -    - 
Selling, general and administrative   -    -    (2,400)   (3,125)
Debt forgiveness from legal settlement   -    -    -    1,163,609 
Gain (Loss) from discontinued operations  $-   $-   $(2,400)  $1,160,484 

 

NOTE 11 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date the financial statements were available to be issued. Based on this evaluation, the Company identified the following subsequent events:

 

Since October 1, 2017, the Company sold 250,000 units for aggregate proceeds of $50,000.

 

Since October 1, 2017, the Company issued 10,000 shares of common stock for services valued at $1,900.

 

Since October 1, 2017, the Company issued 10,000 warrants for services valued at $1,592.

 

Since October 1, 2017, the Company has issued 700,000 shares of common stock for $67,563 of debt.

 

On October 31, 2017, JMJ Financial rescinded its September 6, 2017 conversion request of 1,939,934 shares of common stock for $200,000 debt and converted $71,417 for 770,000 shares of common stock.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

 

The following discussion should be read in conjunction with our unaudited financial statements and the notes thereto.

 

Forward-Looking Statements

 

This quarterly report contains forward-looking statements and information relating to the Company that are based on the beliefs of its management as well as assumptions made by, and information currently available to, its management. When used in this report, the words “believe,” “anticipate,” “expect,” “estimate,” “intend”, “plan” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: a general economic downturn; a downturn in the securities markets; federal or state laws or regulations having an adverse effect on proposed transactions that the Company desires to effect; Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks”; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The accompanying information contained in this registration statement, including, without limitation, the information set forth under the heading “Management’s Discussion and Analysis and Plan of Operation — Risk Factors” identifies important additional factors that could materially adversely affect actual results and performance. You are urged to carefully consider these factors. All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statement.

 

Business Overview

 

Alliance Bioenergy Plus, Inc (the “Company”) is a technology company focused on emerging technologies in the renewable energy, biofuels and new technologies sectors. In December 2013, a wholly owned subsidiary of the Company, AMG Renewables, LLC (“AMG Renewables”), acquired the controlling interest (51%) in AMG Energy Group, LLC (“AMG Energy”) and the remaining 49% was then acquired in 2016. AMG Energy Group owns a 50% interest of Carbolosic, LLC (“Carbolosic”), which holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal in acquiring the interest in AMG Energy is to develop the CTS technology to a commercial scale and then seek to license the technology to prospective licensees.

 

Plan of Operation

 

The Company is focused on the development and commercialization of the licensed technology it controls through its affiliate Carbolosic, LLC. Through its wholly owned subsidiary, AMG Energy, the Company owns Ek Laboratories, Inc. and a 50% interest in Carbolosic (which includes certain licensing rights in North America and Africa). The Company has a strategy that includes mergers and acquisitions of existing businesses in the renewable energy and sustainable products industries as well as sublicensing its patented technologies that it controls through a master license with the University of Central Florida under affiliate Carbolosic and start-up activities which are focused on development of an increasing revenue stream, secure market share and enhancement of shareholder value.

 

AMG ENERGY GROUP, LLC

 

AMG Energy, a wholly owned subsidiary of the Company, was created for the purpose of holding, managing, and developing the Company’s renewable energy technology enterprises. These interests comprise ownership of: (i) 100% of EK Laboratories, Inc., a Florida corporation (“EK”) (formerly known as Central Florida Institute of Science and Technology, Inc.); and (ii) a 50% interest in Carbolosic, LLC, a Delaware limited liability company (“Carbolosic”), which holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal is to develop this CTS technology to a commercial scale and then seek to acquire existing bioenergy and ethanol plants to install the CTS technology as well as license the technology to prospective licensees. EK was formed to serve as a pilot plant and research facility to further develop the CTS process, its uses, and develop new technologies.

 

ALLIANCE BIO-PRODUCTS, INC.

 

Alliance Bio-Products, a wholly owned subsidiary of the Company, was created for the purpose of acquiring and operating a plant for the installation of the Company’s patented CTS process.

