Item 1. Business.
General Overview
We were incorporated in the State of Nevada on July 1, 2008 as Winecom, Inc. (“Winecom”). We were a development stage company focused from September of 2009 to August of 2012 on the development and operation of our website, www.winecom.com, a social networking website that catered to wine lovers. We did not generate any revenues under the Winecom operations. On September 20, 2012, we changed our name to Green Innovations Ltd. (“Green Innovations,” the “Company,” “we,” “us,” “our,” or “GNIN”), and on September 26, 2012, we acquired Green Hygienics, Inc. (“Green Hygienics”), a Florida corporation formed on August 1, 2012, that imports, sells and distributes bamboo-based hygienic products and other paper products. Consequently, we discontinued our business plan related to www.winecom.com and have since pursued the business of Green Hygienics.
Green Hygienics is in the business of importing and distributing bamboo-based hygienic products and other paper products in North America through a licensing agreement with American Hygienics Corporation (“AHC”), a privately-owned corporation in the People's Republic of China. Green Hygienics entered into a contract on August 1, 2012, to license AHC's proprietary bamboo-based products, which the Company is marketing to retail establishments in the United States and Canada.
The consolidated financial statements in this report include the accounts of Green Innovations and its wholly-owned subsidiary, Green Hygienics. All inter-company accounts and transactions have been eliminated in consolidation.
Green Innovations Ltd.
Green Innovations was the parent company of two wholly-owned subsidiaries; Green Hygienics, Inc. (“Green Hygienics”), a Florida corporation, and Sensational Brands, Inc. (“Sensational Brands”), a Florida corporation, which was dissolved in September 2013. Green Innovations provides the management, administrative, marketing and other pertinent focuses for its subsidiaries.
Green Hygienics, Inc.
Our wholly-owned subsidiary, Green Hygienics, is in the importation, sale, and distribution of hygienic and household products made of bamboo-based paper. On August 1, 2012, Green Hygienics entered into a Licensing Agreement with AHC, a corporation domiciled in the People's Republic of China, pursuant to which we acquired the exclusive right for a period of 5 years to import and distribute AHC's proprietary bamboo pulp-based hygiene products. AHC is a leading manufacturer of bamboo-based wet wipes, is internationally certified (ISO 9001:2008, BRC-CP, EPA, Nordic swan, cGMP and GMP) and is a member of the world Private Label Manufacturers Association. Exporting to over 45 countries, AHC supplies a number of Multi-National brands and retailers on all continents including customers such as 3M, Carrefour, Tesco, Walmart, and Goodyear. The Licensing Agreement contemplates the distribution of generic, private label, and Green Hygienics branded products, described below. Subject to the below-described sales targets being met, the exclusive distribution license will be renewable for an additional period of 5 years.
Sensational Brands, Inc.
Our wholly-owned subsidiary, Sensational Brands, Inc., a Florida corporation (Sensational Brands), was formed for the acquisition of certain assets, via an asset purchase agreement, from Sensational Brands, Inc., a Texas corporation (“SBI-TX”). SBI-TX, a company owned by W. Ray (“Tray”) Harrison, Jr., the former National Sales Manager for Green Hygienics, had developed products and the brand name “Sensational.” On November 19, 2012, Sensational Brands entered into an Asset Purchase Agreement with SBI-TX pursuant to which it acquired certain assets of SBI-TX, including the trademark “SENSATIONAL” for the use in commercial sales of bathroom tissue and paper napkins. In exchange for the trademark, we issued to SBI-TX and Tray Harrison 500,000 warrants for common stock of the Company. The warrants were for a period of five years and had an exercise price of $0.01 per share. Sensational Brands was dissolved in September of 2013. The trademark, which was the only asset, was assigned to Green Hygienics.
Other Recent Developments
On November 14, 2012, our board of directors adopted the Green Innovations Ltd. 2012 Stock Option Plan (“SOP”). The SOP provides for the issuance of 10,000,000 stock options for common stock of the Company. The stock options, once issued, have a five year life. The exercise price shall be set no lower than 100% of the fair market price.
On February 7, 2013, we entered into a Share Cancellation / Exchange / Return to Treasury Agreement with Bruce Harmon, our chief executive officer, for the cancellation of 45,000,000 shares of our common stock held by Mr. Harmon in exchange for 5,000,000 shares of our company’s Series A Preferred Stock. The Series A Preferred Stock has 10 votes for every share and a conversion rate of one for one. Mr. Harmon retained 4,500,000 shares of our common stock after giving effect to the transaction.
The Company reports its business under the following SIC Codes:
Our corporate headquarters are located at 3208 Chiquita Boulevard, Suite 216, Cape Coral, Florida 33914. The Company’s primary web sites are www.greeninnovationsltd.com and www.greenhygienics.com. The web sites are not incorporated in this Form 10-K.
The Industry
Billions of dollars are spent annually on disposable products, even with the shift to recyclable products, thousands of tons of non-biodegradable consumer goods still end up in local landfills; never degrading and causing further environmental damage. Green Hygienics is an environmentally friendly company whose intention is to help change the way paper products are developed and used, using 100% tree-free bamboo-based products in our bamboo line of paper products.
Our green products are innovative, not merely in the sense of “green” products, but in the sense of offering smarter consumer-relevant solutions that link product quality to the shared responsibility of producers and consumers. The environmental footprint of the product in terms of production and disposal and, in many cases even more importantly, the proper use of the product with respect to its environmental impact will be decisive. To address this, we must work more closely with consumers, communicating top performance, the added value of sustainable products and enabling behavioral changes.
Green Hygienics’s focus is to connect sustainable production with sustainable consumption. This means understanding current and future consumption patterns, then harnessing innovation to develop more sustainable products, services and behavior change initiatives. This will help us learn in leading the way in identifying opportunities for sustainable value creation for consumers, businesses and society as a whole.
Prudently, Green Hygienics markets other paper products to complement the growing green product line as management has ascertained that while the industry evolves in the green market, the market continues to be primarily non-green products. The tissue market in the U.S. alone is approximately $21.7 billion. The total U.S. market for the products of Green Hygienics is approximately $29.7 billion.
Industry Statistics
Customers
Retailers
The marketing plan is for the introduction of a range of products into each retailer, increasing the product offering carried over time. For certain retailers, the opening order is anticipated to be products under the Sensational® Bamboo, Noov® or Clearly Herbal® brand. Green products, such as our bamboo tree-free line, are increasingly being ordered by buyers as the conscientious consumer demands more green products. The Noov and Clearly Herbal brand, in certain circumstances, provides the open door for the introduction of our full line, especially our bamboo tree-free line.
Currently, the Company’s products are located in the following stores:
The products of Green Hygienics, as of the date of this report, are in the following stores (listed alphabetically): Albertsons Northwest, Albertsons Southwest, Amazon.com, Anacortes Food Pavilion, Archbold SuperValu, Archie’s IGA, Arlington Food Pavilion, Baker’s Foods IGA, Big Lots, Bill’s SuperValu Plus, Blaine Cost Cutter, Bob’s Produce Ranch, Bromley’s Market, Camano Island Plaza IGA, Cardenas, Country Market, Dan’s, Darold’s SuperValu Foods, Dicks Fresh Market, Dissmore Food Mart IGA, Dodson’s IGA, Driskill Foods, E. Wenatchee Food Pavilion, Ellis SuperValu, Erdman’s County Market, Ferndale Cost Cutter, Festival Foods, Fiesta Foods, Food Max Supermarket, Forth’s Foodfair, Gelson’s, Geyer’s Fresh Foods, Gordys County Market, Grocery Outlet, Harts SuperValu Auth, Hornbachers, Howser’s Supermarket IGA, Ingles Foods, Island Fresh, Jerry’s Foods, Jim’s SuperValu, Juba’s SuperValu, Jubilee Foods, Ken’s Market, Kessler’s, Knowlan’s Super Market, Kowalski’s, Larry’s Foodland Auth, Libby Empire, Linns, Lynden Food Pavilion, MacKenthuns Fine Food, Martins SuperValu Foods, McNallys SuperValu Foods, Menards, Metro Foodland, Millers New Market, New Market, New Markets, Palace Supermarket, Paulbeck’s County Market, Payless Foods, Pequot Lakes SuperValu, Pete’s County Market, Pontiac Foodland, Prosser Food Depot, Rite Choice Foods, Sedro-Woolley Food Pavilion, Service Food Market, Silver Lake Foods, Stan’s Market, Stan’s Market, Starvin Sam’s, Super One, SuperValu Foods, SuperValu Northern / Northwest Region, SuttonsSuperValu, Swansons Food Inc., The Marketplace, Tom’s Market, Town & Country Mark - IT, Walgreens, Walker Super One Foods, Willie’s SuperValu, Wyatts SuperValu, Yardbirds Shop n Kart.
United States
The primary national retailers are Target, Walmart, Whole Foods Walgreens, SuperValu, TOPCO, CVS, dollar stores, grocery chains, drug store chains, mass merchandisers, C store chains, C store wholesalers, and away from home distributors. As of December 31, 2013, with the sales and marketing efforts of Green Hygienics ramping up in the late third quarter, Green Hygienics has supplied various outlets. Namely, Green Hygienics has received orders from Walgreens, SuperValu, Menards, Albertsons, Cardenas, Ingles, Grocery Outlet, Big Lots and Gongo. Green Hygienics is engaged in ongoing marketing efforts and negotiations to secure purchase orders from larger national retailers, including Target, and others, however, no definitive orders have been secured as of the date of this report.
Canada
Green Hygienics has a distribution agreement with Avanti Distribution, Inc. (“Avanti”), a Canadian company, for exclusive distribution rights for Canada. Avanti’s target merchants are Big Lots, Walmart, Loblaws, Katz Group Canada, Jean Coutu, Uniprix, McKesson, Costco Wholesale, IGA Sobeys, Brunet, Metro, Le Naturist, and others. As of December 31, 2013, through Avanti, the Company has already begun fulfilling orders to Dollarama and Dollar Tree.
Consumers
The consumers of our products are individuals, companies and institutions. Our product line includes products, such as bath tissue, paper towels, facial tissue, wet wipes, sanitary napkins, office paper, and other products that are used frequently or daily by most consumers in developed countries and by a large and increasing number of consumers in developing countries. Therefore, the potential end consumers for our products include most consumers.
Our Products
Summary
Bamboo is redefining itself as an alternative crop with expansive uses and benefits. Originally being viewed as a plant material in landscape nurseries, zoos and botanical gardens, the spectrum of bamboo use has been seen in construction materials, musical instruments, furniture and crafts, perhaps its greatest attribute is arising in its important contribution to conservation. Not only has bamboo been an important factor in agroforestry, constructed wetlands and wildlife habitat, it is now being viewed for its biodegradable aspects in replacing landfill mainstays such as diapers and napkins, which take many decades to degrade.
Currently, an estimated 27.4 billion disposable diapers are used each year, resulting in an estimated 3.4 million tons of used diapers adding to landfills each year in the United States alone, not factoring in other countries around the world.
Green Hygienics seeks to become one of the premier suppliers of high quality tree-free bamboo-based products ranging from sanitary napkins to biodegradable diapers. Incorporating a proprietary bamboo manufacturing strategy by its third party manufacturer, Green Hygienics is able to provide a viable option to a vast array of products that were otherwise known as ecologically “unfriendly” products that took years, decades, even centuries to decompose into its natural surroundings.
Disposal of used sanitary products by flushing out into the oceans of the world, incinerating, or depositing in landfill, creates various pollutants including dioxins deposited in the sea through sewerage waste and air pollution from incinerators.
Green Hygienics holds the exclusive North American distribution rights for this proprietary bamboo manufacturing. The bamboo-based products are currently being manufactured in China under American Hygienics Corporation (“AHC”). AHC currently supplies other paper products to Walmart China, Tessco, Revlon, 3M, Walgreens, Woolworth, Coles, Foodstuff, Dollarama, Dollar General, Carrefour, Ramson Group, Pigeon, Tall Joy, and more. Green Hygienics will be utilizing the relationship with AHC’s current clients to embed itself within the North American market. With the relationship already in place with Walmart China, Green Hygienics will pursue a cross over to the Walmart and Walmart Canada in the North American market, amongst various other retailers through its distribution representatives such as Distribution GSP, Inc., which supplies over 90% of all of the pharmacies in Canada as well as Brooks and Eckerd’s in the United States.
There are various benefits and advantages to the products offered by Green Hygienics. The most important being that Green Hygienics offers products that are 100% totally chlorine-free (“TCF”) bamboo pulp, unlike many companies that claim their fabric to be bamboo, however, in actuality, are rayon based. Green Hygienics prides itself on the quality of product it will be delivering to reputable companies and in doing so have an increased level of quality control entailing:
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ISO 9002 Compliance
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FDA Approval
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SGS Testing - the world’s leading inspection, verification, testing and certification company. Recognized as the global benchmark for quality and integrity, employing 59,000 people and operating a network of more than 1,000 offices and laboratories around the world.
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Fully documented and monitored quality control system
The Bamboo Alternative
Green Hygienics will introduce the first “tree-free diaper,” made from highly sustainable, environmentally-friendly bamboo-based resources. Traditional diapers are made from wood pulp, petroleum-based products, and man-made chemicals. It is estimated that we use more than 27 billion disposable diapers each year, and according to the Environmental Protection Agency, diapers such as these account for approximately 3.5 million tons of yearly waste. This diaper waste often ends up in landfills where it can take hundreds of years to fully decompose. In contrast, our baby diaper is made from 100% biodegradable bamboo pulp, which grows quickly, without the need for pesticides, is highly renewable, and can be regrown and harvested again in a matter of years.
The bamboo plant is not just for diapers. For centuries, bamboo has been a symbol of luck and longevity in the Chinese culture, and bamboo paper, while produced on a relatively small scale, is considered to be among the most beautiful and durable types of paper in existence. In addition to its quality, our Eco Choice Range paper offers the following savings (per ton) when compared to usual industrial methods:
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17 trees spared
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7,000 gallons of water saved
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4,200 kw/h less electricity used
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3.3 cubic yards of landfill is gained
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20 pounds CO2 emission reduction
The Company prudently markets non-green paper products to complement its marketing strategy for the green products as the industry evolves to green products.
Our Products
Bamboo Pulp-Based Hygiene and Household Products
Current and Future Products - Bamboo
(Not pictured: Bamboo Copy Paper and Clearly Herbal Bamboo Baby Wipes - coming soon)
Clearly Herbal Baby Wipes
(Not pictured: Clearly Herbal Flushable Moist Wipes - coming soon)
Future Products - Regular Paper
Current and Future Products - Premium Formulations (PF)
Current Products - Recycled
Our agreement with AHC also gives us the exclusive North American distribution rights (for retail and institutional distribution only) for AHC conventional products.
Manufacturing by Third Parties
Currently, all production of Green Hygienics products are being manufactured in China through the contractual relationships with American Hygienics Corporation (“AHC”) and Xiamen ITG Group Corp Ltd. (“ITG”).
American Hygienics Corporation
AHC (www.amhygienics.com) is an international company that is one of the largest private label manufacturers of wet wipes in Asia. AHC produces absorbent hygiene products in excess of $75 million annually. AHC is the largest manufacturer of bamboo-based wet wipes in the world. They are a member of the World Private Label Manufacturers Association. Currently, AHC exports to more than 45 countries.
Through our exclusive licensed manufacturer, American Hygienics Corporation, we are able to offer class 100,000 ISO 8 critical environment standard (first “Class 100,000 ISO 8 Clean Room” in the world), a standard required for products designed for the medical industry. This new state-of-the-art facility is the only facility to offer such a high quality standard in the wet wipe industry. It will allow us to accommodate many of our customers with medical wipes and devices which will provide a ‘one stop shop’ in the wet wipe industry.
AHC is ISO 9001:2008, BRC-CP, Nordic Swan, cGMP & GMPc certified.
AHC manufactures multi-national brands and retail customers on six continents. Customers include, but are not limited to, 3M®, Carrefour®, Tesco®, Walmart®, Goodyear®, and more.
Xiamen ITG Group Corp Ltd.
ITG (www.itg.com.cn) is a comprehensive enterprise founded in 1980 and listed on the Shanghai Stock Exchange in 1996. Since 1991, ITG has been consecutively listed among the China Top 500 Import and Export Enterprises, and ranked No. 5 on the China International-Domestic Wholesale and Retail listing. The Company is also a National AAA Grade Credit Foreign Trade Enterprise. (Source: www.itg.com.cn)
ITG is the largest bamboo paper supplier in the world exporting to North America, South America, Australia, Europe, Africa, the Middle East and Latin America. ITG has the capacity of 120,000 metric tons per month which calculates to 16 million cases per month.
Other
One of Green Hygienics’s keys to success will be to set up its own proprietary production facility within the domestic United States that will process bulk bamboo pulp into a fibrous material that can be engineered to create these same hygiene products in-house.
Sales Targets
In order to renew our Licensing Agreement with AHC for an additional 5 year term, we must achieve the following sales targets during the initial 5 year term:
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$150,000 in sales of absorbent pad based products, including diapers, panty liners and sanitary pads during the first year followed by a 25% increase during each subsequent year;
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$100,000 in sales of plates and cups, produce platters, dryer sheets, and stationary during the first year followed by a 25% increase during each subsequent year; and
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$150,000 in sales of miscellaneous branded products, followed by a 25% increase during each subsequent year. Branded products include products marketed under the Green Hygienics brand and related marks, including "Premium Formulation," Clearly Herbal and Green & Soft.
