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KGET > SEC Filings for KGET > Form 10-Q on 24-Nov-2014 All Recent SEC Filings
Show all filings for KLEANGAS ENERGY TECHNOLOGIES, INC.
Form 10-Q for KLEANGAS ENERGY TECHNOLOGIES, INC.
24-Nov-2014
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
We were incorporated in Delaware on January 8, 2008, for the purpose of being the vehicle whereby Redmond Capital Corp., a Florida corporation ("Redmond") would change its corporate domicile to Delaware. Redmond was incorporated effective September 12, 1996, in the State of Florida under the corporate name Minex Minerals, Inc. On February 3, 1999, it changed its corporate name to Redmond Capital Corp. Redmond's sole business, which terminated prior to the end of 2004, was the production of an animated television series.
On June 14, 2007, the Circuit Court of the Eleventh Circuit in and for Miami-Dade County, Florida, appointed a receiver over the business of Redmond (Case No. 06-21128 CA 10) and on August 28, 2007, that court issued an order releasing the receiver, closing the case and approving certain actions specified in the receiver's report, including the issuance of 32,000,000 shares of the common stock of Redmond to Mark Renschler to compensate him for services theretofore rendered to Redmond. Shortly thereafter, he was elected as Redmond's president, secretary and sole director.
On January 8, 2008, Redmond changed its corporate domicile from Florida to Delaware through a process known as "conversion" as permitted by Florida and Delaware law. In the conversion, we were incorporated in Delaware and we effected the conversion with Redmond by filing certificates of conversion in Delaware and Florida, respectively.
We are a research and development company dedicated to producing alternative clean technologies that promote energy efficiency throughout a wide range of applications. We design, develop and market various technologies, including Oxy-Hydrogen on-demand generators, reverse fuel cells, solar to hydrogen fuel cells and other products to deliver a clean gas that provides energy savings, emissions reductions of diesel fuel and other natural gas applications. We believe that all of our products are designed to assist companies in reducing operational costs, providing a competitive advantage and increasing our customers' profitability.
CURRENT BUSINESS OPERATIONS
Stock Purchase Agreement
On July 22, 2014, our Board of Directors finalized and authorized the execution of that certain stock purchase agreement (the "Stock Purchase Agreement") among us, as buyer, and Jerry Hansen, Tracy Johnson and The PI Foundation, a non-profit Utah corporation (collectively, the "Sellers") of 5,000,244 shares of common stock of Second Recycling Inc., a Wisconsin corporation, which is a refuse systems, recycling and waste management company ("SRI"), which constituted all of the issued and outstanding shares. We also purchased 833,333 shares of newly issued stock of SRI for a purchase price of $1,300,000 (the "Purchase Price"). The Stock Purchase Agreement and associated documents referenced below will be held in escrow for up to ninety (90) days while we raise funds to pay the Purchase Price. Based on the timing of certain deliveries out of escrow (each, a "Closing Date"), payment constituting the Purchase Price will vary as follows:
(a) If the Closing Date occurs in August 2014, the Purchase Price will be $7,281,555 plus the amount of "Other Current Assets" shown on CI's balance sheet, calculated as of the Closing Date, paid $219,551 in cash and delivery to Sellers of a Secured Promissory Note (the "Note") in the principal amount of $7,062,004, and when the Purchase Price is paid, Jerry Hansen and Tracy Johnson will pay off the amount of "Other Current Assets" on CI's balance sheet as of the Closing Date.
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(b) If the Closing Date occurs in September 2014, the Purchase Price will be $7,301,174 plus the amount of "Other Current Assets" shown on CI's balance sheet, calculated as of the Closing Date, paid $239,170 in cash and delivery to Seller of the Note in the principal amount of $7,062,004, and when the Purchase Price is paid, Jerry Hansen and Tracy Johnson will pay off the amount of "Other Current Assets" on CI's balance sheet as of the Closing Date.