 

In March 2017, the subsidiary commenced a $10,000,000 equity raise through an offering of 1 million units valued at $10 per share. Each unit consists of one share of 8% convertible preferred stock, with a preferred minimum investment of $5,000. The purpose of the offering is to secure funds through accredited investors for the purchase of a bioethanol plant in Southeast Florida that would enable the Company to increase production capacity and profitability of its sustainable, environmentally-friendly alternative to petroleum-based fuels and other products through its patented Cellulose to Sugar (CTS) conversion process.

 

In July 2017, Alliance Bio-Products, Inc., and ArborOne, ACA (representing the United States Department of Agriculture) offered to purchase the former INEOS Bio-Ethanol plant in Vero Beach, Florida, at a purchase price of $8 million. The purchase offer provides for the purchase of: (i) the fully functional Plant; (ii) over 143 acres on which the plant resides; and (iii) all related equipment and vehicles. In connection with the purchase offer, the subsidiary tendered the first initial deposit of $250,000. The transaction is subject to due diligence and the negotiation and execution of a definitive purchase agreement and other transaction documents.

 

As of this date, no units have been sold through the offering and the first initial deposit, in the amount of $250,000, has been refunded to the subsidiary.

 

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The Company believes that its management and consultants have significant experience in the bio-fuels, renewable energy and chemical manufacturing industries. As of this date, the Company has not generated any revenues from its renewable energy business.

 

Capital Formation

 

In April 2016, the Company entered into a 12-month convertible debenture with JMJ Financial. To obtain the note, the Company issued the holder 1,388,886 warrants with a five year term and a cashless exercise price equal to the lesser of $0.30 per share or the lowest trade price in the 10 preceding trading days. In the year ending December 31, 2016, JMJ Financial exercised its warrant agreement ratchet rights, thus rescinding 1,388,886 warrants and reissuing 3,067,668 warrants. SEE NOTE 5. There have been no ratchet right adjustments during the nine months ended September 30, 2017. As of September 30, 2017, and December 31, 2016, the holder had exercised all 3,056,625 and 11,043 warrants to acquire 1,340,201 and 11,043 shares of Company common stock, respectively. JMJ Financial’s warrant agreement has been fully exercised.

 

In October 2016, the Company commenced a new offering of units valued at $0.20 per share. Each unit consist of one share of common stock and a five year Series E warrant convertible to one common share at an exercise price of $0.45. From January 1, 2017, through the date of filing and at December 31, 2016, the Company has sold 4,837,500 and 2,200,050 units for aggregate proceeds of $1,017,500 and $390,010, respectively. The offering is ongoing.

 

From January 1, 2017 through the date of filing, the Company issued an aggregate of 2,066,032 shares of its common stock for services valued at $472,315.

 

From January 1, 2017 through the date of filing, the Company issued an aggregate of 1,040,000 warrants for services. Using a Black-Scholes asset-pricing model, these warrants were valued at $149,194. These warrant agreements have terms of five years with exercise prices ranging from $0.35 to $2.00 per share.

 

From January 1, 2017 through the date of filing, the Company issued options to its employees and independent directors to purchase an aggregate of 10,346,684 shares of common stock for a period of five years at exercise prices ranging from $0.13 - $0.21 of which 4,346,684 are fully vested and the remaining 6,000,000 options vest over the next five years. Using a Black-Scholes asset-pricing model, these agreements were valued at $673,724. In addition, the Company rescinded 500,000 shares of common stock issued to a former employee under the Employee, Director Plan.

 

From January 1, 2017 through the date of filing, principal and interest in the amount of $221,057 was converted into 2,370,000 shares of common stock. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of the convertible debt instruments set out above, the fair value of the stock was greater than the conversion price, and therefore a total value of $177,033 was attributed to the beneficial conversion features.

 

Going Concern

 

The Company has incurred losses since inception, has a working capital deficiency, and may be unable to raise further equity. At September 30, 2017, the Company had a working capital deficiency of $3,721,130 and had incurred accumulated losses of $29,954,825 (of which approximately $20,500,588 is non-cash) since its inception. The Company expects to incur significant additional losses in connection with its continued start-up activities. As a result, the report of the Company’s independent registered public accounting firm on the Company’s financial statements for the period ended December 31, 2016 contains an emphasis of matter paragraph regarding the Company’s ability to continue as a going concern based upon recurring operating losses and its need to obtain additional financing to sustain operations. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities when they become due and to generate sufficient revenues from its operations to pay its operating expenses. Furthermore, these financial statements do not include any adjustments related to the recoverability and classifications of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.