Market Strategy
The development of new markets or business models that deliver consumer value in more eco-efficient or socially beneficial ways, there are several ways in which our strategies can be built around our products that delivers social benefits. Green Hygienics’ strategies center on differentiation, aiming to offer a superior product with a distinctive brand. Green Hygienics’ objective is to offer low-cost products. We seek to win by pre-emptive moves, gaining first mover advantage such as customer loyalty and focus our products on a specific segment or geography, and look for synergies, enhancing the value to the customer while reducing costs.
Marketing has a vital role to play in decoupling material consumption from consumer value. It has the ability to facilitate both innovation and choice influencing for sustainable consumption, because it allows products and information to flow between producers and consumers. It can help consumers to find, choose and use sustainable products, by providing information, ensuring availability and affordability, and setting the appropriate tone through marketing communications. Sales data and market research provide insights about consumer attitudes, beliefs and behaviors that can then be fed into the planning process, driving innovation and guiding key business decisions, including pricing, packaging and distribution.
Marketing also has a vital role to play in leveraging the company’s sustainability credentials to build brand equity. In order to do so, it is vital to ensure consistency with our corporate sustainability strategy; any claims made must be authentic, credible and responsible. As solutions shift from technical to social, marketing also has an increased role in driving innovation. Brand values are communicated to consumers through all sales and marketing channels, from lead generation and customer support to advertising, sponsorship and point-of-sale activities. These messages will provide signals to consumers about social and behavioral norms, and are believed by some to have behavioral effects beyond the product or brand from which they emanate.
Green Hygienics has segmented their efforts into four distinct customer markets:
1. Health & Natural product stores: These customers are purchasing functional confectionary. Their establishments serve a wide variety of eco-friendly products to thousands of customers each day.
2. Drugstores: These customers are buying more and more eco-friendly products for their customers as a green innovative and to satisfy their eco-friendly clientele.
3. Supermarkets: These customers are buying more and more eco-friendly products for their customers as a green innovative and to satisfy their eco-friendly clientele and to improve their green print.
4. Superstores: These customers are large buyers of eco-friendly products that is an increasing demand from their customers that are 60% institutional and small business with green initiative programs.
Target Market
Increasing numbers of consumers are realizing that their purchasing behavior directly affects many ecological problems. We seek to provide a profile of consumers who are likely to pay more for environmentally friendly products, and to put forward marketing strategies to attract them. The research shows that consumers willing to pay more for environmentally friendly products are more likely to be female married, with at least one child living at home. This group seems more likely to put the welfare of others before their own. They are perhaps more likely to think of how a ruined environment may affect their partner and their children’s future. Consumers willing to pay more for green products report that today’s ecological problems are severe, that corporations do not act responsibly towards the environment and that behaving in an ecologically favorable way is important. They place a high importance on security and warm relationships with others, and often consider ecological issues when buying something. They do not believe that it is inconvenient to, for example, do without single-serve aseptically packaged juices or puddings, in the interests of protecting the environment.
Competitive Edge
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Increasing the availability of more sustainable products through integrating sustainability and life cycle processes into product design innovation that doesn’t compromise on quality, price or performance in the market.
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Creating a market for sustainable products and business models by working in partnership with consumers and other key stakeholders to demonstrate that sustainable products and lifestyles deliver superior performance at the best prices. Using marketing communications to influence consumer choice and behavior.
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Editing out unsustainable products, product components, processes and business models in partnership with other actors in society and retailers.
Retailers understand their unique opportunities and responsibilities in the area of sustainable consumption, but differ in their approaches. For example, some take a choice editing approach, eliminating products considered to be unsustainable and, where possible, offering only sustainable choices. Others offer a range of both sustainable and unsustainable choices at a range of prices, in order not to exclude consumers with more limited budgets. Some large global retailers are starting to create minimum sustainability standards for the products that they offer and from their supply chains, but are not yet ready to engage consumers in discussions about impacts across the full product life cycle. Retailers will seek more product contents disclosure from product suppliers in the future in order to determine the sustainability of the product and we will supply them with the tool’s necessary to simplify their task.
Strategy and Implementation
Since the opposite is true of consumers who are less willing to pay more for environmentally friendly products, marketers should advertise why it is convenient to purchase “green” products. The Body Shop, for example, uses information cards, window displays and videos throughout its stores to inform people about the environmental and social effects of their purchasing decisions. This information educates the consumer about The Body Shop’s natural product ingredients, earth-friendly manufacturing, and policy of purchasing from developing countries. Marketers should also communicate to the target audience that buying green products can have a significant impact on the welfare of the environment. Marketers should persuade consumers that environmental protection is not the sole responsibility of business and that each individual can also make a difference. Marketers should regularly provide feedback to show consumers that they are making a difference.
Our research reveals that 80% of consumers who are more likely to spend more for green products say they refuse to buy products from companies accused of being polluters. Companies which do not follow environmental regulations or which try to exploit the green movement to increase sales are therefore exposed to consumer boycott. For example, Procter & Gamble and Walmart were publicly criticized for putting a “green” label on a brand of paper towels made of chlorine-bleached, unrecycled paper and packaged in plastic, simply because the inner tube for the towels was made of recycled paper.
Consumer attitudes and behaviors:
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Consumers are increasingly concerned about environmental, social and economic issues, and increasingly willing to act on those concerns
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Consumer willingness often does not translate into sustainable consumer behavior because of a variety of factors - such as availability, affordability, convenience, product performance, conflicting priorities, skepticism and force of habit
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Making it easy and affordable for the consumer to make sustainable purchasing decisions, as they increasingly report a willingness to do so
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Making sustainable products available and comparable - without compromising on performance and at no extra costs
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Leveraging the unprecedented power of consumers to share information about our company, products via social networks, to promote sustainable products, usage, consumption and lifestyles
Competition Overview
We are a company engaged in the sale and distribution of hygienic and household bamboo-based paper products. Currently, our target market is limited to North America, including Canada. We intend to compete with other manufacturers and distributors of hygienic and household paper products, including products made of traditional wood-pulp based paper, bamboo-pulp based paper, or other recycled or novel paper materials. We will also compete with traditional manufactures of non-paper based diapers and female sanitary pads.
Many of the companies with whom we intend to compete have greater financial resources, production capabilities, and distribution networks than we do. These competitors may be able to benefit from greater economies of scale than our Company. In addition, they may be able to afford more expertise in design and manufacturing of their products. This competition could result in competitors having products of greater quality and interest to prospective customers and investors. This competition could adversely impact our ability to finance further development and to achieve the financing necessary for us to develop our business.
We believe that Green Hygienics is currently one of the few distributors of 100% tree-free products in the U.S. marketplace. There are other companies that manufacture products in a similar scope; however, they have up to 30% tree-based ingredients in their products. Green Hygienics is the exclusive supplier for AHC in North America bamboo-based products. AHC is the world’s largest manufacturer of bamboo-based wet wipes, internationally certified: ISO 9001:2008, BRC-CP, EPA, Nordic swan, cGMP and GMP and member of the world Private Label Manufacturers Association. AHC suppliers multi-national brands and retailers on all continents including customers such as 3M, Carrefour, Tesco, Walmart, Goodyear and export to over 45 countries.
AHC’s research and development facility with laboratory for micro-biological/bio-burden testing currently houses over 200 dedicated employees. Management believes that innovation is an essential driver of more sustainable consumption. The goal of sustainable innovation is to deliver high levels of emotional and functional value, while minimizing resource use and environmental impacts. Innovation is a well-known core business function. Business innovation responds to the challenge of sustainable consumption through: eco-efficiency measures, product innovation and design, production & supply chain management, and business model innovation.
Our research and development of new products, product features, and technologies are driven by the quest for the best performance at the best price that also improves eco-efficiency and societal value.
Competition
Competitors: Bamtastic™ and Bambooee®
Bamtastic™ (Green Paq Solutions, Inc.) is a bamboo paper towel brand made in China and sold in the U.S. market. Its primary targets are commercial, retail and online customers, with a general price point of $9.99 for a 12-roll pack of bamboo paper towels.
Bambooee® (CM National, Inc.) is a brand made in China and the U.S with similar targeted customers. Bambooee® was the first bamboo paper towel brand to be introduced to the U.S. market. Bambooee® is generally priced at a premium: $18 for a 12-roll pack.
Intellectual Property
Website
We assert common law copyright in the contents of our website, greeninnovationsltd.com, greenhygienics.com, clearlyherbal.us, and gogreenest.com, and common law trademark rights in our business name and related product labels, including "Clearly Herbal," “Sensational,” and "Green & Soft." We have not registered for the protection of any copyright, trademark, patent or design, although we may do so in the future as we deem necessary to protect our business. We have registered for protection of our domain name, www.greenhygienics.com.
Trademarks
We have registered or filed for registration for the following copyrights and trademarks:
The Company has registered Flora® but will not be using it.
Other
Through our Licensing Agreement dated August 1, 2012 with AHC, we hold the exclusive North American distribution rights to certain proprietary products of American Hygienics for the manufacture of bamboo pulp-based paper products, described elsewhere in this report. Our exclusive rights are enforceable for a minimum term of 5 years from August 1, 2012, and are subject to an additional 5 year renewal provided we meet certain sales quotas during the initial terms. The terms of our agreement with Green Hygienics are discussed in the section of this report entitled "Description of Business."
Green Hygienics has been granted an Intellectual Passport CB, through its authors Kalpesh Parmar and Yogesh Parmar, owners of AHC, which will own the worldwide Intellectual Passport for the manufacturing of the bamboo pulp. The Intellectual Passport CB is a private system of intellectual property registration that aims to enhance the protection of intellectual property rights conferred by existing legal frameworks.
Accreditations
FDA - Food and Drug Administration
The FDA is an executive department agency of the United States Department of Health and Human Services. The FDA is established to be responsible for protecting and promoting public health through regulation of consumer products. The FDA is one of the most recognized certifications in the world.
EPA - Environmental Protection Agency
An agency of the United States federal government which has been established for the purpose of protecting human health and the environment. The EPA's purpose is to protect consumers from significant risk from human health and the environment on which they live learn and work.
Nordic Environmental Label
The Nordic Ecolabel is a comprehensive evaluation through the lifecycle of the product. This means that, in developing criteria, we look at the whole life cycle of the product and all its related environmental issues. Climate considerations are thus a key element of the assessment. Some criteria contain requirements linked directly to the climate, such as those concerning use of fossil fuels or energy consumption during the manufacturing process. The more important we judge the climate issue to be for a particular product group, the stricter and more extensive the requirements become in that area.
Retail Consortium
The British Retail Consortium (“BRC”) is the lead trade association in the UK representing the whole range of retailers, from the large multiples and department stores through to independents, selling a wide selection of products through all levels of wholesale and retail. The BRC is a highly sought after certification in the UK as it is the authoritative voice of retail, recognized for its powerful campaigning and influence within government and as a provider of excellent retail information. The majority of UK, and many European and global retailers, and brand owners will only consider doing business with suppliers who have gained certification against the appropriate BRC Global Standard.
ISO 9001:2000 - International Organization for Standardization
ISO International Standards ensure that products and services are safe, reliable and of good quality, they are strategic tools that reduce costs by minimizing waste and errors and increasing productivity. They help companies to access new markets, level the playing field for developing countries and facilitate free and fair global trade.
GMP - Good Manufacturing Practice
GMP is a production and testing practice that maintains and ensures quality control of a manufactured goods. Many countries have created uniform GMP guidelines to correspond with their own legislation. These GMP guidelines safeguard the consumer and ensuring the goods produced are of the highest quality.
GMP is enforced in the United States by the FDA.
The World Health Organization (“WHO”) version of GMP is used by pharmaceutical regulators and the pharmaceutical industry in over one hundred countries worldwide, primarily in the developing world. The European Union's GMP (“EU-GMP”) enforces similar requirements to WHO GMP, as does the FDA's version in the US. Similar GMPs are used in other countries, with Canada, Japan, Singapore, Philippines and others having highly developed/sophisticated GMP requirements.
Research and Development
We have incurred research and development expenses since our collaboration with Laboratoire M2, Inc. (“M2 Labs”), a Canada-based research and development company that has a technology of an all-natural EPA approved disinfectant. We are in the development and additional EPA approval for the world’s first all-natural biodegradable disinfectant wipe. The resultant product will have projected claims of a 99.9% kill claim with kill times under 3 minutes which would ultimately, as projected by management and M2 Labs, make the product “hospital grade.”
We do anticipate that we will spend significant resources on research and development during the next 12 months.
We believe that Green Hygienics is currently one of the few distributors of 100% tree-free products in the marketplace. Green Hygienics is the exclusive supplier for American Hygienics Corporation in North America. American Hygienics Corporation (AHC) is the world’s largest manufacturer of bamboo based wet wipes, internationally certified: ISO 9001:2008, BRC-CP, EPA, Nordic swan, cGMP and GMP and member of the world Private Label Manufacturers Association. AHC suppliers Multi-National brands and retailers on all continents including customers such as 3M, Carrefour, Tesco, Walmart, Goodyear and export to over 45 countries. Its Research and Development facility with laboratory for micro-biological/bio-burden testing currently houses over 200 dedicated employees.
Green Hygienics will continue to innovate with new products in the versatile bamboo supply chain. Bamboo produces thousands of products which makes Green Hygienics a valuable research and development entity focused on sustainable bamboo products.
Reports to Security Holders
We intend to furnish our shareholders annual reports containing financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional documents with the Commission if they become necessary in the course of our company's operations.
The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Government Regulations
As distributors and importers of hygienic and household paper products, including products used for food packaging and storage, we are regulated by the U.S. Food and Drug Administration. We believe that the products we intend to distribute are in compliance, in all material respects, with the laws and regulations administered by the U.S. Food and Drug Administration.
We believe that we are and will continue to be in compliance in all material respects with applicable statutes and the regulations passed in the United States. There are no current orders or directions relating to our company with respect to the foregoing laws and regulations.
Environmental Regulations
We do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.
Employees
As of December 31, 2013, we had a total of three full time employees, four full time consultants and one full time leased employee. After December 31, 2013, we hired another employee and our leased employee became a regular employee. Our employees are not parties to any collective bargaining agreement. We believe our relationships with our employees are good.
Property
We lease approximately 1,542 square feet of office space in Cape Coral, Florida, pursuant to a lease that will expire on February 28, 2019. This facility serves as our corporate headquarters. Prior to March 1, 2014, we leased approximately 1,000 square feet of office space in Cape Coral, Florida which served as our corporate headquarters. Due to a change in ownership of the building, the Company took on opt-out option to extinguish its current lease, effective February 28, 2014. The Company leases a warehouse in Ontario, California with approximately 50,000 square feet. The warehouse lease began on November 1, 2013, and expires on October 31, 2016.
Warehouse - Ontario, California
Available Information
All reports of the Company filed with the SEC are available free of charge through the SEC’s web site at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
Item 1A.
Item 1A. Risk Factors
The following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere by management from time to time.
There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.
Risks Related to Our Business
We have limited operating history and our foreseeable future is uncertain.
We were formed in 2008 and did not have any operations until the fourth quarter of 2012 due to the acquisition of Green Hygienics. We have only nominal assets, and have generated limited revenues since our inception. The Green Hygienics acquisition in September 2012 discontinued the prior operations. For our year ended December 31, 2013, we experienced net losses of $8,351,175. We used cash in operating activities of $4,424,637 in 2013. As of December 31, 2013, we had an accumulated deficit of $9,540,660. In addition, we could incur additional losses in the foreseeable future, and there can be no assurance that we will ever achieve profitability. Our future viability, profitability and growth depend upon our ability to successfully operate, expand our operations and obtain additional capital. There can be no assurance that any of our efforts will prove successful or that we will not continue to incur operating losses in the future.
We do not have substantial cash resources and if we cannot raise additional funds or generate more revenues, we will not be able to pay our vendors and will probably not be able to continue as a going concern.
As of December 31, 2013, our available cash balance was $38,305. We will need to raise additional funds to pay outstanding vendor invoices and execute our business plan. Our future cash flows depend on our ability to wholesale our products to major retail and grocery chains. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
We may be required to pursue sources of additional capital through various means, including joint-venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued securities may include preferences, superior voting rights, the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.
Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have not been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
We have a limited operating history, and it may be difficult for potential investors to evaluate our business.
We began current operations in September 2012. Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. Since our formation, we have generated only limited revenues. Our revenues were $1,867,788 and $232,955 for the years ended December 31, 2013, and 2012, respectively. As an early-stage company, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a relatively new business. Investors should evaluate an investment in us in light of the uncertainties encountered by such companies in a competitive environment. Our business is dependent upon the implementation of our business plan, as well as the ability of our merchants to enter into agreements with consumers for their respective products and/or services. There can be no assurance that our efforts will be successful or that we will be able to attain profitability.
We may not be able to secure additional financing to meet our future capital needs.
We anticipate needing significant capital to establish our operations, distribution network and customer base. We may use capital more rapidly than anticipated and incur higher operating expenses than expected, and will be depend on external financing to satisfy our operating and capital needs. Any sustained weakness in the general economic conditions and/or financial markets in the United States or globally could adversely affect our ability to raise capital on favorable terms or at all. We may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.
Our business and operating results could be harmed if we fail to manage our growth or change.
Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial resources. To manage possible growth and change, we must locate and retain skilled sales people, marketers, management, and other personnel, and solicit and obtain adequate funds in a timely manner. If we fail to effectively manage our human or financial resources during the growth of our business, our business may fail which would cause you to lose your investment.
We may not have access to the product supply necessary to support our business, which could cause delays or suspension of our operations.
Competitive demands for supply of products could result in the disruption of planned sales and distribution activities. Because we will rely on third party manufacturers to produce the products that we intend to sell, we may experience difficulty in securing a reliable supply of quality products at a competitive price. Although we believe that we have secured a suitable supplier of quality products at a competitive price, if our product supply is compromised for any reason, we may have to suspend some or all of our operations, which could significantly harm our business.
We depend on the products of American Hygienics Corporation.
The Company has a Licensing Agreement with AHC and the stability of AHC, along with its ability to continue to supply its products to the Company at a price that will afford the Company to meet its goals and objectives, is imperative to the stability and viability of the Company.
We depend on the production facility of American Hygienics Corporation.
The production of a portion of the Company’s products are dependent on the manufacturing performed by AHC, and their ability to continue to supply products to the Company at a price that will afford the Company to meet its goals and objectives is imperative to the stability and viability of the Company.
Our profitability depends, in part, on our success and brand recognition, and we could lose our competitive advantage if we are not able to protect our trademarks against infringement, and any related litigation could be time-consuming and costly.
We believe our brand will gain substantial recognition by consumers and merchants in North America. We have registered the “Sensational” trademark with the United States Patent and Trademark Office. We also have other copyrights and trademarks that we use. Use of our trademarks or similar trademarks by competitors in geographic areas in which we have not yet operated could adversely affect our ability to use or gain protection for our brand in those markets, which could weaken our brand and harm our business and competitive position. In addition, any litigation relating to protecting our intellectual property against infringement could be time-consuming and costly.
Our profitability depends, in part, on our licensed products from American Hygienics Corporation, and we could lose our competitive advantage if they are not able to protect their trademarks and intellectual properties against infringement, and any related litigation could be time-consuming and costly.
Green Hygienics is the exclusive supplier for AHC in North America of its 100% bamboo-based products. Use of AHC’s intellectual property and proprietary manufacturing processes by competitors could adversely affect our pricing structure, harm our business and competitive position. In addition, any litigation relating to protecting AHC’s intellectual property against infringement could involve the Company and be time-consuming and costly.
Attraction and retention of qualified personnel is necessary to implement and conduct our sales and marketing efforts.
Our future success will depend largely upon the continued services of our Board members, executive officers, sales personnel, and other key personnel. Our success will also depend on our ability to continue to attract and retain qualified personnel with sales, marketing and distribution experience. Key personnel represent a significant asset for us, and the competition for qualified personnel is intense in the paper product industry.
We may have particular difficulty attracting and retaining key personnel in regards to the sales and marketing aspect of the Company. We do not have key-person life insurance coverage on any of our personnel. The loss of one or more of our key people or our inability to attract, retain and motivate other qualified personnel could negatively impact our ability to develop or to sustain our operations.
We are exposed to risks associated with the ongoing financial crisis and weakening global economy, which increase the uncertainty of consumers purchasing products.
The recent severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy are contributing to a decrease in consumer confidence. If these economic conditions are prolonged or deteriorate further, the market for our products will decrease accordingly.
RISKS ASSOCIATED WITH OUR INDUSTRY
We face significant competition in the hygienic and household paper product industry.
We intend to compete with other manufacturers and distributors of hygienic and household paper products, including products made of traditional wood-pulp based paper, bamboo-pulp based paper, or other recycled or novel paper materials. We will also compete with traditional manufactures of non-paper based diapers, female sanitary pads, disposable plates and cups, and produce platters. Many of the companies with whom we intend to compete have greater financial resources, production capabilities, and distribution capacity than we do. These competitors may be able to benefit from greater economies of scale than our Company. In addition, they may be able to afford more expertise in design and manufacturing of their products. This competition could result in competitors having products of greater quality and interest to prospective customers and investors, which could adversely impact on our ability to develop or sustain our operations.
Existing regulations, and changes to such regulations, may present technical, regulatory and economic barriers to the use of our products, which may significantly reduce demand for our products.
Our products are subject to various regulatory and economic barriers which could have an adverse effect on the Company.
Our business depends on the products of our suppliers, American Hygienics Corporation and Xiamen ITG Group Corp Ltd.
AHC and ITG are both considered to be stable companies with many years of experience in the industry. Its stability, or lack thereof, could create various issues related to our products. Other suppliers are viable alternatives but, without the special products of AHC, the product line that the Company offers could be adversely affected.
Our company is projected to experience rapid growth in operations, which will place significant demands on its management, operational and financial infrastructure.
If the Company does not effectively manage its growth, the quality of its products could suffer, which could negatively affect the Company's brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company's ability to manage its growth and financial position.
The Company treats its proprietary information as confidential and relies on internal nondisclosure safeguards and on laws protecting trade secrets, all to protect its proprietary information.
There can be no assurance that these measures will adequately protect the confidentiality of the Company's proprietary information or that others will not independently develop products or technology that are equivalent or superior to those of the Company. The Company's patents, trademarks, trade secrets, copyrights and/or other intellectual property rights are important assets to the Company. Various events outside of the Company's control pose a threat to its intellectual property rights as well as to the Company's products and services. Although the Company seeks to obtain patent protection for its systems, it is possible that the Company may not be able to protect some of these innovations. There is always the possibility, despite the Company's efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable.
RISKS RELATED TO OUR ORGANIZATION AND THE MARKET FOR OUR STOCK
We are subject to the reporting requirements of federal securities laws, which can be expensive and may divert resources from other projects, thus impairing our ability to grow.
We are a public reporting company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC (including reporting of the Merger) and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if we remained privately held.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current and may adversely affect any market for, and the liquidity of, our common stock.
Public company compliance may make it more difficult for us to attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
Because we became public by means of a merger, we may not be able to attract the attention of major brokerage firms.
There may be risks associated with us becoming public through a merger. Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our post-Merger company.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
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changes in our industry;
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competitive pricing pressures;
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Our ability to obtain working capital financing;
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additions or departures of key personnel;
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
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sales of our common stock;
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our ability to execute our business plan;
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operating results that fall below expectations;
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loss of any strategic relationship;
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regulatory developments;
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economic and other external factors; and
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period-to-period fluctuations in our financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
We cannot ensure that a liquid trading market for our common stock will be sustained.
Our stock is currently quoted on the OTC Bulletin Board, but is traded sporadically. We cannot predict how liquid the market for our common stock might become. As soon as is practicable after becoming eligible, we anticipate applying for listing of our common stock on either the NYSE Amex Equities, The NASDAQ Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards for any of these exchanges, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains quoted on the OTC Bulletin Board or is suspended from the OTC Bulletin Board, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.
Furthermore, for companies whose securities are quoted on the OTC Bulletin Board, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (iii) to obtain needed capital.
The market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings.
The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include: our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors; changes in financial estimates by us or by any securities analysts who might cover our stock; speculation about our business in the press or the investment community; significant developments relating to our relationships with our customers or suppliers; stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; customer demand for our products; investor perceptions of our industry in general and our Company in particular; the operating and stock performance of comparable companies; general economic conditions and trends; announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; changes in accounting standards, policies, guidance, interpretation or principles; loss of external funding sources; sales of our common stock, including sales by our directors, officers or significant stockholders; and additions or departures of key personnel. Securities class action litigation is often instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted against us, it could result in substantial costs to us and divert our management's attention and resources.
Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us. We do not intend to pay dividends on shares of our common stock for the foreseeable future.
Our common stock is currently considered a “penny stock,” which may make it more difficult for our investors to sell their shares.
Our common stock is currently considered a “penny stock” and may continue in the future to be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Bruce Harmon, our chief financial officer and chairman of our board of directors, beneficially owns a substantial portion of our outstanding common stock and preferred stock, which enables him to influence many significant corporate actions and in certain circumstances may prevent a change in control that would otherwise be beneficial to our stockholders.
Bruce Harmon, as of March 3, 2014, beneficially owns 7.6% of our outstanding shares of common stock and 100% of our outstanding shares of preferred stock. As the preferred stock has super voting rights, Mr. Harmon beneficially controls approximately 49.3% of the votes for all of our stock. As such, he has a substantial impact on matters requiring the vote of the stockholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our stockholders and us. This control could adversely affect the voting and other rights of our other stockholders and could depress the market price of our common stock.
Public company compliance may make it more difficult for us to attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
Offer or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
We lease approximately 1,542 square feet of office space in Cape Coral, Florida pursuant to a lease that will expire on February 28, 2019. This facility serves as our corporate headquarters. Prior to March 1, 2014, we leased approximately 1,000 square feet of office space in Cape Coral, Florida which served as our corporate headquarters. Due to a change in ownership of the building, the Company took on opt out option to extinguish its current lease effective February 28, 2014. The Company leases a warehouse in Ontario, California with approximately 50,000 square feet. The warehouse lease began on November 1, 2013 and expires on October 31, 2016.
Item 3.
Item 3. Legal Proceedings.
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of March 17, 2014, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations, except as follows:
Ironridge Global IV, Ltd.
On July 24, 2013, we entered into a stipulation for settlement of claims with Ironridge Global IV, Ltd. (“Ironridge”), pursuant to which we resolved $2,621,036.58 of our accounts payable that Ironridge had agreed to purchase from our creditors in exchange for payment in full in cash. Pursuant to an order approving stipulation for settlement of claims that we jointly requested from the Los Angeles, California Superior Court, we agreed to issue to Ironridge shares of our common stock with an aggregate value equal to 105% of the claim amount plus reasonable attorney fees, divided by 80% of the following: the closing price of our stock on July 24, 2013, not to exceed the arithmetic average of the volume weighted average prices of any five trading days during a period equal to that number of consecutive trading days following the date of initial receipt of shares required for the aggregate trading volume, excluding after-hours trades, to exceed $25 million, less $0.01 per share, as reported by the Bloomberg Professional service of Bloomberg LP.
Under the terms of the agreement, Ironridge is prohibited from receiving any shares of common stock that would cause it to be deemed to beneficially own more than 9.99% of our total outstanding shares at any one time. Ironridge received an initial issuance of 3,600,000 common shares, 3,000,000 on September 25, 2013, and 4,200,000 on October 23, 2013, and may be required to return or be entitled to receive shares, based on the calculation summarized in the prior paragraph. For example, as of September 30, 2013, Ironridge would have been entitled to approximately 10,922,864 additional shares based on the prices of our common stock from July 24, 2013 through September 30, 2013, assuming that there were 43,424,768 shares of common stock issued and outstanding as of September 30, 2013, while ignoring the 9.99% limitation.
Ironridge is prohibited from holding any short position in our common stock, and may not to engage in or effect, directly or indirectly, any short sale until at least 180 days after the end of the calculation period described above.
In addition, for so long as Ironridge holds any shares, it is prohibited from, among other actions: (1) voting any shares of issuer common stock owned or controlled by them, exercising any dissenter’s rights, executing or soliciting any proxies or seeking to advise or influence any person with respect to any voting securities of the issuer; (2) engaging or participating in any actions or plans that relate to or would result in, among other things, (a) acquiring additional securities of the issuer, alone or together with any other person, which would result in them collectively beneficially owning or controlling, or being deemed to beneficially own or control, more than 9.99% of the total outstanding common stock or other voting securities of the issuer, (b) an extraordinary corporate transaction such as a merger, reorganization or liquidation, (c) a sale or transfer of a material amount of assets, (d) changes in the present board of directors or management of the issuer, (e) material changes in the capitalization or dividend policy of the issuer, (f) any other material change in the issuer’s business or corporate structure, (g) actions which may impede the acquisition of control of the issuer by any person or entity, (h) causing a class of securities of the issuer to be delisted, (i) causing a class of equity securities of the issuer to become eligible for termination of registration; or (3) any actions similar to the foregoing.
On July 25, 2013, we issued 3,600,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
On September 25, 2013, we issued 3,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
On December 16, 2013, we issued 4,400,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
On January 31, 2014, we issued 4,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
Oasis Brands, Inc.
On October 16, 2013, the Company received a letter, and copy of an unserved Complaint filed in the United States District Court for the Eastern District of Virginia, Norfolk Division (Case No. 2:13-cv-529-RAJ-DEM), from the attorneys for Oasis Brands, Inc. (“Oasis Brands”), a competitor of the Company and the former employer of Philip Rundle, the Company’s chief executive officer, Jeff Thurgood, the Company’s vice president of sales, and Awie Kardiman, the Company’s controller. The letter and Complaint alleges that the Company has infringed upon Oasis Brands’ intellectual property-specifically, their trademark “Fiora.” The letter and Complaint further requests a cease and desist on the Company’s use of its trademark, “Flora,” as issued by the United States Patent and Trademark Office. The Company, due to information provided by Mr. Rundle, who served as chief executive officer of Oasis Brands and was the signer for the application for Oasis Brands’ trademark “Fiora,” contends that “Fiora” was named after a river in Italy, whereas “Flora” is the Spanish word for “flower.” In any event, the Company, in an effort to avoid the expenses of litigation, offered to cease using the “Flora” mark. Oasis Brands then served the Complaint on the Company notwithstanding the offer. The Company, through special appearance of its attorneys, filed a Motion to Dismiss for Lack of Personal Jurisdiction on or about December 4, 2013. On December 27, 2013, Oasis Brands filed a Notice of Voluntary Dismissal Without Prejudice of Complaint, and the case was dismissed without prejudice.
TCA Global Credit Master Fund, LP
On February 3, 2014, the Company and its subsidiary, Green Hygienics, Inc., filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA Global Credit Master Fund, LP (“TCA”), regarding a dispute among the parties about the lock-box provisions of the Senior Secured Revolving Credit Facility Agreement, as amended. On March 17, 2014, the Company settled with TCA and will be dismissing the Complaint without prejudice.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Common Equity
Market Information
The Company’s common stock is traded on the NASDAQ OTC Bulletin Board under the symbol “GNIN.QB.” As of December 31, 2013, the Company’s common stock was held by 45 shareholders of record, which does not include shareholders whose shares are held in street or nominee name. The Company’s last NOBO report dated November 30, 2013, had approximately 4,600 shareholders in street or nominee name.
The Company’s shares commenced trading on or about January 5, 2012 (for Winecom, Inc.). The following chart is indicative of the fluctuations in the stock prices:
Source: Yahoo! Finance
The Company’s transfer agent is Transfer Online, Inc. of Portland, Oregon.
Dividend Distributions
We have not historically, except for the stock dividend in the first quarter of 2013, distributed dividends to stockholders, nor do we intend to do so in the foreseeable future.
Securities authorized for issuance under equity compensation plans
The Company has a stock option plan which was created for its employees in November 2012.
Penny Stock
Our common stock is considered "penny stock" under the rules the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
-
contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
-
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
-
contains a toll-free telephone number for inquiries on disciplinary actions;
-
defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
-
contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
-
bid and offer quotations for the penny stock;
-
the compensation of the broker-dealer and its salesperson in the transaction;
-
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and
-
monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
Related Stockholder Matters
None.
Purchase of Equity Securities
None.
Item 6.
Item 6. Selected Financial Data.
As the Company is a “smaller reporting company,” this item is inapplicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
This report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements and summary of selected financial data for Green Innovations Ltd. Such discussion represents only the best present assessment from our Management.
DESCRIPTION OF COMPANY:
The Company was a startup company that was incorporated in Nevada under the name Winecom, Inc. on July 1, 2008. The stockholders of the Company on August 15, 2012, approved a forward split of one share of common stock for twenty shares of common stock. On August 15, 2012, the Company filed with the State of Nevada for a name change to Green Innovations Ltd. (“Green Innovations”). On September 20, 2012, the Company filed with FINRA for its name change and a symbol change. On September 28, 2012, FINRA notified the Company of its symbol change from WNCM.OB to WNCMD.OB for thirty days, effective October 1, 2012, and then the subsequent change to GNIN.OB, to be traded on the NASDAQ OTC Bulletin Board. The Florida-based company is an importer and wholesaler of bamboo-based hygienic products through a licensing agreement for proprietary products. On September 26, 2012, the Company acquired Green Hygienics, Inc., a Florida corporation, as noted in Form 8-K dated September 26, 2012. The officer and director of the acquired company was the sole officer and a director of the Company at the time of the acquisition.
The Company has two wholly-owned subsidiaries; Green Hygienics, Inc. (“Green Hygienics”), a Florida corporation, and Sensational Brands, Inc. (“Sensational Brands”), a Florida corporation, which was dissolved in September 2013.
The following Management Discussion and Analysis should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2013 TO THE YEAR ENDED DECEMBER 31, 2012
Results of Operations
Revenue. For the year ended December 31, 2013, our revenue was $1,867,788, compared to $232,955 for the same period in 2012. This increase in revenue was primarily attributable to increased sales related to the beginning of operations in the fourth quarter.
Operating Expenses:
Direct costs of Revenue. For the year ended December 31, 2013, direct costs of revenue were $1,725,243 compared to $211,112 for the same period in 2012. As a percent of revenue, direct costs of revenue was 92.4% and 90.6%, respectively, for 2013 and 2012. The percent for 2013 was higher than 2012 as the Company liquidated, at a loss, out dated inventory to accommodate the new branding of the Company.