(c) If the Closing Date occurs in October 2014, the Purchase Price will be $7,320,860 plus the amount of "Other Current Assets" shown on CI's balance sheet, calculated as of the Closing Date, paid $258,856 in cash and delivery to Seller of the Note in the principal amount of $7,062,004, and when the Purchase Price is paid, Jerry Hansen and Tracy Johnson will pay off the amount of "Other Current Assets" on CI's balance sheet as of the Closing Date.
In further accordance with the terms and provisions of the Stock Purchase Agreement, SRI will use the Purchase Price it receives from issuance of the stock to pay off a commercial loan owed SRI to Sellers will use cash received as part of the Purchase Price to pay off the intercompany owed by SRI to Jerry Hansen, Tracy Johnson and Hawks Rest, LLC in the approximate amount of $460,000. Lastly, on the date that is two months after the Closing Date, we will contribute funds to SRI sufficient to allow SRI to pay off in full the "Small Loan."
Secured Promissory Note
On July 22, 2014, our Board of Directors authorized the execution of that certain secured promissory note in the principal amount of $7,062,004.00 dated July 22, 2014 (the "Secured Note") payable to Jerry Hansen, Tracy Johnson and The PI Foundation (collectively and for purposes of the Secured Note, the Holders"). The Secured Note bears no interest and requires us beginning one month after July 22, 2014 (the "Effective Date") to make fifteen monthly payments of principal on the terms and in the amount provided in the Convertible Note. The Secured Note will be secured by a first priority perfected security interest that encumbers all of our assets. The Secured Note will further be secured by a stock pledge agreement that encumbers the shares of stock of SRI together with a control agreement and a mortgage on the fiber recovery building together with all stock powers, endorsements and other security documents and other agreements of any kind whatsoever entered into in connection with the transactions contemplated by the Stock Purchase Agreement.
The Secured Note will also give us the option of missing up to two monthly payments without penalty or interest during the Secured Note's initial fifteen month term. The Secured Note will also allow the Company to elect to extend the maturity date of the Secured Note from fifteen months beginning on the Closing Date to eighteen months beginning on the Closing Date if we notify the Holders of our wish to extend the maturity date, during which three month extension time amounts owed under the Security Note will bear interest at the rate of twelve percent per annum.
All payments due under the Secured Note will be made on our behalf by, as determined by the Holders, us or our payment agent, Pyrenees Investments, LLC, our line of credit lender. The Holders will at all times be entitled to direct that all payments made under the Secured Note be sent to one or more separate bank accounts in the name of each of the persons referred to herein as "Holder," in whatever relative amounts that Jerry Hansen specifies.
Stock Pledge Agreement
On July 22, 2014, our Board of Directors authorized the execution of that certain stock pledge agreement dated July 22, 2014 by and among Jerry Hansen, Tracy Johnson, The PI Foundation (collectively and for purposes of the Stock Pledge Agreement, the "Secured Party") and us (the "Stock Pledge Agreement"). In accordance with the terms and provisions of the Stock Pledge Agreement, we granted a security interest to the Secured Party in the shares of common stock of SRI acquired from the Sellers and the shares of common stock issued by SRI. We, in the event of a default under the Secured Note, authorized and appointed the Secured Party as our attorney in fact to arrange for the transfer of the shares of SRI to the name of the Secured Party. The shares of SRI shall not be encumbered or disposed of by us while the Stock Purchase Agreement is in force.
