GeoBio Energy, Inc. (“GeoBio” or the “Company”) formerly known as Better Biodiesel, Inc., was incorporated in Colorado in November 1990. The Company was known as Mountain State Holdings, Inc., (“MSH”) until September 2006, when it was renamed in anticipation of a merger in September 2006, when it acquired all of the Member Units of Domestic Energy Partners, LLC, (“DEP”), a Utah limited liability corporation. The previous assets and liabilities of MSH were spun off to two stockholders in August 2006 in exchange for the return of common shares. At the time of the acquisition of DEP, the Company had no assets and no liabilities and 2,000,001 shares of common stock issued and outstanding carried at nil.
The merger of the Company and DEP was accounted for as a reverse merger. The assets and liabilities of DEP are presented in the consolidated balance sheet at book value. The historical operations presented in our consolidated statements of operations are those of DEP. On December 20, 2007, the Company entered into and closed an Asset Purchase, Settlement and Mutual Release Agreement with the former Members of DEP and effectively disposed of their interest in DEP.
In March 2008, we completed our Share Exchange with GeoAlgae Technologies, Inc. (“GeoAlgae”) and acquired GeoAlgae as a wholly owned subsidiary. GeoAlgae was a recently formed company and its net assets at the date of acquisition were nil. The entire purchase price was allocated to intangible assets which in total constituted a business plan. The intangible assets were subsequently deemed to be impaired. GeoAlgae is not currently an operating company.
On November 14, 2011, we closed an equity purchase agreement with El Gas North America, Inc., a Washington limited liability company (“El Gas NA”), under which El Gas NA agreed to sell 100% of the issued and outstanding equity interests of El Gas NA for 2.5 million shares of common stock of the Company and a $100,000 promissory note. El Gas NA is a fully licensed and exclusive distributor of El Gas s.r.o’s natural gas volume monitoring and correcting equipment and data recorder products in the territories including the United States, Canada, Mexico and the Caribbean Islands. El Gas NA was only recently incorporated and its only asset is its exclusive distributer contract to distribute El Gas s.r.o’s natural gas volume monitoring and correcting equipment and data recorder products in territories previously listed. Given this, the Company has determined that this transaction is not a business combination for accounting purposes and has accounted for the transaction as the acquisition of an asset, i.e. the exclusive distribution agreement. See further discussion on the accounting in Note 3.
Note 2. Going Concern
We have prepared our condensed consolidated financial statements assuming that we will continue as a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2012, we had a deficit accumulated during the development stage of approximately $30.6 million and expect to incur additional losses in the future. Our working capital deficit was approximately $5.9 million as of December 31, 2012. These conditions raise substantial doubt about our ability to continue as a going concern.
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We have funded our losses primarily through sales of common stock and warrants in private placements and borrowings from related parties and other investors. The further development of our business will require capital. Our current cash levels are not sufficient to enable us to execute our business strategy. We require additional financing to satisfy our near-term working capital requirements. Our operating expenses will also consume a material amount of our cash resources. Company management intends to raise additional debt and equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds, on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares of our capital stock to institutional investors and through strategic investments, including convertible bridge loans. If management deems necessary, we might also seek additional loans from related parties or others. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms favorable to us. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
In March 2008, we entered into a note payable with Tatum, LLC (“Tatum”) in settlement of approximately $28,000 then owed to Tatum for employment related consulting services previously recorded in accounts payable. The note payable is convertible at any time into shares of our common stock at the lesser of $4,125 per share or the 10-day volume weighted average of the closing bid and ask prices of our common stock. We have stated the amount in the table above at a conversion price of $4,125 per share.
The shares potentially issuable under our convertible promissory note in aggregate principal amount of $63,538 with Otto Law Group, a related party, are not included in the table above as the number of shares issuable on conversion is not determinable as of the date of this filing. The note is convertible into shares of our common stock at a conversion rate to be mutually agreed upon by the holder and the Company on the date the holder elects to convert.
The shares potentially issuable under our convertible promissory notes with Ray Purdon are not included in the table above as the number of shares issuable on conversion is not determinable as of the date of this filing. The notes are convertible into shares of our common stock at a conversion rate to be mutually agreed upon by the holder and the Company on the date the holder elects to convert.
In May 2012, we entered into a 12% convertible promissory note with Gregory Qualls in an aggregate principal amount of $25,000, due the earlier of the Company’s acquisition of one or more currently targeted asset acquisitions in the oil and gas services industry or October 1, 2012 if not previously converted at the option of the holder into shares of the Company’s common stock at a price per share equal to a 35% discount to the volume-weighted average closing per share price of the Company’s common stock on the OTC:QB or OTC:BB market for the 10 trading days immediately prior to either the maturity date or the conversion date, as applicable. We have stated the amount in the table above at a conversion price of $0.0095 per share.
In June 2012, we entered into a 12% convertible promissory note with Ronald Tate in an aggregate principal amount of $50,000, due the earlier of the Company’s acquisition of one or more currently targeted asset acquisitions in the oil and gas services industry or October 1, 2012 if not previously converted at the option of the holder into shares of the Company’s common stock at a price per share equal to a 35% discount to the volume-weighted average closing per share price of the Company’s common stock on the OTC:QB or OTC:BB market for the 10 trading days immediately prior to either the maturity date or the conversion date, as applicable. We have stated the amount in the table above at a conversion price of $0.0095 per share.
In July 2012, we entered into a 12% convertible promissory note with Ron Tate and Hailey Hollenbeck in aggregate principal amount of $25,000, convertible into shares of our common stock at a 35% discount of the volume-weighted average closing sale price per share of the Company’s common stock on the OTC:QB or OTC:BB market, for 10 days immediately prior to conversion, at the earlier of a) following the Company’s acquisition of one or more currently targeted acquisitions in the natural oil and gas industry or b) October 1, 2012, at the option of the holder. We have stated the amount in the table above at a conversion price of $0.0095 per share.
In August and September 2012, we entered into two 12% convertible promissory notes with Saratoga Capital Partners, LLC, in aggregate principal amount of $50,000, convertible into shares of our common stock at a 35% discount of the volume-weighted average closing sale price per share of the Company’s common stock on the OTC:QB or OTC:BB market, for 10 days immediately prior to conversion, at the earlier of a) following the Company’s acquisition of one or more currently targeted acquisitions in the natural oil and gas industry or b) October 1, 2012, at the option of the holder. We have stated the amount in the table above at a conversion price of $0.0095 per share.
In October 2012, we entered into an 8% convertible promissory note in aggregate principal amount of $32,500 with Asher Enterprises, Inc. The note is convertible beginning 180 days from October 23, 2012 into shares of our common stock at a price per share equal to a 49% discount to the average of the lowest two closing per share prices of the Company’s common stock on the OTC:QB or OTC:BB market for the 20 trading days immediately prior to either the maturity date or the conversion date, as applicable. We have stated the amount in the table above at a conversion price of $0.0047 per share.
See further discussion regarding notes payable at Note 5.
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