 

Through its private offerings, the Company raised $3,079,004 for the year ended December 31, 2016, and an additional $987,500 through the date of filing.

 

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Results of Operations

 

Comparison of the three and nine month periods ended September 30, 2017 to the three and nine month periods ended September 30, 2016

 

For the three months ended September 30, 2017, the Company’s general and administrative expenses increased by approximately $747,101 to $1,512,758 from $765,657 in the three months ended September 30, 2016. This increase is primarily the result of a $663,007 non-cash payroll expense for equity awards issued to employees and directors. Of the $1,512,758 general and administrative expense, approximately 58% or $872,187 is non-cash equity compensation.

 

During the nine months ended September 30, 2017, the Company’s general and administrative expenses decreased by approximately $120,374 to $3,388,788 from $3,509,162 in the nine months ended September 30, 2016. This decrease is primarily the result of a reduction in professional fees. Of the $3,388,788 general and administrative expense, approximately 48% or $1,618,144 is non-cash equity compensation.

 

Interest expense increased in the three months ended September 30, 2017 by approximately $362,922 to $363,817 from $895 during the three months ended September 30, 2016. The increase was the result of additional short-term notes and the payment of prepayment penalties.

 

During the nine months ended September 30, 2017, the Company’s interest expense increased by approximately $142,537 to $628,858 from $486,321. The increase was the result of the early repayment of two convertible notes along with prepayment interest during the nine months ended September 30, 2017.

 

For the three months ended September 30, 2017, the Company’s equity loss in its unconsolidated affiliate increased $37,863 to $78,967 from $41,104 during the three months ended September 30, 2016.

 

During the nine months ended September 30, 2017, the Company’s equity loss in its unconsolidated affiliate increased by $50,875 to $175,656 from $124,781 during the nine months ended September 30, 2016.

 

The Company’s discontinued operations expensed $2,400 for legal fees during the nine months ended September 30, 2017, compared to a $1,160,484 gain incurred in the nine months ended September 30, 2016, which was the result of the Company’s decision to sell its interest in Carbolosic Plant 1.

 

Research and Development (R&D) expenses for the three months ended September 30, 2017 were $2,284 as opposed to $7,877 for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the Company expensed $15,130 as opposed to $15,008 expensed during the nine months ended September 30, 2016. The increase in R&D expenses is the result of increased sampling and testing of various feedstocks for the Company’s proposed Vero Beach facility as well as potential third party licensees.

 

Liquidity and Capital Resources

 

Liquidity

 

As of September 30, 2017, the Company had $191,656 in cash and total stockholders’ equity was $4,483,550. Total debt from continuing operations, including advances, accounts payable and other notes payable at September 30, 2017, together with interest payable thereon, was $4,470,560 (an increase of $829,568 from $3,640,992 at December 31, 2016). This increase is attributable to the addition of approximately $516,851 in convertible debt and a $584,185 increase in accrued liabilities.

 

During the nine months ended September 30, 2017, the Company’s continuing operating activities used $1,544,503 in cash. This use can be attributed to payroll, professional and legal fees.

 

During the nine months ended September 30, 2017 the Company’s investing activities used $147,871 in cash, which $132,371 was advanced to Carbolosic, LLC, for payment of the minimum annual royalty and patent legal fees. In addition, $250,000 was deposited in connection with the purchase of the Vero Beach plant purchase; however these funds were returned to the Company in September 2017.

 

During the nine months ended September 30, 2017, the Company generated $1,836,750 through its financing activities. This can primarily be attributed to the addition of an aggregate net amount of $1,142,750 in convertible debt and simultaneously raising $987,500 through its ongoing offerings. During this same time, the Company repaid $293,500 of its convertible debt.

 

Capital Resources

 

At this time, the Company has limited liquidity and capital resources. To continue funding its operations, the Company will need to generate revenue or obtain additional fincancing for current and future operations. As of the date of filing, the Company has raised $987,500 (in addition to $6,809,394 raised through December 31, 2016) for a total of $7,796,894 through its private placement offerings. However, there is no guarantee that the company will be able to raise any additional capital on terms acceptable to the Company.

