UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q/A

(Amendment No. 1)

 

(Mark One)

 

☒          QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2014

 

OR

 

☐          TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from_____________ to _____________.

 

Commission file number 000-54049

 

 

GREEN AUTOMOTIVE COMPANY

(Exact name of registrant as specified in its charter)

 

Nevada	22-3680581
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5495 Wilson Street Riverside, California	92509
(Address of principal executive offices)	(Zip Code)

 

(800) 863 - 9098

Registrant’s telephone number, including area code

 

(Former address, if changed since last report)

 

(Former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐  No ☒ 

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ☐  No ☐

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of August 28, 2014, there were 665,357,414 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY

 

 

PART I – FINANCIAL INFORMATION
ITEM 1 - Financial Statements	5
ITEM 2 - Management’s Discussion And Analysis Of Financial Condition And Results Of Operation	37
ITEM 3 - Quantitative And Qualitative Disclosures About Market Risk	47
ITEM 4 - Controls And Procedures	47
PART II – OTHER INFORMATION
ITEM 1- Legal Proceedings	49
ITEM 1A - Risk Factors	50
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds	52
ITEM 4 - Mine Safety Disclosures	52
ITEM 5 - Other Information	52
ITEM 6 - Exhibits	53

 

 

 

 

 

 

 

 

 

EXPLANATORY NOTE

 

We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2014 to: (i) correct certain mistakes in the headings to our financial statements and Management’s Discussion and Analysis, and (ii) to include Management’s Discussion and Analysis for the six months ended June 30, 2014, which was inadvertently omitted from our Form 10-Q for the quarterly period ended June 30, 2014, originally filed with the Commission on September 5, 2014. The corrections and inclusions herein do not change the numbers in our financial statements from the original filing. Other than these updates, this amendment does not otherwise change or update the disclosures set forth in our Quarterly Report on Form 10-Q as originally filed and does not otherwise reflect events occurring after the original filing of the Quarterly Report on Form 10-Q Report.

 

 

PART I – FINANCIAL INFORMATION

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties, and assumptions.  Our future results and shareholder values may differ materially from those expressed in these forward-looking statements.  Readers are cautioned not to put undue reliance on any forward-looking statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 1  Financial Statements

 

The unaudited condensed consolidated financial statements of registrant for the period ended June 30, 2014 and 2013 are below.  The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  All such adjustments are of a normal and recurring nature.

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

Index to Financial Statements

 

 

	Page
Condensed Consolidated Balance Sheets – June 30, 2014 (Unaudited)  and December 31, 2013	6
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)	7
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)	8
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	9
Notes to Condensed Consolidated Financial Statements (Unaudited)	11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

(Formerly Green Automotive Company Corporation)

Condensed Consolidated Balance Sheets

June 30, 2014 and December 31, 2013

 

		June 30,				December 31,
		2014				2013
		(Unaudited)				(audited)
Current Assets
Cash		$	40,810			$	61,723
Accounts receivable			106,051				154,278
Inventories			702,390				412,312
Prepaid expenses and deposits			60,340				585,503
Other			1,423				4,647
Total Current Assets			911,014				1,218,463
Non-Current Assets
Property and equipment, net			533,115				608,405
Deferred financing cost			24,000				60,000
Total Assets		$	1,468,129			$	1,886,868
Current Liabilities
Accounts payable and accrued expenses		$	2,060,565			$	1,717,214
Deferred revenue			114,823				170,251
Current portion of notes payable			1,031,506				845,396
Credit facility and other advances			56,234				45,527
Derivative liability			13,836,954				71,752,773
Funds received not converted into equity (net of discount)			—				215,000
Sums due to Global Market Advisors			170,889				170,889
Accrued value added taxes			79,039				162,600
Sums due to Global Trade Finance			25,000				25,000
Lease payable			66,292				64,197
Other payables			201,373				176,836
Total Current Liabilities			17,642,675				75,345,683
Long-term Liabilities
Notes payable, net of current maturities			293,357				203,946
Total Liabilities			17,936,032				75,549,629
Stockholder's Deficit
Preferred stock, Class A Convertible Preferred Stock 100,000,000 shares authorized at June 30, 2014 and December 31, 2013, $.001 par value, 782,701 and 924,366 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively.			783				924
Common stock, 900,000,000 shares authorized, $.001 par value 643,629,558 and 405,043,436 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively			643,629				405,043
Additional paid-in capital			47,182,586				37,019,643
Accumulated other comprehensive loss			(135,090	)			(198,424	)
Accumulated deficit			(64,159,810	)			(110,889,947	)
Total  Stockholder's Deficit			(16,467,903	)			(73,662,761	)
Total Liabilities and Stockholders' Deficit		$	1,468,129			$	1,886,868