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Upon the occurrence of an event of default by us, the Secured Party shall have all of the rights and remedies of a secured party under the Wisconsin Uniform Commercial Code in addition to the following:
(a) sell the shares of SRI, which sale can be a public or private sale and the Secured Party shall determine the terms of any such sale in its sole discretion. The Secured Party shall be entitled to use the proceeds of the sale towards the amounts that we owe the Secured Party under the Stock Purchase Agreement. The Secured Party may add to what we owe the Secured Party the expenses of collection, sale and delivery of the shares of SRI and any other expenses, including, but not limited to, reasonable attorney's fees and disbursements, costs, broker's commission, any and all transfer fees and taxes. We will pay the Secured Party any difference between the proceeds which the Secured Party realizes from the sale and what we owes the Secured Party. Upon each such sale the Secured Party may purchase all or any part of the collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities, which are hereby waived and released;
(b) elect to continue to hold the shares of SRI if the Secured Party determines that a better price may be obtained at a later date and the Secured Party will not be liable to us for any loss in value in the Shares. If the Secured Party has the right to sell the shares and has not begun to do so within ninety (90) days after our obligations under the Secured Note have been accelerated, we may demand in writing that the Secured Party proceed to sell the shares. However, the Secured Party will not be required to sell the shares if in the Secured Party's reasonable discretion the net proceeds would not be enough to repay in full our obligations and the amounts due under the Stock Purchase Agreement;
(c) complete, in connection with a sale, a stock power in order to transfer the shares of SRI; or
(d) terminate our right to vote the shares of SRI and the Secured Party may vote such shares in its discretion. By signing the Stock Pledge Agreement, we gave the Secured Party a right and proxy to vote the shares of SRI as our agent, which cannot be revoked.
In the event the Secured Party sells the shares of SRI, the proceeds shall be applied as follows: (a) to the expenses of collecting, selling and delivering the shares of SRI including, but not limited to, attorney's fees, brokerage commissions, auctioneer's fees, transfer fees, disbursements and taxes; (b) second, to the payment of our obligations under the transaction documents; and
(c) finally, the surplus if any to us.
The closing of the Stock Purchase Agreement occurred on June 16, 2014 and we issued the 25,000,000 shares of restricted common stock and payment of $5,000 to Willis. See "Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities".
Securities Control Agreement
On July 22, 2014, our Board of Directors authorized the execution of that certain securities control agreement dated July 22, 2014 by and among Jerry Hansen, Tracy Johnson, The PI Foundation (collectively and for purposes of the Securities Control Agreement, the "Secured Party") and us (the "Securities Control Agreement"). In accordance with the terms and provisions of the Securities Control Agreement, we agreed that as the registered owner of the 5,000,244 shares of common stock of SRI, it would not change the registered owner of such shares of common stock without the prior written consent of the Secured Party.
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Escrow Agreement
On July 22, 2014, our Board of Directors authorized the execution of that certain escrow agreement (the "Escrow Agreement"), by and among Mark E. Rinehart, as escrow agent, Jerry Hanson, Tracy Johnson, The PI Foundation and us (the "Escrow Agreement"), pursuant to which the Escrow Agent shall hold certain documents and other items and perform certain obligations in relation to the Stock Purchase Agreement.
Green Day Share Exchange Agreement
Our Board of Directors approved the execution of a share exchange agreement dated November 15, 2013 (the "Share Exchange Agreement") with Green Day Technologies Inc., a Florida corporation ("Green Day"). On December 18, 2013, we entered into and executed an amendment to the Share Exchange Agreement with Green Day (the "Amendment"). In accordance with the terms and provisions of the Amendment to Share Exchange Agreement: (i) the shareholders of Green Day (the "Green Day Shareholders") tendered tender their shares of common stock to us in exchange for the issuance by us of shares of our restricted common stock on the basis of one share of common stock of Green Day for seventeen (17) shares of our common stock; and (ii) the Green Day Shareholders tendered to us their shares of preferred stock in exchange for the issuance by us of a corresponding share on a one to one basis of either its Series A, B, C or D preferred stock. Thus, Green Day became a wholly-owned subsidiary.
Effective January 22, 2014, the Board of Directors approved the issuance of the shares of common stock and preferred stock to the Green Day Shareholders in accordance with the terms and provisions of the Share Exchange Agreement. See "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities".
We commenced operations in May 2012 and are a development-stage company. Our common stock is quoted on and traded over OTCQB under the symbol "KGET.