 

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The inability to obtain this funding either in the near term and/or longer term will materially affect the ability of the Company to implement its business plan of operations and jeopardize the viability of the Company. In that case, the Company may need to reevaluate and revise its operations.

 

Critical Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”) for interim financial information set forth in Regulation S-X and include the assets, liabilities, revenues and expenses of the Company’s majority-owned subsidiaries over which the Company exercises control. Intercompany transactions and balances were eliminated in consolidation. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or any other period. For further information, refer to the financial statements and footnotes thereto for the period ended December 31, 2016.

 

Principles of Consolidation

 

The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of intercompany accounts and transactions. Investments in business entities in which the Company lacks control but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company’s proportionate share of net income or loss of the entity is recorded in the Consolidated Statements of Earnings.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates presented and reported amounts of revenues and expenses during the reporting periods presented. Significant estimates inherent in the preparation of the accompanying Consolidated Financial Statements include estimates of impairment assessment of identifiable intangible assets and valuation allowance for deferred tax assets. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.

 

Stock Compensation

 

The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance

 

Convertible Instruments

 

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

 

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

 

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

 

Accounting for Derivative Instruments

 

The Company issues debentures where the number of shares into which a debenture can be converted is not fixed. For example, when a debenture converts at a discount to market based on the stock price on the date of conversion. In such instances, the embedded conversion option of the convertible debentures is bifurcated from the host contract and recorded at their fair value. In accounting for derivatives, the Company records a liability representing the estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount representing the imputed interest associated with the beneficial conversion feature. The discount is then amortized over the life of the debenture and the derivative liability is adjusted periodically according to stock price fluctuations. At the time of conversion, any remaining derivative liability is charged to additional paid-in capital. For purposes of determining derivative liability, the Company uses Black-Scholes modeling for computing historic volatility.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer in a development stage that in prior years it had been in the development stage.

 

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations. Finally, the amendments remove paragraph 810-10-15-16. Paragraph 810-10-15-16 states that a development stage entity does not meet the condition in paragraph 810-10-15-14(a) to be a variable interest entity if (1) the entity can demonstrate that the equity invested in the legal entity is sufficient to permit it to finance the activities that it is currently engaged in and (2) the entity’s governing documents and contractual arrangements allow additional equity investments. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company adopted ASU No. 2014-10 effective July 31, 2014.

 

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Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Seasonality

 

The Company’s operating results are not affected by seasonality.

 

Inflation

 

The Company’s business and operating results are not affected in any material way by inflation.

 

Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Disclosure Controls and Procedures

 

The Company is required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer (also its principal executive officer) and its chief financial officer (also its principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s President (“President”), the Company’s principal executive officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s CEO, President and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2017 to a reasonable assurance level to enable the Company to record, process, summarize and report information required under the Securities and Exchange Commission’s rules in a timely fashion. This conclusion resulted from the lack of separation of duties within the Company.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

The Company’s 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) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
     
  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
     
  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

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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 or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of September 30, 2017, management assessed the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013) and SEC guidance on conducting such assessments. Based on that evaluation, the Company concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of its internal controls over financial reporting that adversely affected its internal controls and that may be considered to be material weaknesses.

 

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) the lack of a functioning audit committee; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; (iii) a lack of expertise with US GAAP and SEC rules and regulations for review of critical accounting areas and disclosures and material non-standard transactions; and (iv) lack of effective oversight during the financial close process resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. The aforementioned material weaknesses were identified by the Company’s management in connection with the review of its financial statements for the nine months ended September 30, 2017.

 

Management believes that the material weakness set forth above did not have an effect on its financial results. However, management believes that the lack of a functioning audit committee coupled with not having individuals on staff or retainer with a thorough knowledge of US GAAP and SEC rules and regulations and lack of effective oversight on the financial close process results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in its financial statements in future periods.

 

This quarterly 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 its registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this quarterly report.

 

Remediation Plan

 

Management is sensitive to the issues presented and intends to take appropriate action when the Company’s financial resources permit. Management intends to hire additional support staff when its financial resources permit and it will continue to review and make necessary changes to the overall design of its internal control environment.

 

(c) Reclassification of Prior Period Financial Statements

 

Certain items previously reported have been reclassified to conform with the current period’s presentation.