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

(Formerly Green Automotive Company Corporation)

Condensed Consolidated Statements of Operations

For The Three and Six Months Ended June 30, 2014 and 2013

Unaudited

 

		For the three months ended June 30,								For the six months ended June 30,
		2014				2013				2014				2013
						(Restated)								(Restated)
Revenues		$	1,575,599			$	429,392			$	2,823,469			$	647,788
Costs of goods sold			1,452,724				409,165				2,459,563				488,012
Gross profit			122,875				20,227				363,906				159,776
Operating expenses
Depreciation and amortization			45,692				9,206				92,290				18,082
Loss on disposal of equipment			—				—				—				12,516
Stock based compensation			41,498				—				5,717,015				214,286
Stock issued for settlements			—				—				—				—
General and administrative			1,121,502				523,551				1,749,945				1,009,699
			1,208,692				532,757				7,559,250				1,254,583
Loss before other expenses			(1,085,817	)			(512,530	)			(7,195,344	)			(1,094,807	)
Other income (expenses)
Change in fair value of derivative liability			(7,278,229	)			(1,114,759	)			56,465,415				37,616,530
Stock issued for settlements			—				(1,237,200	)			—				(1,237,200	)
(Loss)/gain on settlement of debt			—				—				(484,028	)			—
Loss on conversion of preferred shares			—				—				—				(20,375	)
Other income/expense			(200,000	)			—				(200,000	)			—
Interest expense			(1,137,218	)			(137,254	)			(1,855,906	)			(183,174	)
			(8,615,447	)			(2,489,213	)			53,925,481				36,175,781
Income/(Loss) before income taxes			(9,701,264	)			(3,001,743	)			46,730,137				35,080,974
Provision for income taxes			—				—				—				—
Net income		$	(9,701,264	)		$	(3,001,743	)		$	46,730,137			$	35,080,974
Income (loss) per share (Basic)		$	(0.02	)		$	(0.01	)		$	0.09			$	0.10
Income (loss) per share (Diluted)		$	(0.02	)		$	(0.01	)		$	0.05			$	0.06
Weighted average shares outstanding (Basic)			599,459,864				342,209,651				531,791,726				342,209,651
Weighted average shares outstanding (Diluted)			599,459,864				561,677,952				991,115,183				561,677,952

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

(Formerly Green Automotive Company Corporation)

Condensed Consolidated Statements of Comprehensive Income / (Loss)

For The Three Months and Six Months Ended June 30, 2014 and 2013

Unaudited

 

		For the three months ended June 30,								For the six months ended June 30,
		2014				2013				2014				2013
						(Restated)								(Restated)
Net income (loss)		$	(9,701,264	)		$	(3,001,743	)		$	46,730,137			$	35,080,974
Other comprehensive loss, net of tax:
Foreign currency translation			78,701				(13,122	)			63,334				—
Comprehensive income (loss)			(9,622,563	)			(3,014,865	)			46,793,471				35,080,974

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

(Formerly Green Automotive Company Corporation)

Condensed Consolidated Statements of Cash Flows

For The Six Months Ended June 30, 2014 and 2013

 