General and Administrative Expenses. For the year ended December 31, 2013, general and administrative expenses were $4,526,261 ($2,463,993 related to stock-based compensation) compared to $1,053,435 ($965,521 related to stock-based compensation) for the same period in 2012. The increase was attributable to operations beginning in the fourth quarter of 2012. The general and administrative expenses, without stock-based compensation, was $2,062,268 and $208,203, respectively, for 2013 and 2012.
Net Loss. We generated net losses of $8,351,175 ($2,463,993 related to stock-based compensation and $3,265,221 for amortization of debt discounts, beneficial conversion features, and other non-cash losses) for the year ended December 31, 2013 compared to $1,201,985 ($965,521 related to stock-based compensation) for the same period in 2012.
Liquidity and Capital Resources
General. At December 31, 2013, we had cash and cash equivalents of $38,305. We have historically met our cash needs through a combination of cash flows from operating activities and proceeds from private placements of our securities and loans. Our cash requirements are generally for selling, general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities, capital improvements, and partial repayment of debt through the next 12 months.
Our operating activities used cash of $4,424,637 for the year ended December 31, 2013, and we used cash in operations of $155,566 during the same period in 2012. The principal elements of cash flow from operations for the year ended December 31, 2013 included a net loss of $8,351,175, offset by stock-based compensation and settlements of $2,463,993, amortization of debt discounts of $577,515, amortization of beneficial conversion features to interest expense of $645,259, and loss on financing of $1,988,467.
Cash provided by investing activities during the year ended December 31, 2013 was $0 compared to $13,309 during the same period in 2012. This was a result of the acquisition of a trademark in 2013 and the acquisition of Green Hygienics, Inc. in 2012.
Cash generated in our financing activities was $4,417,198 for the year ended December 31, 2013, compared to cash generated of $188,000 during the comparable period in 2012. This increase was primarily attributed to a concentrated effort of capital procurement in 2012.
As of December 31, 2013, current assets exceeded current liabilities by 1.08 times. Current assets increased from $313,921 at December 31, 2012 to $2,570,473 at December 31, 2013 whereas current liabilities increased from $292,393 at December 31, 2012 to $2,385,988 at December 31, 2013.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had sales of $1,867,788 and net losses of $8,351,175 ($2,463,993 represents stock-based compensation and settlements) for the year ended December 31, 2013 compared to sales of $232,955 and net loss of $1,201,985 for the year ended December 31, 2012. The Company had a working capital surplus, stockholders’ deficit, and accumulated deficit of $184,485, $577,067 and $9,540,660, respectively, at December 31, 2013. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company is highly dependent on its ability to continue to obtain investment capital from future funding opportunities to fund the current and planned operating levels. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to bring in income generating activities and its ability to continue receiving investment capital from future funding opportunities. No assurance can be given that the Company will be successful in these efforts.
Critical Accounting Policies
Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the web site and property and equipment, valuation of warrant and beneficial conversion feature debt discounts, valuation of share-based payments and the valuation allowance on deferred tax assets.
Changes in Accounting Principles. No significant changes in accounting principles were adopted during fiscal 2013 and 2012.
Derivatives. The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Impairment of Long-Lived Assets. The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Fair Value of Financial Instruments and Fair Value Measurements. The Company measures their financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses escrow liability and short-term loans the carrying amounts approximate fair value due to their short maturities.
We have adopted accounting guidance for financial and non-financial assets and liabilities. The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
Revenue Recognition. Revenues are recognized on our products in accordance with ASC 605-10, “Revenue Recognition in Financial Statement.” Under these guidelines, revenue is recognized on sales transactions when all of the following exist: persuasive evidence of an arrangement did exist, delivery of service has occurred, the sales price to the buyer is fixed or determinable and collectability is reasonably assured. The Company has several revenue streams as follows:
·
Delivery of product to a merchant.
Stock-Based Compensation. The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.
NON-GAAP FINANCIAL MEASURES
Adjusted Net Earnings
In addition to reporting net loss from operations as defined under generally accepted accounting principles (“GAAP”), the Company presents adjusted net earnings from operations (adjusted net earnings), which is a non-GAAP performance measure. Adjusted net earnings consist of net loss from operations after adjustment for those items shown in the table below. Adjusted net earnings does not represent, and should not be considered an alternative to, GAAP measurements such as net loss from operations (its most comparable GAAP financial measure), and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items shown below, the Company believes that the measure is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies. The Company’s management does not view adjusted net earnings in isolation and also uses other measurements, such as net loss from operation and revenues to measure operating performance. The following table provides a reconciliation of net loss from operations, the most directly comparable GAAP measure, to adjusted net earnings for the periods presented:
Adjusted EBITDA
In addition to reporting net loss from operations as defined under GAAP, the Company also presents adjusted net earnings before interest, income taxes, depreciation, depletion, and amortization from operations (adjusted EBITDA), which is a non-GAAP performance measure. Adjusted EBITDA consists of net loss from operations after adjustment for those items shown in the table below. Adjusted EBITDA does not represent, and should not be considered an alternative to, GAAP measurements such as net loss from operations (its most comparable GAAP financial measure), and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies.
By eliminating the items shown below, the Company believes the measure is useful in evaluating its fundamental core operating performance. The Company also believes that adjusted EBITDA is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies. The Company’s management uses adjusted EBITDA to manage its business, including in preparing its annual operating budget and financial projections. The Company’s management does not view adjusted EBITDA in isolation and also uses other measurements, such as net loss from operations and revenues to measure operating performance. The following table provides a reconciliation of net loss from operations, the most directly comparable GAAP measure, to adjusted EBITDA for the periods presented:
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As the Company is a “smaller reporting company,” this item is inapplicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Green Innovations Ltd. and Subsidiaries
2451 N. McMullen Booth Road
Suite.308
Clearwater, FL 33759
855.334.0934 Toll free
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of:
Green Innovations Ltd.
We have audited the accompanying consolidated balance sheets of Green Innovations Ltd. and subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Green Innovations Ltd. and Subsidiaries as of December 31, 2013 and 2011 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company reported a net loss of $8,351,175 in 2013, and used cash for operating activities of $4,424,637. At December 31, 2013, the Company had a working capital surplus, shareholders’ deficit and accumulated deficit of $184,485, $577,067 and $9,540,660, respectively. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ DKM Certified Public Accountants
DKM Certified Public Accountants
fka DRAKE AND KLEIN CPAS
Clearwater, Florida
March 16, 2014
GREEN INNOVATIONS LTD.
and Subsidiaries Consolidated Balance Sheets
See accompanying notes to consolidated financial statements.
GREEN INNOVATIONS LTD.
and Subsidiaries Consolidated Statements of Operations For the Years Ended December 31,
See accompanying notes to consolidated financial statements.
GREEN INNOVATIONS LTD.
and Subsidiaries
Consolidated Statement of Shareholders' Equity (Deficit)
December 31, 2013
See accompanying notes to consolidated financial statements.
GREEN INNOVATIONS LTD.
and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31,
See accompanying notes to consolidated financial statements.
GREEN INNOVATIONS LTD.
and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31,
See accompanying notes to consolidated financial statements.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Green Innovations Ltd., formerly known as Winecom, Inc. (the “Company,” “we,” “us,” “our,” or “Green Innovations”) is a Nevada corporation. The business was started on July 1, 2008. We changed our name on September 24, 2012.
Green Hygienics, Inc. (“Green Hygienics”), a Florida corporation, was formed on August 1, 2012. On September 26, 2012, it was acquired (see Note 3).
Sensational Brands, Inc. (“Sensational Brands”), a Florida corporation, was formed on November 19, 2012. It was formed for the sole purpose of the acquisition of certain assets of Sensational Brands, Inc., a Texas corporation on November 19, 2012 (see Note 3). Sensational Brands was dissolved in September 2013 and its assets were assumed by Green Hygienics.
Nature of Operations
The Company was formed to develop an Internet social website that catered to wine lovers. In August 2012, with the acquisition of Green Hygienics, the Company changed its operations to the business of importing and distributing bamboo-based hygienic products. The prior operations of the Company have been abandoned effective with the acquisition of Green Hygienics.
Green Hygienics is in the importation, sale, and distribution of hygienic and household products made of bamboo-based paper. On August 1, 2012, Green Hygienics entered into a Licensing Agreement with American Hygienics Corporation (“AHC”), a corporation domiciled in the People's Republic of China, pursuant to we acquired the exclusive right for a period of 5 years to import and distribute AHC's proprietary bamboo pulp-based hygiene products. AHC is the world's largest manufacturer of bamboo-based wet wipes, is internationally certified (ISO 9001:2008, BRC-CP, EPA, Nordic swan, cGMP and GMP) and a member of the world Private Label Manufacturers Association. Exporting to over 45 countries, AHC supplies a number of Multi-National brands and retailers on all continents including customers such as 3M, Carrefour, Tesco, Walmart, and Goodyear. The Licensing Agreement contemplates the distribution of generic, private label, and Green Hygienics branded products, described below. Subject to certain sales targets being met, the exclusive distribution license will be renewable for an additional period of 5 years.
Basis of Presentation
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America.
Principles of Consolidation
The consolidated financial statements include the accounts of Green Innovations and its wholly-owned subsidiaries (as of December 31, 2013), Green Hygienics and Sensational Brands. All significant inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the web site and property and equipment, valuation of warrants and beneficial conversion feature debt discounts, valuation of derivatives, valuation of share-based payments and the valuation allowance on deferred tax assets.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Property, Equipment and Depreciation
Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of three years for computer equipment, five years for office furniture and fixtures, and the lesser of the lease term or the useful life of the leased equipment. Leasehold improvements, if any, would be amortized over the lesser of the lease term or the useful life of the improvements. Expenditures for maintenance and repairs along with fixed assets below our capitalization threshold are expensed as incurred.
Accounting for Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses, deposits received from customers for layaway sales and short term loans the carrying amounts approximate fair value due to their short maturities.
We follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
We currently measure and report at fair value our intangible assets (due to our impairment analysis) and derivative liabilities. The fair value of intangible assets has been determined using the present value of estimated future cash flows method. The fair value of derivative liabilities is measured using the Black-Scholes option pricing method. The following table summarizes our non-financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013:
Following is a summary of activity through December 31, 2013 of the fair value of intangible assets valued using Level 3 inputs:
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2013:
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Following is a summary of activity through December 31, 2013 of the fair value of derivative liabilities valued using Level 3 inputs:
Revenue Recognition
The Company recognizes revenue on our products in accordance with ASC 605-10, “Revenue Recognition in Financial Statements”. Under these guidelines, revenue is recognized on sales transactions when all of the following exist: persuasive evidence of an arrangement did exist, delivery of service has occurred, the sales price to the buyer is fixed or determinable and collectability is reasonably assured. The Company has one primary revenue stream as follows:
•
Delivery of product to a merchant.
Stock-Based Compensation
The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition provisions ASC Topic 505-50. The Company estimates the fair value of stock options at the grant date by using the Black-Scholes option-pricing model.
Advertising
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statement of operations. For the years ended December 31, 2013 and 2012 advertising expense was $375,459 and $120,289, respectively.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Income Taxes
Prior to September 1, 2009, the Company operated as an LLC and thus had no income tax exposure. Effective September 1, 2009, the Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
Beginning September 1, 2009, the Company adopted the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2013, tax years 2011, 2010 and 2009 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
Effective September 1, 2009, the Company adopted ASC 740-10, “Definition of Settlement in FASB Interpretation No. 48,” (“ASC 740-10”), which was issued on May 2, 2007. ASC 740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms “ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying consolidated financial statements.
Net Earnings (Loss) Per Share
In accordance with ASC 260-10, “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares which may dilute future earnings per share consist of warrants to purchase 2,111,111 at December 31, 2013 shares of common stock, employee options to purchase 2,111,111 shares of common stock and convertible notes convertible into 13,067,664 common shares. Equivalent shares are not utilized when the effect is anti-dilutive (see Note 12).
Segment Information
In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company does not have any operating segments as of December 31, 2013 and 2012.
Effect of Recent Accounting Pronouncements
The Company reviews new accounting standards as issued. No new standards had any material effect on these unaudited consolidated financial statements. The accounting pronouncements issued subsequent to the date of these unaudited consolidated financial statements that were considered significant by management were evaluated for the potential effect on these unaudited consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these unaudited consolidated financial statements as presented and does not anticipate the need for any future restatement of these unaudited consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to December 31, 2013 through the date these unaudited consolidated financial statements were issued.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained net losses of $8,351,175 (includes $2,463,993 of stock-based compensation and settlements) and used cash in operating activities of $4,424,637 for the year ended December 31, 2013. The Company had a working capital surplus, stockholders’ deficit and accumulated deficit of $184,485, $577,067 and $9,540,660, respectively, at December 31, 2013. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - BUSINESS ACQUISITIONS, ASSET ACQUISITIONS, AND LICENSING AGREEMENTS
Green Hygienics, Inc.
On September 26, 2012, the Company acquired all of the voting capital stock of Green Hygienics in exchange for 49,500,000 shares of common stock. Green Hygienics was owned solely by Bruce Harmon. Green Hygienics had just begun its operations through the licensing agreement with AHC. At the time of the acquisition, through its sales efforts, Green Hygienics was in the process of finalizing several orders for its products with major retailers and distributors in the United States.
This transaction was treated as a reverse merger therefore the financials prior to the acquisition are those of Green Hygienics which was not in operation and/or in existence therefore the balances reflect zero. There was a related party note (see Note 4) which was properly recorded at September 30, 2012 as part of the combined company.
The purchase price was allocated first to record identifiable acquired assets and assumed liabilities at fair value as follows:
There were no historical operations and no expenses for Green Hygienics as of the purchase date. The stock of the Company has not been traded in a significant period therefore the value of the purchase is immaterial offset by stock with no determinable value.
Sensational Brands, Inc.
On November 19, 2012, Sensational Brands acquired certain assets via an asset purchase agreement (“APA”) with Sensational Brands, Inc., a Texas corporation (“SBI-TX”). SBI-TX is owned by an employee of Green Hygienics. The APA was to acquire certain assets, primarily, the trademark “SENSATIONAL.” The Company paid SBI-TX 500,000 warrants for common stock of the Company (see Note 8). Sensational Brands was dissolved in September 2013 and the assets were assigned to Green Hygienics.
Clearly Herbal
On April 4, 2013, Green Hygienics acquired certain assets via an asset purchase agreement (“APA”) with Clearly Herbal International Ltd., a British Virgin Islands corporation (“CHI-BVI”). The purpose of the APA was to acquire certain assets, primarily the trademark “CLEARLY HERBAL” as registered with the United States Patent and Trademark Office. The Company paid the owner of CHI 300,000 shares of restricted common stock of the Company (see Note 8) and recorded the value of the transaction at $360,000. As a condition of the acquisition, the Company guaranteed that the 10-day volume weighted average price on the date six months after closing to be at least $1.20. The Company will be obligated to issue additional shares of restricted common stock should the price be below $1.20. As a condition of the acquisition, the Company guaranteed that the 10-day volume weighted average price on the date six months after closing to be at least $1.20. The Company was obligated to issue additional shares of restricted common stock should the price be below $1.20. On October 4, 2013, the common stock of the Company was $0.18 therefore, on October 7, 2013 an additional 1,700,000 shares of restricted stock were issued (see Notes 5 and 10).
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On April 4, 2013, Green Hygienics contracted to acquire certain assets via an asset purchase agreement (“APA”) with Clearly Herbal International Ltd., a United Kingdom corporation (“CHI-UK”). The purpose of the APA was to acquire certain assets, primarily the trademark “CLEARLY HERBAL” as registered in the United Kingdom. The closing date was set for July 4, 2013 or earlier but has been extended until August 31, 2013. The Company paid the owner of CHI 200,000 shares of restricted common stock of the Company (see Note 5) and recorded the value of the transaction at $240,000. As a condition of the acquisition, the Company guaranteed that the 10-day volume weighted average price on the date six months after closing to be at least $1.20. The Company was obligated to issue additional shares of restricted common stock should the price be below $1.20. On October 4, 2013, the common stock of the Company was $0.18 therefore, on October 7, 2013 an additional 1,133,333 shares of restricted stock were issued (see Notes 5 and 10).
Licensing Agreement
On May 31, 2013, Green Hygienics entered into a Licensing Agreement with Tauriga Sciences, Inc. (”Tauriga”) to grant Tauriga the North American exclusive rights to commercially market certain products related to hospital grade wipes including paper, green and 100% tree-free bamboo-based and biodegradable. The agreement has a term of five years with a five year extension. Tauriga agreed to pay Green Hygienics $250,000 for the fee which was payable on the following terms; $65,000 upon execution of the agreement and $185,000 within ninety days of receipt of samples of the products and applicable marketing material. Tauriga, a publicly registered entity trading under the symbol “TAUG,” and Green Hygienics agreed to the exchange of restricted common stock of TAUG and Green Innovations equal to a present day value of $250,000. On September 18, 2013, as Tauriga had satisfied the licensing fee, the Company issued to Tauriga 625,000 shares of common stock which were valued at $0.40 per share on the date of the transaction and recorded accordingly. Tauriga issued 4,347,826 shares of its common stock on July 16, 2013. Bruce Harmon, the CFO and Chairman of the Company, is also the former CFO of Tauriga (see Note 6). The transaction was completed as an arm’s length transaction. Tauriga has paid $143,730 in cash and, as a settlement for the remaining $106,270 payable to the Company, the Company received an additional 2,250,000 shares of common stock of Tauriga. As of December 31, 2013, the Company valued the 6,597,826 shares, based on the closing price of $0.0057 for Tauriga on December 31, 2013, at $37,608. The Company has determined that these shares will not be recorded as an asset to the Company until said shares are sold therefore the Company will record the net proceeds as a gain at the time of sale. Both Green Hygienics and Tauriga executed on January 7, 2014 Leak Out Agreements whereas both parties are limited to daily sales of 10% of the prior day’s sales.