 

(d) Changes in Internal Control over Financial Reporting

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is subject, from time to time, to litigation, claims and suits arising in the ordinary course of business. As of the date of filing, there are no material claims or suits whose outcomes could have a material effect on the Company’s financial statements.

 

ITEM 1A. RISK FACTORS.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

 

Below is a list of securities sold by the Company from January 1, 2017, through the date of filing which were not registered under the Securities Act.

 

Name of Purchaser  Date of Sale   Title of Security  Amount of Securities Sold   Consideration
Joseph A Galbo   01/01/17   Common Stock   12,500   Professional Services
Freedom Investors Corp   01/01/17   Common Stock   20,000   Professional Services
Luna Consultant Group, LLC   01/27/17   Common Stock   500,000   Professional Services
Major League Services Investment & Holdings Corp.   01/30/17   Common Stock   62,500   Purchased @ $0.20 per share
Gretchen Hickman   01/31/17   Common Stock   25,000   Purchased @ $0.20 per share
Nadia Marrese   01/31/17   Common Stock   25,000   Purchased @ $0.20 per share
Harry Grossman   01/31/17   Common Stock   8,000   Professional Services
Ken Hickman   01/31/17   Common Stock   2,500   Professional Services
Joseph A Galbo   02/01/17   Common Stock   12,500   Professional Services
Freedom Investors Corp   02/01/17   Common Stock   20,000   Professional Services
Lucas Hoppel   02/02/17   Common Stock   150,000   Inducement to secure a debt note
Harry Grossman   02/28/17   Common Stock   8,000   Professional Services
Joseph A Galbo   03/01/17   Common Stock   12,500   Professional Services
Freedom Investors Corp   03/01/17   Common Stock   20,000   Professional Services
David Matthews   03/10/17   Common Stock   (500,000)  Rescinded Employment Stock
Steven Tureff & Donnis Newman   03/20/17   Common Stock   50,000   Purchased @ $0.20 per share
Ken Hickman   03/20/17   Common Stock   3,571   Professional Services
Harry Grossman   03/31/17   Common Stock   8,000   Professional Services
Joseph A Galbo   04/01/17   Common Stock   12,500   Professional Services
Freedom Investors Corp   04/01/17   Common Stock   20,000   Professional Services
John Cannon   04/17/17   Common Stock   25,000   Purchased @ $0.20 per share
Ken Hickman   04/17/17   Common Stock   1,471   Professional Services
Porter, LeVay & Rose, Inc.   04/17/17   Common Stock   100,000   Professional Services
Minal Patel   04/24/17   Common Stock   50,000   Purchased @ $0.20 per share
Ken Hickman   04/24/17   Common Stock   3,571   Professional Services
Martin Weinstein   04/25/17   Common Stock   50,000   Purchased @ $0.20 per share
Ken Hickman   04/25/17   Common Stock   3,847   Professional Services
Harry Grossman   04/30/17   Common Stock   8,000   Professional Services
Freedom Investors Corp   05/01/17   Common Stock   20,000   Professional Services

 

 25 

 

 