		June 30,
		2014				2013
						(Restated)
OPERATING ACTIVITIES:
Net income		$	46,730,137			$	35,080,974
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			92,290				18,082
Non cash - interest expense			—
Amortization of debt discounts			1,681,307				46,183
Loss on disposal of assets			200,000				12,516
Shares issued for settlement of agreement							1,237,200
Shares issued as additional interest			24,038
Loss on conversion of preferred shares							20,375
(Gain)/loss on settlement of debt			484,028
Shares issued for services			100,500				—
Change in fair value of derivative liability			(56,465,415	)			(37,616,530	)
Share based compensation			5,717,015				214,286
Changes in operating assets and liabilities:							—
Accounts receivable			48,227				36,475
Inventories			(290,078	)			(281,486	)
Other assets			3,224				(2,212	)
Prepaid expenses			525,163				(989	)
Accounts payable and accrued expenses			343,351				334,198
Deferred revenue			(55,428	)			43,499
Other liabilities			(84,125	)			186,357
Net cash used in operating activities			(945,766	)			(671,072	)
INVESTING ACTIVITIES:
Proceeds from disposal of vehicles			—				28,092
Proceeds from disposal of investments			—				14,896
Purchase of property and equipment			(17,000	)			(420,224	)
Net cash used in investing activities			(17,000	)			(377,236	)
FINANCING ACTIVITIES:
Increase in advances payable			—
Advances from related party			—
Proceeds from issuance of common stock			5,000				—
Borrowings (payments) from line of credit			10,707				(39,808	)
Proceeds from notes payable			930,827				985,838
Payments to notes payable			(68,015	)
Net cash provided by financing activities			878,519				946,030
Effect of change in exchange rate on cash			63,334				94,371
Net  (decrease) / increase in cash			(20,913	)			(7,907	)
CASH AT BEGINNING PERIOD			61,723				87,325
CASH AT END OF PERIOD		$	40,810			$	79,419

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

(Formerly Green Automotive Company Corporation)

Condensed Consolidated Statements of Cash Flows

For The Six Months Ended June 30, 2014 and 2013

(continued)

 

		June 30,
		2014				2013
						(Restated)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	—			$	—
Cash paid for income taxes		$	—			$	—
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Share based compensation		$	—			$	214,286
Shares issued to settle an agreement		$	—			$	1,237,200
Common shares issued in exchange for preferred shares		$	388,151			$	7,883,692
Common shares issued in relation to investment in a JV		$	—			$	335,895
Common shares issued in relation to acquisition		$	—			$	565,290
Common shares issued for debt conversion		$	2,656,119			$	—
Preferred shares issued to converted funds owed by FMS		$	—			$	180,188
Preferred shares converted to ordinary		$	—			$	(63	)
Preferred shares issued to settle debt		$	210,000

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS

 

We are a corporation originally organized under the laws of the State of Delaware in 1996, but re-incorporated in Nevada effective June 3, 2011.  We formerly operated under the name GANAS Corp. (“GANAS”).  Prior to November 2009, GANAS’ objective was to obtain through acquisition and/or merger transactions, assets, which could benefit our shareholders.  Effective November 4, 2009, GANAS acquired Go Green USA LLC, a Nevada limited liability company organized on April 28, 2009 (“Go”), in a share exchange transaction pursuant to which newly issued shares of GANAS common stock were issued in exchange for all of the issued and outstanding membership interests of Go (the “Go Merger”).  The Go Merger resulted in GANAS issuing 1,436,202 shares of its common stock with par value $0.001 for each 1% membership interest in Go, following which GANAS changed its name to Green Automotive Company Corporation.  Effective September 30, 2011, we effected a Change of Domicile, re-incorporating in Nevada and simplifying our name to Green Automotive Company, among other things (the “Re-Incorporation”).

 

We are currently involved in the manufacturing and sale of Diesel, Gas and CNG buses at our Newport Coachworks facility in Riverside California, which we expect to be the core focus of our business activities going forward. We have recently introduced electric bus technology with the launch of our 15 to 23 seat E-Patriot model and will follow this with the launch of our E-Atlas model featuring 27 to 33 seats.  The retailing of electric vehicles through our GoinGreen facility in London, England is expected to form the basis for a “franchise” type model that can be introduced into other regions and countries potentially with partners. The development of next generation electric vehicle technologies and repair techniques which is currently handled through our Liberty facility in Coventry England, will be moving to Riverside California in order to have the R&D for electric vehicle technology located where we are building our new electric bus models.