The Company has recorded the following intangibles related to the acquisitions:
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 4 - NOTES AND CONVERTIBLE NOTES PAYABLE, AND NOTES PAYABLE RELATED PARTIES, NET OF DISCOUNTS
Notes and convertible notes payable, net of discounts, all classified as current at December 31, 2013 and 2012, consists of the following:
A director of the Company, Mordechay David (“David”), had advanced the Company at several times. These amounts were non-interest bearing and were due on demand. On October 16, 2012, Mr. David cancelled the balance due of $8,928. A gain on extinguishment was recorded.
On August 15, 2012, the Company executed a convertible promissory note with Coventry Capital, LLC (“Coventry Capital”) for $30,000. The note bears interest at the rate of 10% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $4,285 and $0, respectively. The conversion price is equal to 90% of the average of the closing prices of the Company’s common stock for the preceding five trading days. Due to the lack of trading and no market for the common stock of the Company, any discount value was not calculated.
On August 29, 2012, Green Hygienics executed a convertible promissory with Kachess Financial Corporation (“Kachess”) for $19,500. The note bears interest at the rate of 12% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $801 and $0, respectively. The conversion price is the lower of $0.01 per share or 70% of the average of the closing prices of the Company’s common stock for the preceding three trading days. As part of the acquisition of Green Hygienics by Green Innovation, the notes were assumed by Green Innovations. Due to the lack of trading and no market for the common stock of the Company, any discount value is unable to be calculated at this time. This note was paid in full in February 2013.
On August 30, 2012, Green Hygienics executed a convertible promissory with Kachess for $20,000. The note bears interest at the rate of 12% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $815 and $0, respectively. The conversion price is the lower of $0.01 per share or 70% of the average of the closing prices of the Company’s common stock for the preceding three trading days. As part of the acquisition of Green Hygienics by Green Innovation, the notes were assumed by Green Innovations. Due to the lack of trading and no market for the common stock of the Company, any discount value is unable to be calculated at this time. This note was paid in full in February 2013.
On September 4, 2012, Green Hygienics executed a convertible promissory with Kachess for $6,800. The note bears interest at the rate of 12% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $266 and $0, respectively. The conversion price is the lower of $0.01 per share or 70% of the average of the closing prices of the Company’s common stock for the preceding three trading days. As part of the acquisition of Green Hygienics by Green Innovation, the notes were assumed by Green Innovations. Due to the lack of trading and no market for the common stock of the Company, any discount value is unable to be calculated at this time. This note was paid in full in February 2013.
On October 4, 2012, Green Hygienics executed a convertible promissory with Kachess for $3,000. The note bears interest at the rate of 12% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $88 and $0, respectively. The conversion price is the lower of $0.01 per share or 70% of the average of the closing prices of the Company’s common stock for the preceding three trading days. As part of the acquisition of Green Hygienics by Green Innovation, the notes were assumed by Green Innovations. Due to the lack of trading and no market for the common stock of the Company, any discount value is unable to be calculated at this time. This note was paid in full in February 2013.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On October 17, 2012, the Company executed a convertible promissory note with Coventry Capital for $50,000. The note bears interest at the rate of 10% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $6,041 and $0, respectively. The conversion price is equal to 90% of the average of the closing prices of the Company’s common stock for the preceding five trading days. Due to the lack of trading and no market for the common stock of the Company, any discount value was not calculated.
On December 6, 2012, the Company executed a convertible promissory note with Coventry Capital for $20,000. The note bears interest at the rate of 10% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $2,142 and $0, respectively. The conversion price is equal to 90% of the average of the closing prices of the Company’s common stock for the preceding five trading days. Due to the lack of trading and no market for the common stock of the Company, any discount value was not calculated.
On December 18, 2012, the Company executed a convertible promissory note with Coventry Capital for $35,000. The note bears interest at the rate of 10% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $3,634 and $0, respectively. The conversion price is equal to 90% of the average of the closing prices of the Company’s common stock for the preceding five trading days. Due to the lack of trading and no market for the common stock of the Company, any discount value was not calculated.
On December 28, 2012, the Company executed a convertible promissory note with Coventry Capital for $50,000. The note bears interest at the rate of 10% per annum which accrues. As of December 31, 2013 and December 31, 2012, the accrued interest was $5,055 and $0, respectively. The conversion price is equal to 90% of the average of the closing prices of the Company’s common stock for the preceding five trading days. Due to the lack of trading and no market for the common stock of the Company, any discount value was not calculated.
On March 14, 2013, the Company executed a convertible promissory note with Avanti Distribution, Inc. for $9,560. The note bears interest at the rate of 12% per annum which accrues. As of December 31, 2013, the accrued interest was $921. The note matures on March 14, 2015. The conversion price is equal to 70% of the average of the closing prices of the Company’s common stock for the preceding five trading days. The Company recorded a debt discount of $3,756.
On April 4, 2013, RJR Manufacturers’ Agent, an independent consultant of the Company, requested that the Company convert its accrued compensation balance of $50,000 into a convertible note payable with 12% interest per annum, with a conversion feature of $0.68 per share, the closing price of the prior day, or a 30% discount at the date of conversion, whichever is lesser. A beneficial conversion feature of $31,513 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of December 31, 2013, the accrued interest was $4,488. The note matured on October 4, 2013. The maturity date was extended to December 31, 2013. On January 1, 2014, the note was extended to March 31, 2014. As a condition of the October 4, 2013 extension, the Company agreed to modify the conversion terms to a discount of 40% of the average of the lowest five days closing price from the date of the note until the conversion date.
On April 15, 2013, the Company entered into a one year convertible promissory note agreement for up to $500,000 with JMJ Financial (“JMJ”). The note has an interest rate of 5% per annum of the $500,000 earned as of the 91st day of the note. The note, at the holder’s option, is convertible at $1.04 per share and if the price per share at the time of conversion is greater than $1.04 per share, on average for the previous 25 trading days, the conversion rate shall have a 25% discount, with the minimum price of $1.04 per share. On April 17, 2013, the Company received $100,000. A beneficial conversion feature of $33,333 was recorded and will be accreted monthly from the issuance date of the note through maturity. On June 26, 2013, JMJ amended the agreement and funded the Company an additional $50,000. A beneficial conversion feature of $39,216 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of September 30, 2013, the accrued interest was $60,000. On October 17, 2013, JMJ filed a conversion of $24,660 into 300,000 shares of common stock based on the calculated price of $0.0822. The Company, per the provisions of the note, issued an objection to the conversion. On October 30, 2013, the Company settled on a repayment of $150,000 thereby extinguishing the note and all related liabilities in their entirety. JMJ returned to the Company the previously issued shares of stock of the Company.
On May 8, 2013, the Company entered into a convertible promissory note with Avalon Capital Corp. (“Avalon”) for $100,000. The note bears interest at 12% per annum, matures on November 8, 2013, and converts at the lesser of $0.55 per share or a 40% discount at the time of conversion. A beneficial conversion feature of $100,000 was recorded and will be accreted monthly from the issuance date of the note through maturity. On November 10, 2013, Avalon assigned this note to RJR Manufacturers’ Agent. As of December 31, 2013, the accrued interest was $4,800. The note matured on November 8, 2013. The note was extended to December 31, 2013. On January 1, 2014, the note was extended to March 31, 2014. As a condition of the November 8, 2013 extension, the Company agreed to modify the conversion terms to a discount of 40% of the average of the five lowest closing prices from the date of the note until the conversion date.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On May 20, 2013, the Company entered into a convertible promissory note agreement for $105,000 with Evolution Capital, LLC (“Evolution”). The note has an interest rate of 12% per annum and is accrued. The note, at the holder’s option, is convertible at the lesser of $0.54 or 40% of the average 10 days prior to conversion. A beneficial conversion feature of $105,000 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of September 30, 2013, the accrued interest was $4,626. The note matures on February 20, 2014. On November 26, 2013, the Company and Evolution entered into a Note Termination Agreement as the Company paid Evolution a settlement of $147,000, of which $4,626 was accrued interest and $37,374 was recorded as a loss on settlement of liability.
On May 30, 2013, the Company entered into a convertible promissory note with Avalon Capital Corp. (“Avalon”) for $50,000. The note bears interest at 12% per annum, matures on November 30, 2013, and converts at the lesser of $0.55 per share or a 40% discount at the time of conversion. A beneficial conversion feature of $50,000 was recorded and was accreted monthly from the issuance date of the note through June 30, 2013. This note was not to have been issued as it was paid back to Avalon by RJR Manufacturers’ Agent. The note was cancelled on August 31, 2013 retroactive to May 30, 2013 for accounting purposes and the accretion was reversed accordingly.
On June 7, 2013, the Company entered into a convertible promissory note agreement for $76,500 with LG Capital Funding, LLC (“LG Capital”). The note has an interest rate of 8% per annum and is accrued. The note, at the holder’s option, is convertible at a 45% discount to market on average of the lowest 2 days over the prior 10 trading days. A beneficial conversion feature of $76,500 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of September 30, 2013, the accrued interest was $1,945. The note matures on March 7, 2014. On December 6, 2013, the Company paid LG Capital $119,340 as a settlement to terminate the loan. $3,052 of the payment was accrued interest and $39,788 was recorded as a loss on settlement of liability.
On June 12, 2013, the Company entered into a convertible promissory note agreement for $55,500 with Black Mountain Equities, Inc. (“Black Mountain”). The note has an interest rate of 10% per annum and is accrued. The note, at the holder’s option, is convertible at the lesser of $0.50 or a 25% discount to market on average of the prior 20 trading days. A beneficial conversion feature of $41,111 was recorded and will be accreted monthly from the issuance date of the note through maturity. As a condition of the agreement, the Company issued 10,000 shares of common stock (see Note 9). As of December 31, 2013, the accrued interest was $5,000. The note matures on January 15, 2014. On December 5, 2013, the Company and Black Mountain entered into a Release and Lock Up Leak Out Agreement whereas Black Mountain would be limited to daily sales no greater than 10% of that day’s cumulative trading volume. On January 8, 2014, Black Mountain converted $10,000 of principal into 263,505 shares based on a discounted conversion price of $0.03795. On January 24, 2014, Black Mountain converted $50,500 of principal and interest into 1,231,708 shares based on a discounted conversion price of $0.0755. The discounts will be recorded as a loss. On February 20, 2014, the Company received $50,000 cash from Black Mountain under the provision in their note that provides, at Black Mountain’s option, the additional investment. An amendment to the convertible note was executed under the same terms and conditions. The note will be recorded as $55,000 which reflects the $5,000 in legal fees associated with the execution of the amendment (see Note 12).
On July 5, 2013, the Company entered into a convertible promissory note agreement for $76,500 with LG Capital Funding, LLC (“LG Capital”). The note has an interest rate of 8% per annum and is accrued. The note matures on April 5, 2014. The note, at the holder’s option, is convertible at a 45% discount to market on average of the lowest 2 days over the prior 10 trading days. As of December 31, 2013, the accrued interest was $3,035. On January 6, 2014, the Company terminated the note with a payment of $119,340 (see Note 12).
On October 24, 2013, the Company secured financing from TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”). Effective on October 24, 2013, we entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”), pursuant to which TCA agreed to loan up to a maximum of $5 million to us for working capital purposes. A total of $892,830 was funded by TCA in connection with the closing. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Revolving Convertible Promissory Note (the “Revolving Note”), the repayment of which is secured by Security Agreements executed by us and our wholly-owned subsidiary, Green Hygienics, Inc. Pursuant to the Security Agreements, the repayment of the Revolving Note is secured by a security interest in substantially all of our assets in favor of TCA. The initial Revolving Note in the amount of $1,000,000 is due and payable along with interest thereon on April 24, 2014, and bears interest at the minimum rate of 18% per annum, increasing to 24% per annum upon the occurrence of an event of default. The conversion rate is 85% of the lowest VWAP of the Company’s stock for the five days preceding the conversion date. We also agreed to pay TCA a fee of $250,000, payable in the form of 2,316,595 shares of common stock. On January 17, 2014, the Company and TCA entered into Amendment No. 1 of the agreement which provided the Company with an additional $500,000. As a condition of the Amendment No. 1, the note maturity date was extended an addition six months. We also agreed to pay TCA a fee of $112,500, payable in the form of 2,684,964 shares of common stock. Both issuances of common stock have a guaranteed value, and any deficiency would require the issuance of additional shares, whereas TCA has a ceiling of the $250,000 and $112,500, respectively, and upon the selling of securities, once those balances are met, the remaining shares of common stock will be returned to the Company for cancellation. On February 3, 2014, the Company and its subsidiary, Green Hygienics, Inc., filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA Global Credit Master Fund, LP (“TCA”), regarding a dispute among the parties about the lock-box provisions of the Credit Agreement. On March 17, 2014, the Company settled with TCA and will be dismissing the Complaint without prejudice. As part of the settlement and contingent upon the parties’ full performance under the settlement agreement, the parties agreed (1) that the note’s maturity date would be extended to October 25, 2014; (2) that a total amount of $1,506,134.50 was due to TCA under the Credit Agreement and Revolving Note, as amended, as of March 17, 2014; and (3) that $116,982.72 would be wired to TCA within two business days of settlement, and that upon TCA’s receipt of the wire, $1,389,151.78 in principal would be considered outstanding, and no interest and fees would be considered outstanding.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On November 1, 2013, RJR Manufacturers’ Agent, an independent consultant of the Company, requested that the Company convert its accrued compensation balance of $50,000 into a convertible note payable with 12% interest per annum, with a conversion feature of $0.14 per share, the closing price of the prior day, or a 40% discount of the five lowest closing prices from the date of the note until the date of conversion, whichever is lesser. A beneficial conversion feature of $50,000 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of December 31, 2013, the accrued interest was $1,003. The note matures on March 31, 2014.
On April 4, 2013, Harmon, an officer and director of the Company, requested that the Company convert his accrued compensation balance of $50,000 into a convertible note payable with 12% interest per annum, with a conversion feature of $0.68 per share, the closing price of the prior day, or a 30% discount at the date of conversion, whichever is lesser. A beneficial conversion feature of $31,513 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of December 31, 2013, the accrued interest was $4,488. The note matured on October 4, 2013. The maturity date was extended until December 31, 2013. On January 1, 2014, the note was extended to March 31, 2014. As a condition of the extension, the Company agreed to modify the conversion terms to a discount of 40% of the lowest five days prior to the conversion date.
On July 12, 2013, the Company entered into a convertible promissory note agreement for $100,000 with Bruce Harmon, an officer and director of the Company. The note has an interest rate of 12% per annum and is accrued. The note matures on October 12, 2013. The note, at the holder’s option, is convertible at the lesser of $0.31 per share or at a 30% discount to market on the date prior to conversion. The note was extended to December 31, 2013. On January 1, 2014, the note was extended to March 31, 2014. As a condition of the extension, the Company agreed to modify the conversion terms to a discount of 40% of the lowest five days prior to the conversion date.
On November 1, 2013, Harmon, an officer and director of the Company, requested that the Company convert his accrued compensation balance of $50,000 into a convertible note payable with 12% interest per annum, with a conversion feature of $0.14 per share, the closing price of the prior day, or a 40% discount of the average of the lowest five closing prices from the date of the note until the date of conversion, whichever is lesser. A beneficial conversion feature of $50,000 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of December 31, 2013, the accrued interest was $1,003. The note matures on March 31, 2014.
NOTE 5 - ACCRUED LIABILITIES
The major components of accrued expenses are summarized as follows:
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of October 21, 2013, there were no pending or threatened lawsuits except as noted below.
Ironridge Global IV, Ltd.
On July 24, 2013, we entered into a stipulation for settlement of claims with Ironridge Global IV, Ltd. (“Ironridge”), pursuant to which we resolved $2,621,037 of our accounts payable that Ironridge had agreed to purchase from our creditors in exchange for payment in full in cash. Pursuant to an order approving stipulation for settlement of claims that we jointly requested from the Los Angeles, California Superior Court, we agreed to issue to Ironridge shares of our common stock with an aggregate value equal to 105% of the claim amount plus reasonable attorney fees, divided by 80% of the following: the closing price of our stock on July 24, 2013, not to exceed the arithmetic average of the volume weighted average prices of any five trading days during a period equal to that number of consecutive trading days following the date of initial receipt of shares required for the aggregate trading volume, excluding after-hours trades, to exceed $25 million, less $0.01 per share, as reported by the Bloomberg Professional service of Bloomberg LP.