Name of Purchaser  Date of Sale   Title of Security  Amount of Securities Sold   Consideration
Nadia Marrese   05/03/17   Common Stock   25,000   Purchased @ $0.20 per share
Ken Hickman   05/03/17   Common stock   1,786   Professional Services
Edward Peters   05/19/17   Common Stock   50,000   Purchased @ $0.20 per share
Ken Hickman   05/19/17   Common Stock   3,572   Professional Services
Harry Grossman   05/31/17   Common Stock   8,000   Professional Services
AES Capital Partners, LP   06/02/17   Common Stock   100,000   Professional Services
John D. Lane Corporation   06/02/17   Common Stock   250,000   Professional Services
The AES Capital Resource Fund, L.P.   06/14/17   Common Stock   2,500,000   Purchased @ $0.20 per share
Martin Weinstein   06/15/17   Common stock   25,000   Purchased @ $0.20 per share
Ken Hickman   06/15/17   Common Stock   1,250   Professional Services
Nadia Marrese   06/24/17   Common Stock   50,000   Purchased @ $0.20 per share
Bryan White   06/26/17   Common Stock   50,000   Purchased @ $0.20 per share
Michael Geisler   06/26/17   Common Stock   25,000   Purchased @ $0.20 per share
Ken Hickman   06/26/17   Common Stock   4,287   Professional Services
Luna Consultant Group, LLC   06/27/17   Common Stock   500,000   Professional Services
Harry Grossman   06/30/17   Common Stock   8,000   Professional Services
JMJ Financial   06/30/17   Common Stock   1,340,201   Cashless Warrant Exercise
John D. Lane Corporation   07/01/17   Common Stock   10,000   Professional Services
Lucas Hoppel   07/03/17   Common Stock   150,000   Inducement to secure a debt note
Gretchen Hickman   07/10/17   Common Stock   25,000   Purchased @ $0.20 per share
Bryan White   07/13/17   Common Stock   50,000   Purchased @ $0.20 per share
Donnis Newman   07/13/17   Common Stock   25,000   Purchased @ $0.20 per share
Nadia Marrese   07/13/17   Common Stock   25,000   Purchased @ $0.20 per share
Steven Tureff   07/13/17   Common Stock   25,000   Purchased @ $0.20 per share
Ken Hickman   07/13/17   Common Stock   4,897   Professional Services
Deanna Hern   07/14/17   Common stock   25,000   Purchased @ $0.20 per share
Ken Hickman   07/19/17   Common Stock   758   Professional Services
Camilla Blaffer   07/24/17   Common Stock   150,000   Purchased @ $0.20 per share
Ken Hickman   07/24/17   Common Stock   6,522   Professional Services
John D. Lane Corporation   08/01/17   Common Stock   10,000   Professional Services
Freedom Investors Corp   08/01/17   Common Stock   20,000   Professional Services
Anthony Santelli, II   08/10/17   Common Stock   125,000   Purchased @ $0.20 per share
The AES Capital Resource Fund, LP   08/10/17   Common Stock   625,000   Purchased @ $0.20 per share
Lucas Hoppel   08/24/17   Common Stock   100,000   Convertible Debt Conversion
Lucas Hoppel   08/28/17   Common Stock   200,000   Convertible Debt Conversion
John D. Lane Corporation   09/01/17   Common Stock   10,000   Professional Services
Freedom Investors Corp   09/01/17   Common Stock   20,000   Professional Services
Lucas Hoppel   09/06/17   Common Stock   300,000   Convertible Debt Conversion
JMJ Financial   09/06/17   Common Stock   1,939,934   Convertible Debt Conversion
Steven Sadaka   09/15/17   Common Stock   500,000   Purchased @ $0.20 per share
Lucas Hoppel   09/20/17   Common Stock   300,000   Convertible Debt Conversion
John D. Lane Corporation   10/01/17   Common Stock   10,000   Professional Services
Lucas Hoppel   10/16/17   Common Stock   300,000   Convertible Debt Conversion
Lucas Hoppel   10/23/17   Common Stock   400,000   Convertible Debt Conversion
Bindler Investment Group, LLC   10/23/17   Common Stock   150,000   Purchased @ $0.20 per share
Zac Bindler   10/23/17   Common Stock   50,000   Purchased @ $0.20 per share
Annie Bindler   10/23/17   Common Stock   50,000   Purchased @ $0.20 per share
JMJ Financial   10/31/17   Common Stock   (1,939,934)  Rescinded Conversion
JMJ Financial   10/31/17   Common Stock   770,000   Convertible Debt Conversion

 

 26 

 

 

The securities issued in the above-mentioned transactions were issued in connection with private placements exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(a)(2) of that Act and Rule 506 of Regulation D.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     

32.1

 

 

Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

 27 

 

 

SIGNATURES

 

In accordance with 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.

 

    ALLIANCE BIOENERGY PLUS, INC.
       
Date: November 14, 2017 By: /s/ Daniel de Liege
      Daniel de Liege
      Director, CEO, Acting CFO, President, Secretary and Treasurer
      (Principal Executive Officer)

 

Date: November 14, 2017 By: /s/ Daniel de Liege
      Daniel de Liege
      Director, CEO, Acting CFO, President, Secretary and Treasurer
     

(Principal Financial and Accounting Officer)

 

 

 28 

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
31.1   Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     

32.1

 

 

Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

 29