Premier Venture Partners LLC
On July 17, 2014, our Board of Directors finalized and authorized the execution of that certain term sheet for a $12,000,000 investment in us (the "Term Sheet") by Premier Venture Partners LLC, a California limited liability company ("Premier Venture"). Subsequently, on July 25, 2014, our Board of Directors finalized and authorized the execution of that certain preferred stock purchase agreement (the "Stock Purchase Agreement") with Premier Venture and associated registration rights agreement dated July 25, 2014 with Premier Venture (the "Registration Rights Agreement").
Stock Purchase Agreement
In accordance with the terms and provisions of the Stock Purchase Agreement, Premier Venture shall purchase up to 12,000 of our Series F Preferred Shares (the "Series F Preferred Shares") for a purchase price of $1,000 per Series F Preferred Share subject to adjustment (the "Purchase Price"). For the first purchase of Series F Preferred Shares, Premier Venture agrees to be irrevocably bound to purchase the number of shares equal to the lesser of: (i) 150 Series F Preferred Shares; and (ii) 400% of the average daily trading volume of the common shares for the twenty trading days prior to the filing of the registration statement divided by 1,000 (the "First Purchase Shares").
From time to time during the open period ("Open Period" means the period beginning on the earlier of: (i) 30 days after the payment for the First Purchase Shares; and (ii) 192 days after the agreement date of July 24, 2014 if the registration statement has not been declared effective by the SEC prior to such date) and ending on the earlier to occur of (x) the date which is 48 months from July 24, 2014 or termination of the Stock Purchase Agreement), we may in our sole discretion deliver a put notice to Premier Venture which states the number of Series F Preferred Shares that we intend to sell to Premier Venture on a closing date (the "Put"). On not less than the 13th trading day after receipt of the Put (the "Request Date"), we shall deliver the Purchased Series F Preferred Shares and Premier Venture shall pay to us the respective Purchase Price.
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The maximum number of Series F Preferred Shares that we shall be entitled to Put to Premier Venture shall not exceed the lesser of: (i) 400% of the average daily dollar trading value of the common shares for the twenty trading days prior to the Put divided by 1,000; and (ii) the number of shares for each Put as set forth on Exhibit C attached to the Stock Purchase Agreement, which Exhibit C is a table of maximum monthly purchases (the "Purchase Limit"). During the Open Period, we shall not be entitled to submit a Put more than once in any thirty-day period. However, if the lowest individual daily VWAP of the common shares in the ten trading days prior to a Put is great than $0.008, then for purposes of Exhibit C and the Purchase Limit, the number of Series F Preferred Shares shall be multiplied by 150%.
The Stock Purchase Agreement also provides that if the average VWAP for the ten trading days after the Request Date is less than 85% of the average of the VWAPs for the ten trading days prior to the Request Date, then the Purchase Price for each Series F Preferred Share for such Put shall be reduced to an amount equal to such percentage multiplied by the Purchase Price (the "Adjustment to Purchase Price"). "VWAP" means the ratio of the value traded to total volume over a particular time and reflects the measurement of the average price a stock traded at over the trading horizon. It is generally calculated by adding the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day.
The closing of each purchase by Premier Venture of the Series F Preferred Shares shall occur on the date which in the 13th trading day following the applicable Put (each, a "Closing Date"). Prior to such Closing Date, we shall issue to Premier Venture a certificate representing the Series F Preferred Shares being purchased and on the Closing Date Premier Venture shall deliver to the Company the Purchase Price.
Upon the execution date of the Stock Purchase Agreement, we shall issue to Premier Venture 720 Series F Preferred Shares. In order to advance the date of this first Put, we intend to file an S-1 registration statement covering the common stock issuable upon conversion of the Series F Preferred Shares from the First Purchase Shares together with the common shares issued from conversion of 360 of the 720 commitment shares (the "Commitment Shares"). Premier Venture agreed to be irrevocably bound to purchase the First Purchase Shares subject to the effectiveness of the Registration Statement.