Under the terms of the agreement, Ironridge is prohibited from receiving any shares of common stock that would cause it to be deemed to beneficially own more than 9.99% of our total outstanding shares at any one time. Ironridge received an initial issuance of 3,600,000 common shares, 3,000,000 on September 25, 2013, 4,200,000 on October 23, 2013, and 4,400,000 on December 16, 2013, and may be required to return or be entitled to receive shares, based on the calculation summarized in the prior paragraph. For example, Ironridge would be entitled to approximately 10,922,864 additional shares based on a $0.078 per share closing price of our common stock on December 31, 2013, and that there are 26,249,158 shares of common stock issued and outstanding as of December 31, 2013, and ignoring the 9.99% limitation.
Ironridge is prohibited from holding any short position in our common stock, and may not to engage in or effect, directly or indirectly, any short sale until at least 180 days after the end of the calculation period described above.
In addition, for so long as Ironridge holds any shares, it is prohibited from, among other actions: (1) voting any shares of issuer common stock owned or controlled by them, exercising any dissenter’s rights, executing or soliciting any proxies or seeking to advise or influence any person with respect to any voting securities of the issuer; (2) engaging or participating in any actions or plans that relate to or would result in, among other things, (a) acquiring additional securities of the issuer, alone or together with any other person, which would result in them collectively beneficially owning or controlling, or being deemed to beneficially own or control, more than 9.99% of the total outstanding common stock or other voting securities of the issuer, (b) an extraordinary corporate transaction such as a merger, reorganization or liquidation, (c) a sale or transfer of a material amount of assets, (d) changes in the present board of directors or management of the issuer, (e) material changes in the capitalization or dividend policy of the issuer, (f) any other material change in the issuer’s business or corporate structure, (g) actions which may impede the acquisition of control of the issuer by any person or entity, (h) causing a class of securities of the issuer to be delisted, (i) causing a class of equity securities of the issuer to become eligible for termination of registration; or (3) any actions similar to the foregoing.
On July 25, 2013, we issued shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
On September 25, 2013, we issued 3,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
On October 23, 2013, we issued 4,200,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 7, 8 and 10.
On December 16, 2013, we issued 4,400,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 7, 8 and 10.
On January 31, 2014, we issued 4,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 7, 8 and 10.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Oasis Brands, Inc.
On October 16, 2013, the Company received a letter from the attorneys for Oasis Brands, Inc. (“Oasis Brands”), a competitor of the Company and the former employer of Philip Rundle, the Company’s chief executive officer, Jeff Thurgood, the Company’s vice president of sales, and Awie Kardiman, the Company’s controller. The letter alleges infringement of Oasis Brands’ intellectual property, specifically, their trademark “Fiora.” The letter further requests a cease and desist on the Company’s trademark, “Flora,” as issued by the United States Patent and Trademark Office. Oasis Brands has threaten a lawsuit if the Company does not comply with their demand. The Company, due to information provided by Mr. Rundle, who served as chief executive officer of Oasis Brands and was the signer for the application for Oasis Brands’ trademark “Fiora,” contends that “Fiora” was named after a river in Italy whereas “Flora” is the Spanish word for “flower.” Oasis Brands contends that “Fiora” means flower which the Company adamantly contests due to the information from Mr. Rundle and there is no documented validation that “Fiora” means flower. The Company, in an effort to avoid confrontation, will rename its product, even though this is being done voluntarily to avoid the cost of litigation which would delay the launch of its products for the Spanish market. Furthermore, the Company alleges that this incident is related to Oasis Brands concern over the influence the former key members of Oasis Brands will have for the Company. On December 27, 2013, Oasis Brands filed a Notice of Voluntary Dismissal Without Prejudice of Complaint.
TCA Global Credit Master Fund, LP
On February 3, 2014, the Company and its subsidiary, Green Hygienics, Inc., filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA Global Credit Master Fund, LP (“TCA”), regarding a dispute among the parties about the lock-box provisions of the Senior Secured Revolving Credit Facility Agreement, as amended. On March 17, 2014, the Company settled with TCA and will be dismissing the Complaint without prejudice.
Lease Commitment
The Company had an office lease agreement for approximately 1,000 square feet in Cape Coral, Florida pursuant to a lease that will expire on May 31, 2015. Due to a change in ownership of the building, the Company took an opt out option on February 28, 2014. On March 1, 2014, the Company leased approximately 1,542 square feet in Cape Coral, Florida pursuant to a lease that will expire on February 28, 2019. This facility serves as our corporate headquarters. The Company entered into a one year warehouse agreement starting on November 1, 2013 in Ontario, California with approximately 50,000 square feet. The warehouse lease expires on October 31, 2016.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Future minimum lease payments under these leases are as follows:
Rent expense for the years ended December 31, 2013 and 2012 was $21,439 and $309, respectively.
Other
On April 4, 2013, Green Hygienics acquired certain assets via an asset purchase agreement (“APA”) with Clearly Herbal International Ltd., a British Virgin Islands corporation (“CHI”). The APA was to acquire certain assets, primarily the trademark “CLEARLY HERBAL” as registered with the United States Patent and Trademark Office. The Company paid the owner of CHI 300,000 shares of restricted common stock of the Company (see Note 2 and 9). As a condition of the acquisition, the Company guaranteed that the 10-day volume weighted average price on the date six months after closing to be at least $1.20. The Company will be obligated to issue additional shares of restricted common stock should the price be below $1.20. The Company was obligated to issue additional shares of restricted common stock should the price be below $1.20. On October 4, 2013, the common stock of the Company was $0.18 therefore, on October 7, 2013 an additional 1,700,000 shares of restricted stock were issued (see Notes 2 and 10).
On April 4, 2013, Green Hygienics contracted to acquire certain assets via an asset purchase agreement (“APA”) with Clearly Herbal International Ltd., a British Virgin Islands corporation (“CHI”). The APA was to acquire certain assets, primarily the trademark “CLEARLY HERBAL” as registered with in the United Kingdom. The closing date is set for July 4, 2013 or earlier. The Company will pay the owner of CHI 200,000 shares of restricted common stock of the Company (see Note 9). As a condition of the acquisition, the Company guaranteed that the 10-day volume weighted average price on the date six months after closing to be at least $1.20. The Company will be obligated to issue additional shares of restricted common stock should the price be below $1.20. The Company was obligated to issue additional shares of restricted common stock should the price be below $1.20. On October 4, 2013, the common stock of the Company was $0.18 therefore, on October 7, 2013 an additional 1,133,333 shares of restricted stock were issued (see Notes 2 and 10).
On May 16, 2013, the Company engaged Brunson Chandler & Jones, PLLC (“BCJ”) as its legal counsel. The engagement is for one year and requires a monthly payment of $6,000 beginning June 1, 2013, of which a minimum of $1,000 in cash is payable with the remaining portion payable in cash or common stock.
On July 26, 2013, the Company engaged RedChip Companies, Inc. (“RedChip”), a public and investor relations firm. As part of the eight month agreement, the Company is obligated for a monthly fee of $8,000. On February 7, 2014, the Company terminated the agreement with RedChip.
NOTE 7 - RELATED PARTIES
Bruce Harmon (“Harmon”), CFO, and Chairman of the Company, has payables and accruals due to him of $27,671 and $21,084, as of December 31, 2013 and December 31, 2012, respectively.
Philip Rundle (“Rundle”), CEO and Director of the Company, has payables due to him of $1,184 as of December 31, 2013.
On September 26, 2012, with the acquisition of Green Hygienics by Green Innovations, Harmon was issued 49,500,000 shares of common in exchange for the common stock of Green Hygienics. On February 17, 2013, Harmon cancelled 45,000,000 shares of common stock in exchange for 5,000,000 shares of Series A preferred stock (see Note 9).
On November 19, 2012, a subsidiary of the Company acquired, via an APA, certain assets from SBI-TX, from W. Ray (“Tray”) Harrison, Jr. (“Harrison”), a former employee of Green Hygienics.
On February 7, 2013, the Company and Harmon executed a Share Cancellation / Exchange / Return to Treasury Agreement. Harmon returned to the Company 45,000,000 shares of common stock in exchange for 5,000,000 shares of Series A preferred stock. The common shares were cancelled.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On April 4, 2013, Harmon converted accrued compensation into a convertible note payable for $50,000 (see Note 4).
On April 4, 2013, Yogesh Parmar (“Y. Parmar”), a former member of the Advisory Board, purchased 100,000 shares of common stock at a discounted price of $0.54 per share for $50,000 (see Note 9).
On April 15, 2013, the Company issued 300,000 shares of common stock to Rundle (see Note 9) as part of his employment agreement.
On May 8, 2013, Nilesh Parmar (“N. Parmar”), a co-owner of American Hygienics Corporation, a supplier to the Company, purchased 125,000 shares of common stock at a discounted price of $0.40 per share for $50,000 (see Note 9).
On May 8, 2013, Kalpesh Parmar (“K. Parmar”), a former member of the Advisory Board and co-owner of American Hygienics Corporation, a supplier to the Company, purchased 125,000 shares of common stock at a discounted price of $0.40 per share for $50,000 (see Note 9).
On May 16, 2013, the Company amended the agreement with Harmon to issue shares equal to the contractual obligation to Rundle’s employment agreement. Harmon was issued 300,000 shares at a value of $168,000 or $0.56 per share (see Note 9).
On May 31, 2013, the Company entered into a Licensing Agreement with Tauriga (see Note 2). Harmon, the CFO and Chairman of the Company, is also the former CFO of Tauriga.
On June 18, 2013, the Company issued 62,500 shares or 12,500 each, to its Advisory Board, Perfetti, Y. Parmar, K. Parmar, Sandberg, and DeFilippo. The shares were valued collectively at $28,750. See Note 9.
On July 12, 2013, the Company entered into a convertible promissory note for $100,000 with Harmon (see Note 4).
On July 9, 2013, W. Ray Harrison, Jr., a former employee of the Company, exercised his 500,000 warrants for common stock on a cashless basis using the prior day’s closing price of $0.3378 thereby a forfeiture of 14,801 shares with an issuance of 485,199 shares of common stock (see Note 2 and 9).
On July 12, 2013, W. Ray Harrison, Jr., a former employee of the Company, exercised his 250,000 options for common stock on a cashless basis based on the prior day’s closing price of $0.305 thereby a forfeiture of 8,196 shares with an issuance of 241,804 shares of common stock (see Note 9).
On July 12, 2013, Harmon loaned the Company $100,000 in the form of a convertible note (see Note 4).
On August 16, 2013, the Company issued Bruce Harmon, the Company’s CFO, 300,000 shares of common stock as compensation for services (see Note 9).
On September 5, 2013, the Company issued Jeff Thurgood, the Company’s Vice President of Sales, 250,000 shares of common stock as compensation for services (see Note 9).
On September 5, 2013, the Company issued Determinaction Business Advisory (“DBA”) 300,000 shares of common stock, as compensation for services. Awie Kardiman, the owner of DBA, serves as the Company’s Controller. See Note 9.
On September 10, 2013, the Company issued Rundle 300,000 shares of common stock as a condition of his employment agreement. See Note 9.
On September 10, 2013, the Company issued Harmon 300,000 shares of common stock as a condition of his employment agreement. See Note 9.
On October 7, 2013, the Company issued 62,500 shares or 12,500 each, to its Advisory Board, Perfetti, Y. Parmar, K. Parmar, Sandberg, and DeFilippo. The shares were valued collectively at $14,375. See Note 9.
On October 15, 2013, the Company issued 12,500 shares to Hilton Kahn, a new member of the Company’s Advisory Board. The shares were valued at $2,250. See Note 9.
On July 12, 2013, Harmon loaned the Company $100,000 in the form of a convertible note (see Note 4).
On November 1, 2013, the Company issued 1,111,111 options for common stock to Bruce Harmon pursuant to the renewal of his employment agreement. The options were valued at $150,000. See Note 9.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On November 1, 2013, the Company issued 15,000 shares of common stock to Charles Andrews, a member of the Board of Directors of the Company. The shares were valued at $2,100. See Note 9.
On November 1, 2013, Harmon converted accrued compensation into a convertible note payable for $50,000 (see Note 4).
NOTE 8 - AMOUNTS PAYABLE IN COMMON STOCK AND DERIVATIVE LIABILITY
On July 24, 2013, we entered into a stipulation for settlement of claims with Ironridge, pursuant to which we resolved $2,621,037 of our accounts payable that Ironridge had agreed to purchase from our creditors in exchange for payment in full in cash. Pursuant to an order approving stipulation for settlement of claims that we jointly requested from the Los Angeles, California Superior Court, we agreed to issue to Ironridge shares of our common stock with an aggregate value equal to 105% of the claim amount plus reasonable attorney fees, divided by 80% of the following: the closing price of our stock on July 24, 2013, not to exceed the arithmetic average of the volume weighted average prices of any five trading days during a period equal to that number of consecutive trading days following the date of initial receipt of shares required for the aggregate trading volume, excluding after-hours trades, to exceed $25 million, less $0.01 per share, as reported by the Bloomberg Professional service of Bloomberg LP.
Under the terms of the agreement, Ironridge is prohibited from receiving any shares of common stock that would cause it to be deemed to beneficially own more than 9.99% of our total outstanding shares at any one time. Ironridge received an initial issuance of 3,600,000 common shares, 3,000,000 on September 25, 2013, 4,200,000 on October 23, 2013, and 4,400,000 on December 16, 2013, and may be required to return or be entitled to receive shares, based on the calculation summarized in the prior paragraph. For example, Ironridge would be entitled to approximately 10,922,864 additional shares based on a $0.078 per share closing price of our common stock on December 31, 2013, and that there are 26,249,158 shares of common stock issued and outstanding as of December 31, 2013, and ignoring the 9.99% limitation.
Ironridge is prohibited from holding any short position in our common stock, and may not to engage in or effect, directly or indirectly, any short sale until at least 180 days after the end of the calculation period described above.
In addition, for so long as Ironridge holds any shares, it is prohibited from, among other actions: (1) voting any shares of issuer common stock owned or controlled by them, exercising any dissenter’s rights, executing or soliciting any proxies or seeking to advise or influence any person with respect to any voting securities of the issuer; (2) engaging or participating in any actions or plans that relate to or would result in, among other things, (a) acquiring additional securities of the issuer, alone or together with any other person, which would result in them collectively beneficially owning or controlling, or being deemed to beneficially own or control, more than 9.99% of the total outstanding common stock or other voting securities of the issuer, (b) an extraordinary corporate transaction such as a merger, reorganization or liquidation, (c) a sale or transfer of a material amount of assets, (d) changes in the present board of directors or management of the issuer, (e) material changes in the capitalization or dividend policy of the issuer, (f) any other material change in the issuer’s business or corporate structure, (g) actions which may impede the acquisition of control of the issuer by any person or entity, (h) causing a class of securities of the issuer to be delisted, (i) causing a class of equity securities of the issuer to become eligible for termination of registration; or (3) any actions similar to the foregoing.
On or about July 25, 2013, we issued 3,600,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
On September 25, 2013, we issued 3,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions.
As of September 30, 2013, Ironridge has one additional funding of $506,239 to be made on or about October 30, 2013. As of September 30, 2013, $2,114,798 has been funded and 6,600,000 shares of common stock have been issued. The Company incurred $105,740 in fees associated with this transaction. The Company has recorded $1,135,978 as amounts payable in common stock and $417,027 as a derivative liability. See Notes 4 and 9.
On October 23, 2013, we issued 4,200,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4 and 9.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On December 16, 2013, we issued 4,400,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4 and 9.
On January 31, 2014, we issued 4,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4, 9 and 11.
NOTE 9 - STOCKHOLDERS’ EQUITY
Preferred Stock
The Company authorized 50,000,000 shares of preferred stock with a par value of $0.0001. On November 7, 2012, the Company’s Board of Directors approved the filing of a Certificate of Designation of the Preferences and Rights of Series A Preferred Stock of Green Innovations Ltd. (“Certificate of Designation”) with the Secretary of State of the State of Nevada authorizing the creation of a new series of preferred stock designated as “Series A Preferred Stock” pursuant to the authority granted to the Board of Directors under the Company’s Amended and Restated Certificate of Incorporation and Section NRS 78.1955 of the Nevada General Corporation Law. The Certificate of Designation was filed with the Nevada Department of State on November 7, 2012. The Certificate of Designation created 5,000,000 shares of Series A Preferred Stock. Each holder of Series A Preferred Stock will be entitled to participate in dividends or distributions payable to holders of the Company’s common stock at a rate of the dividend payable to each share of Common Stock multiplied by the number of shares of Common Stock that each share of such holder’s Series A Preferred Stock is convertible into. Each share of Series A Preferred Stock is convertible, at the option of the holder of the Series A Preferred Stock, into one share of the Company’s common stock. Shares of the Series A Preferred Stock will be issued to certain officers of the Company as the Board determines for consideration of the exchange for shares of common stock of the Company. Each shares of Series A Preferred Stock will be entitled to ten (10) votes on all matters submitted to a vote of the stockholders of the Company (“Enhanced Voting Rights”). Upon the liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock will participate in the distribution of the Company’s assets with the holders of the Company’s Common Stock pro rata based on the number of shares of Common Stock held by each (assuming conversion of all shares of Series A Preferred Stock). Due to the Enhanced Voting Rights, following the issuance of shares of Series A Preferred Stock, the holders of the Series A Preferred Stock may be able to exercise voting control over the Company. In such case, the holders of the Series A Preferred Stock may gain the ability to control the outcome of corporate actions requiring stockholder approval, including mergers and other changes of corporate control, going private transactions, and other extraordinary transactions. The concentration of voting control in the Series A Preferred Stock could discourage investments in the Company, or prevent a potential takeover of the Company which may have a negative impact on the value of the Company’s securities. In addition, the liquidation rights granted to the holders of the Series A Preferred Stock will have a dilutive effect on the distributions available to the holders of the Company’s common stock. As of September 30, 2013, there were 5,000,000 shares issued or outstanding.