 

Liberty Transaction

 

On June 28, 2012, we entered into a Stock Exchange Agreement (the “Liberty Agreement”) with Liberty Electric Cars Ltd., an England and Wales private company limited (“LEC”), and its wholly-owned subsidiary LEC 2 Limited, an England and Wales private company limited (“LEC2” and together with LEC, the “LEC Entities”), under which our wholly-owned subsidiary, Liberty Automotive Group, Inc. (formerly GAC EV Motors Inc.), a Nevada corporation (“LAG”) agreed to purchase 100% of the issued and outstanding securities of LEC (the “LEC Shares”), that owns 100% of the issued and outstanding securities of LEC2 (the “LEC2 Shares”) (collectively the “LEC Securities”) in exchange for the transfer of Thirty Nine Million Seven Hundred Forty Two Thousand One Hundred Seventy Eight (39,742,178) shares of our common stock held by LAG to the LEC Shareholders.  These shares represented approximately 8.19% of our outstanding voting control.  We also issued to Mr. West and Mr. Hobday, the executives of LEC, a total of 300,000 shares of our Series A Preferred Stock in exchange for the non-competition provisions in their independent contractor agreements.  This transaction closed on July 23, 2012.

 

Additionally, pursuant to the Liberty Agreement, we issued to GAC Automotive Services, Inc., a Nevada corporation and one of our wholly-owned subsidiaries (“GAC Auto”) Ten Million (10,000,000) shares of Series B Convertible Preferred Stock (the “Series B Shares”).  The issuance of the Series B shares to GAC Auto is not part of the purchase price of the LEC Entities and is not compensation to the LEC Entities or LEC Shareholders, but is reserved for issuance to certain entities that LEC and/or LEC2 have been in negotiations with at the time of execution of the Liberty Agreement if those entities and/or assets are purchased by us or our subsidiaries.  The determination as to when and if to transfer the Series B Shares from GAC Auto to a selling party must be approved by our Board of Directors.  To date, all of the Series B Shares are still held by GAC Auto. The Series B Preferred Stock have been eliminated on consolidation and are reflected as treasury shares.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS (continued)

 

As a result of the Liberty Transaction, we acquired LEC, a company that designs and develops electric vehicle drive solutions for use in its own converted vehicles and for sale to original equipment manufacturers (OEMs) for incorporation into their production.  LEC’s engineers have invented innovative EV drive train technologies that can be employed in a wide variety of vehicle platforms.  LEC is also involved in a number of advanced research programs for developing next generation electric vehicle (“EV”) solutions.  These programs include the prestigious “Deliver” project where LEC is working together with “tier one” automotive companies to develop a pure electric commercial vehicle, and the “Motore” project in which LEC has partnered with other “tier one” automotive companies and universities to develop a “rare earth” free electric motor technology.  Additionally, LEC has also created after sales support for EV’s, by providing a comprehensive aftermarket maintenance program throughout Europe for electric trucks and cars.

 

Liberty Transaction (continued)

 

Due to its experience in EV technologies and in servicing EVs, LEC has an agreement with a large U.S. truck manufacturer for the on-going support of electric vehicles run by its key clients in Europe.  LEC will continue to take care of all warranty support when required by these customers, all of whom run fleets of electric commercial vehicles across Europe.  This truck manufacturer’s customers include major companies such as FedEx, UPS and Veolia, who are using the first “ground up” electric trucks known as the “Modec” that were launched some 4 years ago for the purpose of making pollution free deliveries in urban areas.