Lastly, we may not make a Put under any of the following circumstances: (i) we are no longer a SEC reporting company or is late in any required filings; (ii) we have failed to deliver to Premier Ventures any shares of common stock that it has requested pursuant to a conversion of the Series F Preferred Shares; and
(iii) during the 10 trading days prior to a Put, our common stock had a closing bid of less than $0.0004 per share.
We shall authorize and reserve the number of shares of common stock equal to the amount of 500% of the number of shares issuable upon conversion of all of the outstanding Series F Preferred Shares.
The "Registrable Securities" means the conversion shares deliverable to Premier Venture pursuant to the conversion into common shares of: (i) one-half of the commitment shares; (ii) the first purchase by Premier Ventures of the Series F Preferred Shares; and (iii) any common shares issued or issuable with respect to such common shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event.
Registration Rights Agreement
On July 25, 2014, we entered into the registration rights agreement with Premier Venture (the "Registration Rights Agreement"). Pursuant to the terms and provisions of the Registration Rights Agreement, we are obligated to file a registration statement (the "Registration Statement") with the Securities and Exchange Commission to cover the Registrable Securities within thirty (30) days from the date of execution of the Registration Rights Agreement,. We must use our commercially reasonable efforts to cause the Registration Statement to be declared effective by the Securities and Exchange Commission.
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Termination of Equity Purchase Agreement
Effective on July 1, 2014, our Board of Directors approved the termination of that certain equity purchase agreement dated February 28, 2014 (the "Equity Purchase Agreement") previously entered into with Premier Venture and associated registration rights agreement dated February 28, 2014 with Premier Venture (the "Equity Registration Rights Agreement") regarding the prior $12,000,000 funding. The Stock Purchase Agreement and Registration Right Agreement replaces and supersedes the Equity Purchase Agreement and Equity Registration Rights Agreement.
Increase in Authorized Capital
Effective February 11, 2014, our Board of Directors and the majority shareholders approved an amendment to the articles of incorporation to authorize an increase in authorized capital from 3,000,000,000 shares to 5,000,000,000 shares (the "Amendment"). The Amendment was filed with the Secretary of State of Delaware on February 18, 2014 reflecting the authorized common stock shall be an aggregate 5,000,000,000 shares consisting of 4,989,999,000 shares of common stock, par value $0.000001, and 10,001,000 shares of preferred stock, par value $0.000001. The Amendment will not affect the number of our issued and outstanding common shares.
Amendment to Articles of Incorporation
Effective July 11, 2014, the Board of Directors of Kleangas Energy Technologies Inc., a Delaware corporation (the "Company") approved an amendment to the certificate of designation for common stock number and voting rights of the preferred stock series "A", "B", "C", "D", "E" and "F", number, voting rights, conversion rights, qualifications, limitations, restrictions and other characteristics (the "Amendment to Certificate of Designation"). The Amendment to Certificate of Designation was filed with the Secretary of State of Delaware on July 11, 2014 revising the number of shares in each series of the 10,001,000 shares of preferred stock previously designated as follows: (i) 200 shares shall be Series A; (ii) 100 shares shall be Series B; (iii) 5,300 shares shall be Series C; (iv) 400 shares shall be Series D; (v) 7,995,000 shares shall be Series E; and (vi) 12,720 shares shall be Series F. Thus, this leaves 1,987,280 shares of preferred stock authorized but undesignated as a series. The Amendment to the Certificate of Designation does not affect the number of total issued and outstanding preferred shares.