On February 7, 2013, the Company and Harmon executed a Share Cancellation / Exchange / Return to Treasury Agreement. Harmon returned to the Company 45,000,000 shares of common stock in exchange for 5,000,000 shares of Series A preferred stock. The preferred shares were recorded at a value of $500.
Common Stock
The Company is authorized to issue 150,000,000 shares of common stock with a par value of $0.0001. The common stock is voting.
On August 15, 2012, the Company had a forward split of its stock with twenty shares for one share as the effect. All instances where common stock is mentioned in these statements reflect the 20:1 split.
On September 26, 2012, the Company acquired Green Hygienics in exchange for 49,500,000 shares of common stock of the Company. These shares were issued in October 2012.
In October 2012, the two directors and former officers of the Company, Mordechai David and Shamir Benita, cancelled 79,500,000 shares of common stock issued to them.
On January 18, 2013, the Company sold 300,000 shares of restricted common stock to Belmont Group Ltd. for $180,000 at a price of $0.60 per share.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On February 4, 2013, the Company appointed K. Parmar to its Advisory Board. As compensation for the appointment, K. Parmar will be issued 12,500 shares quarterly for his service. As of September 30, 2013, these shares were issuable and recorded at a value of $0.83 per share (the closing price the previous day) or $10,375 (see Note 6).
On February 7, 2013, the Company and Harmon executed a Share Cancellation / Exchange / Return to Treasury Agreement. Harmon returned to the Company 45,000,000 shares of common stock in exchange for 5,000,000 shares of Series A preferred stock. The common shares were cancelled (see Note 6).
On February 11, 2013, the Company appointed Mark DeFilippo (“DeFilippo”) to its Advisory Board. As compensation for the appointment, DeFilippo will be issued 12,500 shares quarterly for his service. These shares were recorded at a value of $0.97 per share (the closing price the previous day) or $12,125. The shares were issued in April 2013.
On February 12, 2013, the Company sold 107,143 shares of restricted common stock to Coventry Capital for $150,000 at a price of $1.40 per share (the closing price the previous day). The shares were recorded as issuable as of September 30, 2013 and were issued in April 2013.
On February 18, 2013, the Company appointed Sandy Greenberg (“Greenberg”) to its Advisory Board. As compensation for the appointment, Greenberg will be issued 12,500 shares quarterly for his service. These shares were recorded at a value of $2.22 per share (the closing price the previous day) or $27,750. The shares were issued in April 2013 (see Note 6).
On February 18, 2013, the Company appointed Michael Perfetti (“Perfetti”) to its Advisory Board. As compensation for the appointment, Perfetti will be issued 12,500 shares quarterly for his service. These shares were recorded at a value of $2.22 per share (the closing price the previous day) or $27,750. The shares were issued in April 2013 (see Note 6).
On February 19, 2013, the Company appointed Y. Parmar to its Advisory Board. As compensation for the appointment, Y. Parmar will be issued 12,500 shares quarterly for his service. These shares were recorded at a value of $2.22 per share (the closing price the previous day) or $27,750. The shares were issued in April 2013 (see Note 6).
On February 19, 2013, the Company declared a share dividend on a basis of 1.24:1 as of the record date of February 19, 2013, thereby all common shareholders shall receive 0.24 of a share for every one share owned. The Company’s issued and outstanding shall increase from 25,000,000 to 31,000,000 shares of common stock. The shares issued to Y. Parmar, DeFilippo, Greenberg, Perfetti and K. Parmar were not eligible for the dividend as they were not issued. The shares of common stock purchased by Coventry Capital on February 12, 2013 were not issued prior to the dividend therefore the Company issued and additional 46,611 shares of common stock to Coventry Capital for the dividend. The total shares issued for the dividend was 6,046,611. These shares were not issued by the Company’s prior transfer agent and the discrepancy was corrected on November 25, 2013.
On February 22, 2013, the Company appointed Rundle to its Advisory Board. As compensation for the appointment, Rundle was to be issued 12,500 shares quarterly for his service. These shares were recorded at a value of $0.51 per share (the closing price the previous day) or $6,375. The shares were issued in April 2013 (see Note 6).
On February 22, 2013, the Company contracted with Vincent & Rees (“V&R”) to serve as the Company’s legal counsel. As compensation for the agreement, V&R received 250,000 shares of restricted common stock of the Company. As of September 30, 2013, these shares were issuable and recorded at a value of $0.51 per share (the closing price the previous day) or $127,500. The shares were issued in April 2013.
On April 4, 2013, in exchange for certain assets of Clearly Herbal International Ltd., a British Virgin Islands corporation (“CHI”), the Company paid the owner of CHI 300,000 shares of restricted common stock for an United States trademark (see Note 2). Additionally, the Company has issuable 200,000 shares of restricted common stock for an United Kingdom trademark (see Note 2). The value of the two transactions was $600,000 or $1.20 per share. As a condition of the acquisition, the Company guaranteed that the 10-day volume weighted average price on the date six months after closing to be at least $1.20. The Company was obligated to issue additional shares of restricted common stock should the price be below $1.20. On October 4, 2013, the common stock of the Company was $0.18 therefore, on October 7, 2013 an additional 1,700,000 shares of restricted stock were issued (see Notes 2 and 5).
On April 4, 2013, Y. Parmar, a former member of the Advisory Board, purchased 100,000 shares of common stock at a discounted price of $0.54 per share for $50,000 (see Note 6).
On April 4, 2013, Alain Cameron purchased 55,555 shares of common stock at a discounted price of $0.54 per share for $30,000.
On April 15, 2013, the Company granted 300,000 shares of common stock to Rundle, the chief executive officer of the Company, as part of his employment agreement. The Company recorded the value of the shares at $268,750 or $0.90 per share. See Note 6.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On May 8, 2013, N. Parmar, a co-owner of American Hygienics Corporation, a supplier to the Company, purchased 125,000 shares of common stock at a discounted price of $0.40 per share for $50,000.
On May 8, 2013, K. Parmar, a former member of the Advisory Board and co-owner of American Hygienics Corporation, a supplier to the Company, purchased 125,000 shares of common stock at a discounted price of $0.40 per share for $50,000 (see Note 6).
On May 16, 2013, the Company amended the agreements with Harmon and RJR Manufacturers’ Agent (“RJR”) to issue shares equal to the contractual obligation to Rundle’s employment agreement. Harmon was issued 300,000 shares and RJR has 300,000 shares issuable, at a value of $168,000 each or $0.56 per share. See Note 6 in regards to Harmon.
On June 15, 2013, the Company issued 20,000 shares of common stock to a consultant for services rendered for June. The shares were recorded at a cost of $9,300.
On June 18, 2013, the Company issued to BCJ, the Company’s corporate counsel, 111,905 shares of common stock as part of its annual engagement with BCJ, 100,000 shares due on June 1, 2013, and 11,905 shares for the partial month of May, for legal services. The shares were issued at the previous day’s closing price of $0.49 or $54,833. The 100,000 shares will be amortized over one year.
On June 18, 2013, the Company issued 10,000 shares of common stock to Black Mountain Equities, Inc. as a conditional of financing (see Note 4). The shares were recorded as a debt discount of $5,000 as the stock was valued at $0.50 per share.
On June 18, 2013, the Company issued 62,500 shares or 12,500 each, to its Advisory Board, Perfetti, Y. Parmar, K. Parmar, Sandberg, and DeFilippo. The shares were valued collectively at $28,750. See Note 6.
On June 18, 2013, the Company issued 20,000 shares of common stock as compensation to a consultant in regards to services rendered.
On June 30, 2013, the Company recorded 22,635 shares of common stock issuable to BCJ for June legal fees. The shares were valued at $8,375, or $0.37 per share, and due to an averaging method of calculation, a $3,375 loss on issuance was recorded. The shares were issued in July 2013.
On July 5, 2013, the Company issued 35,000 shares of common stock as compensation to a consultant in regards to services rendered. The shares were recorded at a cost of $9,451.
On July 12, 2013, as a condition of financing, the Company issued JMJ 24,390 shares of common stock. The stock, based on the prior day’s closing price of $0.31, was valued at $7,561 and was recorded as a cost of financing. On October 30, 2013, as a condition of the settlement with JMJ, these shares will be returned to the Company (see Note 4 and 10).
On July 9, 2013, W. Ray Harrison, Jr., a former employee of the Company, exercised his 500,000 warrants for common stock on a cashless basis using the prior day’s closing price of $0.3378 thereby a forfeiture of 14,801 shares with an issuance of 485,199 shares of common stock (see Note 6).
On July 12, 2013, W. Ray Harrison, Jr., a former employee of the Company, exercised his 250,000 options for common stock on a cashless basis based on the prior day’s closing price of $0.305 thereby a forfeiture of 8,196 shares with an issuance of 241,804 shares of common stock (see Note 6).
On July 25, 2013, we issued 3,600,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 5, 7 and 10.
On July 29, 2013, the Company issued 35,000 shares of common stock as compensation to a consultant in regards to services rendered. The shares were recorded at a cost of $9,450.
On July 29, 2013, as part of an engagement agreement with RedChip Companies, Inc., a public and investor relations firm, the Company issued 300,000 shares of common stock. The shares were recorded at a cost of $81,300.
On August 16, 2013, the Company issued 12,500 shares of common stock to Hilton Kahn, a member of the Advisory Board, as his quarterly compensation. The shares were valued at $0.278 per share, the previous day’s price based on July 15, 2013, the date of the contractual obligation, or $3,500.
On August 16, 2013, the Company issued RJR Manufacturers’ Agent 300,000 shares of common stock, as compensation for services. The shares were valued at $0.278 per share, or $83,370.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On August 16, 2013, the Company issued Bruce Harmon, the Company’s CFO, 300,000 shares of common stock, as compensation for services. The shares were valued at $0.278 per share, or $83,370 (see Note 6).
On September 5, 2013, the Company issued DBA 300,000 shares of common stock, as compensation for services. The shares were valued at $0.50 per share, or $60,000. The shares have a three vesting therefore will be amortized accordingly. As of September 30, 2013, $2,500 has been expensed. See Note 6.
On September 5, 2013, the Company issued Jeff Thurgood, the Company’s Vice President of Sales, 250,000 shares of common stock, as compensation for services. The shares were valued at $0.50 per share, or $50,000. The shares have a three vesting therefore will be amortized accordingly. As of September 30, 2013, $1,805 has been expensed. See Note 6.
On September 6, 2013, the Company issued 35,161 shares of common stock to BCJ for August legal fees. The shares were valued at $10,267, or $0.29 per share, and due to an averaging method of calculation, a $10,267 loss on issuance was recorded.
On September 6, 2013, the Company issued 41,254 shares of common stock to BCJ for September legal fees. The shares were valued at $9,488.42, or $0.23 per share, and due to an averaging method of calculation, a $5,488 loss on issuance was recorded.
On September 10, 2013, the Company issued 300,000 shares of common stock to Rundle as a condition of his employment agreement. The shares were valued at $48,000, or $0.16 per share.
On September 10, 2013, the Company issued 300,000 shares of common stock to Harmon as a condition of his employment agreement. The shares were valued at $48,000, or $0.16 per share.
On September 10, 2013, the Company issued 300,000 shares of common stock to RJR Manufacturers’ Agent as a condition of its consulting agreement. The shares were valued at $48,000, or $0.16 per share.
On September 12, 2013, RJR Manufacturers’ Agent exercised these warrants on a cashless basis based on the prior day’s closing price of $0.3378 thereby a forfeiture of 72,992 shares with an issuance of 927,008 shares of common stock.
On September 13, 2013, the Company sold 26,087 shares of restricted common stock to an individual for $3,000. The shares sold were discounted by 25% due to the restriction and a loss of $1,043 was recorded.
On September 18, 2013, the Company issued 200,000 shares of common stock to Kalpesh Vyas as payment for the finalization of the transfer of ownership of the United Kingdom Clearly Herbal trademark (see Note 2).
On September 18, 2013, the Company issued Tauriga 625,000 shares of common stock as obligated under the licensing agreement between Tauriga and GHI (see Note 2).
On September 18, 2013, the Company issued a shareholder 264 shares of common stock as part of the February 2013 dividend. The shareholder was omitted from the original issuance due to the timing of his ownership. The Company believes that the lack of issuance at the time of dividend was correct but, in order to avoid any potential problems, issued the immaterial amount of shares. The issuance was recorded as a loss of $73 based on the prior day’s closing price of $0.275.
On September 25, 2013, we issued 3,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4 and 8.
On October 7, 2013, the Company issued 62,500 shares or 12,500 each, to its Advisory Board, Perfetti, Y. Parmar, K. Parmar, Sandberg, and DeFilippo. The shares were valued collectively at $14,375. See Note 7.
On October 8, 2013, the Company issued 44,307 shares of common stock to BCJ for legal services. The shares were valued at $13,723, or $0.31 per share, and due to an averaging method of calculation, a $4,861 loss on issuance was recorded.
On October 8, 2013, the Company issued Clearly Herbal International, a British Virgin Island corporation, an additional 1,700,000 shares of common stock in regards to the Clearly Herbal U.S. trademark and to Clearly Herbal International, a UK corporation, an additional 1,333,333 shares of common stock in regards to the Clearly Herbal UK trademark (see Note 2).
On October 15, 2013, the Company issued 12,500 shares to Hilton Kahn, a new member of the Company’s Advisory Board. The shares were valued at $2,250. See Note 7.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On October 23, 2013, the Company issued 2,316,595 shares to TCA in conjunction with the financing provided by TCA. The shares were valued at $250,000. See Note 4, 8 and 12.
On October 23, 2013, we issued 4,200,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4, 8 and 12.
On October 31, 2013, the Company issued 40,000 shares of common stock to BCJ for legal services. The shares were valued at $5,600, or $0.14 per share, and due to an averaging method of calculation, a $1,600 loss on issuance was recorded.
On November 1, 2013, the Company issued 15,000 shares of common stock to Charles Andrews, a member of the Board of Directors of the Company. The shares were valued at $2,100. See Note 7.
On November 1, 2013, the Company issued 65,488 shares of common stock to BCJ for legal services. The shares were valued at $14,337, or $0.22 per share, and due to an averaging method of calculation, a $5,168 loss on issuance was recorded.
On November 25, 2013, the Company issued 46,611 shares of common stock to Coventry Capital in regards to the February 2013 dividend.
On November 25, 2013, the Company issued 30,000 shares of common stock to Robert Brennan, a consultant to the Company. Mr. Brennan had previously been issued 30,000 warrants for common stock which was cancelled. The shares were valued at $3,900.
On November 25, 2013, the Company issued 30,000 shares of common stock to Jean-Michel Fitamant, a consultant to the Company. The shares were valued at $3,900.
On November 25, 2013, the Company issued 30,000 shares of common stock to Michele Harris, a leased employee to the Company (became employee in January 2014). The shares were valued at $3,900.
On December 1, 2013, the Company issued 176,219 shares of common stock to BCJ for legal services. The shares were valued at $38,293, or $0.22 per share, and due to an averaging method of calculation, a $17,146 loss on issuance was recorded.
On December 16, 2013, we issued 4,400,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4, 8 and 12.
Stock Warrants
The Company has granted warrants to an employee. Warrant activity for employees the year ended December 31, 2013 is as follows:
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On November 19, 2012, the Company issued 500,000 fully vested warrants with an exercise price of $0.01 per share for common stock to W. Ray Harrison, Jr. as compensation for the APA with SBI-TX (see Note 3). The warrants were valued at $0.58 per warrant or $290,000 using the average price for our common stock. On July 9, 2013, Mr. Harrison exercised these warrants on a cashless basis based on the prior day’s closing price of $0.3378 thereby a forfeiture of 14,801 shares with an issuance of 485,199 shares of common stock. See Note 2 and 6.
The Company has granted warrants to non-employees. Warrant activity for non-employees the year ended December 31, 2013 is as follows:
On November 1, 2012, the Company issued 1,000,000 fully vested warrants with an exercise price of $0.01 per share for common stock to RJR Manufacturers’ Agent as compensation for services. The warrants were valued at $0.43 per warrant or $430,000 using the average price for our common stock. On September 12, 2013, RJR Manufacturers’ Agent exercised these warrants on a cashless basis based on the prior day’s closing price of $0.3378 thereby a forfeiture of 72,992 shares with an issuance of 927,008 shares of common stock.
On March 17, 2013, the Company issued 1,000,000 fully vested warrants with an exercise price of $0.01 per share for common stock to Ecotrade Solutions Ltd. as compensation for services. The warrants were valued at $0.88 per warrant or $880,000 using the average price for our common stock.
On August 13, 2013, the Company issued 30,000 warrants with an exercise price of $0.28 per share for common stock to Robert Brennan, a consultant to the Company, as compensation for services. On November 25, 2013, the Company cancelled the warrants and issued Mr. Brennan 30,000 shares of common stock.
On November 1, 2013, the Company issued 1,111,111 fully vested warrants with an exercise price of $0.135 per share for common stock to RJR Manufacturers’ Agent as compensation for services. The warrants were valued at $0.135 per warrant or $150,000 using the current price for our common stock.
Stock Options
The Company approved the 2012 Stock Option Plan on November 14, 2012 under which 10,000,000 shares were reserved for issuance.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
The Company has granted options to employees. Options activity for the year ended December 31, 2013 is as follows:
On November 14, 2012, the Company granted Bruce Harmon 1,000,000 options for common stock. The options are fully-vested at issuance, have a five-year life, and have an exercise price of $0.01. The options were valued at $0.53 per option or $530,000 using the average price of our common stock. See Note 7.
On November 14, 2012, the Company granted W. Ray Harrison, Jr. 250,000 options for common stock. The options are fully-vested at issuance, have a five-year life, and have an exercise price of $0.01. The options were valued at $0.53 per option or $132,500 using the average price of our common stock. On July 12, 2013, Mr. Harrison exercised these options on a cashless basis based on the prior day’s closing price of $0.305 thereby a forfeiture of 8,196 shares with an issuance of 241,804 shares of common stock (see Note 7).
On November 1, 2013, the Company granted Bruce Harmon 1,111,111 options for common stock. The options are fully-vested at issuance, have a five-year life, and have an exercise price of $0.135. The options were valued at $0.135 per option or $150,000. See Note 7.
NOTE 10 - INCOME TAX
For the fiscal year 2013 and 2012, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances.
As of December 31, 2013 and 2012, the Company has net operating loss carry forwards of approximately $__,000 and $71,000, respectively. The carry forwards expire through the year 2032. The Company’s net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.
The Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes (computed by applying the United States Federal tax rate of 34% to loss before taxes), as follows:
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.
The tax effect of significant components of the Company’s deferred tax assets and liabilities at December 31, 2013 and 2012, respectively, are as follows:
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Because of the historical earnings history of the Company, the net deferred tax assets for 2013 and 2012 were fully offset by a 100% valuation allowance. The valuation allowance for the remaining net deferred tax assets was $3,339,041 and $272,570 as of December 31, 2013 and 2012, respectively. The increase in valuation allowance in 2013 was $3,066,471.
NOTE 11 - CONCENTRATIONS
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
The Company places its temporary cash investments with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of December 31, 2013. There have been no losses in these accounts through December 31, 2013.
Concentration of Intellectual Property
The Company owns the trademark “SENSATIONAL” and “CLEARLY HERBAL” through the acquisitions from SBI-TX (see Note 2) and CHI (see Note 2), respectively, as filed with the United States Patent and Trademark Office. Additionally, the Company has filed and been issued the trademark “FLORA” (see Note 6) and has a patent pending on “SENSATIONALLY.”
NOTE 12 - SUBSEQUENT EVENTS
From January 1, 2014 to the date of this Report, the Company received purchase orders in the amount of approximately $483,000 and shipped inventory in the amount of approximately $879,000 to various customers.
On January 1, 2014, the Company issued 131,492 shares of common stock to BCJ for January legal fees. The shares were valued at $10,519, or $0.08 per share, and due to an averaging method of calculation, a loss on issuance will be recorded.
On January 2, 2014, the Company sold 190,476 shares of common stock to Warren Keith Lott, in exchange for $10,000. The shares were sold at an approximate 25% discount to the current market, or $0.0525. The discount will be recorded as a loss.
Green Innovations Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
On January 3, 2014, the Company issued 51,471 shares of common stock to Thomas Carluccio, Jr., a consultant to the Company, in lieu of account payable of $1,125 and a retainer of $1,500 for future services. The shares were valued at an approximate 25% or $0.051 per share. The discount will be recorded as a loss.
On January 6, 2014, the Company paid LG Capital’s July 6, 2013 convertible note in full for $119,340. The payment included $76,500 in principal, $3,035 of accrued interest, and a loss on settlement of $39,805. See Note 4.
On January 8, 2014, Black Mountain Equities converted $10,000 of principal of its convertible note with the Company, into 263,505 shares of common stock. The shares were converted at $0.03795 due to the various discounts in the note. The Company will record a loss on conversion of $11,080. See Note 4.
On January 22, 2014, Jeff Thurgood, an employee of the Company, purchased 152,000 shares of common stock for $9,975, which was discounted from the current price at $0.065625 per share, which will be recorded in 2014 accordingly.
On January 24, 2014, Black Mountain Equities converted $50,500 of principal of its convertible note with the Company, into 1,231,708 shares of common stock. The shares were converted at $0.0755 due to the various discounts in the note. The Company will record a loss on conversion of $48,160. See Note 4.
On January 31, 2014, we issued 4,000,000 shares of our common stock to Ironridge. The issuance is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, as the issuance of securities was in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. See Notes 4, 8 and 9.
On February 1, 2014, the Company issued 15,000 shares of our common stock to Andrews, a member of the board of directors, under the consulting agreement with him. The shares will be expensed accordingly. See Note 7.
On February 3, 2014, the Company and its subsidiary, Green Hygienics, Inc., filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA Global Credit Master Fund, LP (“TCA”), regarding a dispute among the parties about the lock-box provisions of the Senior Secured Revolving Credit Facility Agreement, as amended. On March 17, 2014, the Company settled with TCA and will be dismissing the Complaint without prejudice. As part of the settlement and contingent upon the parties’ full performance under the settlement agreement, the parties agreed (1) that the note’s maturity date would be extended to October 25, 2014; (2) that a total amount of $1,506,134.50 was due to TCA under the Credit Agreement and Revolving Note, as amended, as of March 17, 2014; and (3) that $116,982.72 would be wired to TCA within two business days of settlement, and that upon TCA’s receipt of the wire, $1,389,151.78 in principal would be considered outstanding, and no interest and fees would be considered outstanding.
On February 20, 2014, the Company received $50,000 cash from Black Mountain under the provision in their note that provides, at Black Mountain’s option, the additional investment. An amendment to the convertible note was executed under the same terms and conditions. The note will be recorded as $55,000 which reflects the $5,000 in legal fees associated with the execution of the amendment. See Note 4.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
On September 24, 2012, the Company dismissed the independent accounting firm of Weinberg & Baer LLC and engaged the independent accounting firm of Drake & Klein CPAs. The reports of Weinberg & Baer LLC as of and for the fiscal years ended December 31, 2011 and December 31, 2010 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle except to indicate that there was substantial doubt about the Company ability to continue as a going concern.
On December 17, 2012, the audit firm of Drake & Klein CPAs changed its name to DKM Certified Public Accountants. The change was reported to the PCAOB as a change of name. This is not a change of auditors for the Company.
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the year ended December 31, 2013 covered by this Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for the preparation of the consolidated financial statements and related financial information appearing in this Annual Report on Form 10-K. The consolidated financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company's internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting 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 generally accepted accounting principles, and that receipts and expenditures of the issuer 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.
Management, including the Chief Executive Officer and Chief Financial officer, does not expect that the Company's disclosure controls and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time, control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
With the participation of the Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2013 based upon the framework in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management has concluded that, as of December 31, 2013, the Company had material weaknesses in its internal control over financial reporting. Specifically, management identified the following material weaknesses at December 31, 2013:
1.
Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures;
2.
Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
3.
Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting and to allow for proper monitoring controls over accounting;
4.
Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.
To remediate our internal control weaknesses, management intends to implement the following measures:
▪
The Company will add sufficient number of independent directors to the board and appoint an audit committee.
▪
The Company will add sufficient knowledgeable accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements.
▪
Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures.
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued operational activities and corporate expenses. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
We understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when necessary.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant rules of the SEC that permit us to provide only management’s report in this annual report. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Included in the Act is a provision that permanently exempts smaller public companies that qualify as either a Non-Accelerated Filer or Smaller Reporting Company from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Changes in Internal Control over Financial Reporting
In August 2012, the Company appointed Bruce Harmon as Chief Financial Officer and Director. Mr. Harmon has more than thirty years’ experience as a financial professional serving as chief financial officer of several publicly registered entities.
In June 2013, the Company appointed Determinaction Business Advisory (“DBA”) to serve as Controller. DBA is a consulting firm owned by Awie Kardiman, an accounting professional with more than twenty years’ experience as a financial professional who has also served as chief financial officer of a large paper company.
In June 2013, the Company contracted with a leased employee who, in January 2014 became an employee of the Company, serves as an accounting assistant.
In October 2013, the Company appointed Charles Andrews as an independent Director. Mr. Andrews has more than thirty-five years’ experience as a financial professional serving as controller of several publicly registered entities and as chief financial officer of several private companies. Mr. Andrews has been certified as an information systems auditor (CISA) while managing the internal audit department for a Fortune 500 company.
Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth information with respect to persons who are serving as directors and officers of the Company. Each director holds office until the next annual meeting of shareholders or until his successor has been elected and qualified.
Biographies of Directors and Officers
Philip Rundle was appointed as chief executive officer on April 15, 2013. Mr. Rundle spent 16 years with Kimberly-Clark Corporation (NASDAQ: KMB), a $21B leading international consumer goods company and Fortune 500 company (#137 in 2012). In 1999, after holding various positions, including Marketing Director and Business Unit Director for Kimberly-Clark in South Africa and the United States, Mr. Rundle was named Vice President, Central and Eastern Europe. In 2003, he was named Vice President of NATO Brand Development, which brought him back to the United States. In this role, he led the effort to revitalize revenue and profit growth, and directed an international team of employees. His last role was as CEO of Oasis Brands and Mercury Paper in North America, a leading Asia paper and pulp company, where he created an aggressive business model to double revenue and volume while greatly enhancing EBITDA, shareholder value and brand leadership for the past three years. His most recent endeavor was as a consultant for a leading Private Equity company on potential acquisitions in the CPG field. Mr. Rundle has a Bachelor’s degree in Marketing from Damelin College and an Advanced Management diploma in Business Administration from the University of Witwatersrand in South Africa.
Bruce Harmon has served as our chief financial officer and chairman, since August 2012. Mr. Harmon served as chief financial officer and director of Alternative Construction Technologies, Inc. (ACCY), a construction material manufacturing company located in Melbourne, Florida, from 2005 to 2008, chief financial officer and director of Accelerated Building Concepts Corporation (ABCC), a construction company located in Orlando, Florida, from 2006 to 2008, as chief financial officer and director of Organa Technologies Group, Inc. (OGTG), a technology company located in Melbourne, Florida, from 2006 to 2008, as interim chief financial officer and director of Winwheel Bullion, Inc. (WWBU), a public shell, located in Newport Beach, California, from 2009 to 2011, from 2011 to 2012, as chief financial officer, director and interim chief executive officer of Omni Ventures, Inc. (OMVE), a Kansas City, Kansas based apparel company, chief financial officer and chairman of the board of eLayaway, Inc. (ELAY), a Tallahassee, Florida based online payment processor specializing in layaway, and as interim chief financial officer of Tauriga Sciences, Inc. (TAUG), a Danbury, Connecticut based biotech company. Mr. Harmon holds a B.S. degree in Accounting from Missouri State University.
Charles R. “Buck” Andrews has over 35 years of diverse business experience in legal, mining, manufacturing, software development and not-for-profit entities on a domestic and international level. Positions Mr. Andrews has held range from entry level accounting after graduating from college in Boulder, Colorado, to CFO for a Vancouver-based Canadian junior mining concern, and to Division Controller for a Denver-based Fortune 500 mining and manufacturing company, Amoco Minerals Company, a division of Standard Oil of Indiana. Mr. Andrews has substantial experience in accounting/financial reporting, auditing, SEC reporting, SOX compliance, budgeting, and banking and financing, equipment leasing, benefit plans administration, and IT systems development and implementation. Mr. Andrews earned a certification as an information systems auditor (CISA) in 1991 while managing the internal audit department for Cyprus Minerals Company (Amoco). Mr. Andrews is currently the Director of Administration and Finance for Beatty & Wozniak, P.C. in Denver, Colorado.
There are no family relationships among any of our directors and executive officers.
Our directors are elected at the annual meeting of the shareholders, with vacancies filled by the Board of Directors, and serve until their successors are elected and qualified, or their earlier resignation or removal. Officers are appointed by the board of directors and serve at the discretion of the board of directors or until their earlier resignation or removal. Any action required can be taken at any annual or special meeting of stockholders of the corporation which may be taken without a meeting, without prior notice and without a vote, if consent of consents in writing setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principle place of business, or an officer or agent of the corporation having custody of the book in which the proceedings of meetings are recorded.
Indemnification of Directors and Officers
Nevada Corporation Law allows for the indemnification of officers, directors, and any corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities, including reimbursement for expenses, incurred arising under the 1933 Act. The Bylaws of the Company provide that the Company will indemnify its directors and officers to the fullest extent authorized or permitted by law and such right to indemnification will continue as to a person who has ceased to be a director or officer of the Company and will inure to the benefit of his or her heirs, executors and Consultants; provided, however, that, except for proceedings to enforce rights to indemnification, the Company will not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred will include the right to be paid by the Company the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition.
The Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Company similar to those conferred to directors and officers of the Company. The rights to indemnification and to the advancement of expenses are subject to the requirements of the 1940 Act to the extent applicable.
Furthermore, the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another company against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Nevada General Corporation Law.
Director Compensation
During the fiscal year ended December 31, 2013, our independent director received equity compensation for his services. During the fiscal year ended December 31, 2012, our independent directors did not receive any compensation from us for their services. Directors that were employees were not paid any fees for their role as director.
Directors’ and Officers’ Liability Insurance
Green Innovations has directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.
Code of Ethics
We intend to adopt a code of ethics that applies to our officers, directors and employees, including our principal executive officer and principal accounting officer, but have not done so to date due to our relatively small size. We intend to adopt a written code of ethics in the near future.
Board Committees
The Company does not have any committees.
We expect our board of directors, in the future, to appoint a nominating committee, an audit committee, and any other applicable committee, as applicable, and to adopt charters relative to each such committee. We intend to appoint such persons to committees of the board of directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek a listing on a national securities exchange.
11. Executive Compensation.
The table below sets forth, for our last two fiscal years, the compensation earned by Philip Rundle, our chief executive officer, Bruce Harmon, our chief financial officer, and Mordechay David, our former president.
(1)
Mr. Rundle was appointed as CEO in April 2013 and as Director in November 2013. On April 1, 2013, the Company and Mr. Rundle entered into an employment agreement to provide an annualized salary of $219,600 for the first three months which increased to an annualized salary of $240,0001.
(2)
Mr. Harmon was appointed as CEO, CFO and Chairman in August 2012. On November 1, 2012, the Company and Mr. Harmon entered into an employment agreement to provide a salary of $120,000 per year which increased to $219,600 on April 1, 2013 for three months and then to $240,000 per year, both simultaneous with the salaries of Mr. Rundle. As of December 31, 2012, due to cash flow restraints, $750 of the compensation due to Mr. Harmon was accrued and during the year, Mr. Harmon converted $100,000 of accrued compensation into convertible notes payable.
(3)
Mr. David was appointed as presidend and director on July 1, 2008. On October 10, 2012, he resigned from all positions.
(1)
Mr. Andrews was appointed as director on October 31, 2013.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of the Company’s common stock (and preferred stock) as of December 31, 2013 (i) each person or entity who, to our knowledge, beneficially owns more than 5% of our common stock; (ii) each executive officer and named officer; (iii) each director; and (iv) all of our officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each of the stockholders named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: c/o 3208 Chiquita Boulevard S., Suite 216, Cape Coral, Florida 33914.
________
* Less than 1%
1.
Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power to the shares of the Company’s common stock.
2.
As of December 31, 2013, a total of 85,252,830 shares of the Company’s common stock are considered to be issuable and outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner listed, any options exercisable within 60 days have been also included for purposes of calculating the percent of class.
3.
Officer and director.
4.
Director.
5.
Mr. Harmon owns 5,100,000 shares of common stock and 1,111,111 options for common stock exercisable within 60 days.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Kalpesh Parmar and Yogesh Parmar, both former members of the Advisory Board, are owners of American Hygienics Corporation, which has a Licensing Agreement with the Company and is one of the primary manufacturers for the Company.
Michael Perfetti, a former member of the Advisory Board, is the owner of Perfetti Sales & Marketing, a broker under contract with GHI.
Sander Greenberg, a former member of the Advisory Board, is the owner of S Greenberg & Associates, a broker under contract with GHI.
Hilton Kahn, a member of the Advisory Board, is part of management of R1 Resources, a broker under contract with GHI.
Item 14.
Item 14. Principal Accounting Fees and Services.
The following table sets forth the fees billed by our principal independent accountants, DKM Certified Public Accountants for 2012 and Weinberg & Baer LLC for 2011, for the categories of services indicated.
On December 17, 2012, the audit firm of Drake & Klein CPAs changed its name to DKM Certified Public Accountants. The change was reported to the PCAOB as a change of name. This is not a change of auditors for the Company.
Audit fees. Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other fees. Other services provided by our accountants.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
Exhibits
See the Exhibit Index following the signature page of this Registration Statement, which Exhibit Index is incorporated herein by reference.
_________________
(1) Filed herewith
Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Philip Rundle
March 17, 2014
Philip Rundle, Principal Executive Officer
Date
/s/ Bruce Harmon
March 17, 2014
Bruce Harmon, Principal Accounting Officer
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Philip Rundle
March 17, 2014
Philip Rundle, Director
Date
/s/ Bruce Harmon
March 17, 2014
Bruce Harmon, Director
Date
/s/ Charles Andrews
March 17, 2014
Charles Andrews, Director
Date