FINRA Corporate Action/Information Statement on Form 14C
On October 6, 2014, our Board of Directors and majority shareholders approved:
(i) an amendment to the articles of incorporation (the "Name Change Amendment") to change our name from "Kleangas Energy Technologies Inc." to "G-Pel International Inc."; (ii) an amendment to the articles of incorporation to increase our total authorized capital to 10,000,000,000 shares of common stock, par value $0.000001 (the "Authorized Capital Amendment"); (iii) a reverse stock split (the "Reverse Split") of our issued and outstanding shares of common stock on a 1 for 200 basis; and (iv) the change of domicile from State of Delaware to the State of Florida (the "Re-Domicile"). Pursuant to our Bylaws and the Delaware Revised Statutes, a vote by the holders of at least a majority of our outstanding votes was required to effect the Name Change Amendment, the Authorized Capital Amendment, the Reverse Split and the Re-Domicile. Stock Split and the Name Change. Our articles of incorporation do not authorize cumulative voting. As of the record date of October 6, 2014, we had 3,731,090,540 shares of common stock issued and outstanding. The consenting stockholders of the shares of common stock held of record were entitled to 1,700,000 shares of common stock and 8,000,000 shares of Series E Preferred Stock, which each share of Series E Preferred Stock having voting rights equivalent to 10,000,000 shares of common stock. The names of the shareholders of record who hold in the aggregate a majority of our total issued and outstanding common stock and who signed the written consent of stockholders are: (i) Bo Linton holding of record 1,700,000 shares of common stock; and (ii) Eric Gregory Holdings Inc. holding of record 8,000,000 shares of Series E Preferred Stock.
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A preliminary information statement on Form 14(c) was filed with the Securities and Exchange Commission on October 16, 2014. On November 24, 2014, we filed the definitive Information Statement on Form 14(c) with the Securities and Exchange Commission, which was furnished to all holders of our common stock as of October 9, 2014, in connection with the action taken by written consent of holders of a majority of the outstanding voting power of the Company.
These actions were approved by written consent on October 6, 2014 by our Board of Directors and a majority of holders of our voting capital stock, in accordance with Delaware Revised Statutes. Our directors and majority of the shareholders of our outstanding capital stock, as of the record date of October 6, 2014 have approved the Name Change Amendment, the Authorized Capital Amendment, the Reverse Split and the Re-Domicile as determined were in the best interests of our Company and shareholders.
The Board of Directors had previously considered factors regarding their approval of the Reverse Split including, but not limited to: (i) current trading price of our shares of common stock on the OTC Market and potential to increase the marketability and liquidity of our common stock; (ii) possible reluctance of brokerage firms and institutional investors to recommend lower-priced stocks to their clients or to hold in their own portfolios; (iii) desire to meet future requirements of per-share price and net tangible assets and shareholders' equity relating to admission for trading on other markets; and (iv) posturing us and our structure in favorable position in order to effectively negotiate with potential acquisition candidates regarding assets. Our Board of Directors approved the Name Change Amendment, the Authorized Capital Amendment, the Reverse Split and the Re-Domicile and recommended our majority shareholders review and approve same.
As of the date of this Quarterly Report, the above-referenced corporate actions are pending with FINRA for an effective date.
Refuse and Biomass Derive Pellets
Our wholly-owned subsidiary, Green Day, through its wholly owned subsidiary, G-PEL, is a pellet brokerage firm created to market and sell excess manufactured RDF pellets. Through our subsidiary, we will also sell sourced RDF pellets from multiple manufacturers and markets to prospective RDF pellet buyers.
Fuel burning customers are typically municipal utilities, industrial plants or major public facilities such as university campuses. What they all have in common, is a need for a cost-effective, cleaner-burning, renewable fuel supplement to coal or a high-energy blend with biomass.
The cost and administrative overhead of adopting fuel pellet technology is minimal. In most cases coal-burning boilers can burn pellets without capital expense or facility modification. Fuel pellets are readily mixed and stored with coal or woody biomass which allows a smooth transition in the percentage of pellets being burned over time.
Additional raw materials that can be utilized include: plastic films containing polyethylene, polypropylene, PET, etc., non-recyclable fiber-based waste, and materials containing laminates of plastics, adhesives and fiber. If raw materials end up in landfills, they produce methane and decompose. Fuel pellet technology is proof that universities, municipal utilities, major manufacturers and paper mills can become more carbon-neutral in energy production by eliminating coal and using alternative fuel pellets made from a range of . . .