 

Newport Coachworks Transaction

 

On October 12, 2012, we entered into an Acquisition and Stock Exchange Agreement (the “NCWI Agreement”) with Newport Coachworks, Inc., a California corporation (“NCWI”), under which we agreed to purchase 100% of the issued and outstanding securities of NCWI (the “NCWI Shares”) from Mr. Carter Read, NCWI’s sole shareholder, in exchange for the transfer of Five Million (5,000,000) shares of our common stock due at the closing of the transaction (the “GACR Closing Shares”), and up to an additional Twenty Two Million (22,000,000) shares of our common stock (the “GACR Additional Shares” and together with the GACR Closing Shares, the “GACR Shares”) to vest as follows:  upon NCWI obtaining bona fide, binding purchase orders, with cash down payment standard in the industry to NCWI, from third party purchasers requiring NCWI to manufacturer Sixty (60) buses with compressed natural gas engines at NCWI’s manufacturing facility (each a “Qualified Purchase Order”) within the first twelve (12) months following the payment of one-half of the initial forecasted funding of $500,000. This transaction closed on October 12, 2012. All GACR Shares were issued to Mr. Carter Read as of March 31, 2014.

 

Matter of Time Merger

 

On September 1, 2011, Green Automotive Company entered into a Stock Purchase Agreement and Escrow Agreement with Mark E. Crone (“Crone”) and Bosch Equities, L.P. (“Bosch”), under which we purchased 100% of the outstanding equity of Matter of Time I Co., a Nevada corporation (“MOT”), and extinguished a repayment obligation of MOT totaling $6,000, all in exchange for $30,000.

 

On February 10, 2012, Green Automotive Company entered into a Merger Agreement and Plan of Reorganization with Matter of Time I Co., a Nevada corporation (“MOT”) (the “MOT Agreement”).  Under the MOT Agreement, at the closing of the transaction contemplated by the MOT Agreement, MOT dissolved into and became a part of Green Automotive Company, with Green Automotive Company being the surviving corporation and assuming MOT’s status as a reporting issuer under the Securities Exchange Act of 1934, as amended.  On December 14, 2012 the transactions contemplated by the MOT Agreement closed (the “Closing”). As a result of the Closing, MOT was merged out of existence and Green Automotive Company became a reporting issuer under the Securities Exchange Act of 1934, as amended.

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS (continued)

 

GoinGreen Transaction

 

On January 31, 2013, the Company signed a binding agreement to buy UK-based electric vehicle distributor GoinGreen Limited (www.goingreen.co.uk). Trading under the brand name, “GoinGreen”, it has sold over 1400 of the highly successful G-Wiz electric vehicles, making it one of Europe’s largest single retailers of electric vehicles.  GoinGreen Ltd was founded in 2002 and in the early days, set itself the mission to minimize the effects of climate change by encouraging carbon-neutral motoring. The company pioneered electric vehicles in the UK with the G-Wiz, an electric vehicle designed in California and manufactured in India by the Indo-Reva Electric Car Company, making London the capital of the electric vehicle (EV). The deal was completed on April 1, 2013 when 1,562,498 shares of GACR common stock was authorized for exchange for 100% of the issued and outstanding securities of GoinGreen Limited (an England and Wales private limited company) plus 150,501 shares of GACR common stock was authorized for issuance to former creditors of GoinGreen. Due to a temporary restraining order (“TRO”) in an unrelated litigation in Utah by the Company against a former stockholder the shares were not released by our transfer agent until June 24, 2013.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America.

 

The unaudited condensed interim consolidated financial statements at June 30, 2014 and for the three-month periods ended June 30, 2014 and 2013 are unaudited, but include all adjustments, consisting of normal recurring entries, which our management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. The Company’s operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of our operating results in future periods.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. These accounting policies conform to GAAP in all material respects, and have been consistently applied in preparing the accompanying condensed consolidated financial statements.

 

Principles of Consolidation

 

The Company’s unaudited condensed consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries. The Company does not hold significant variable interests in any variable interest entities. All significant intercompany accounts and transactions have been eliminated.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Reverse Merger Accounting

 

The MOT Merger was accounted for as a reverse-merger and recapitalization in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Green Automotive Company was the acquirer for financial reporting purposes and MOT was the acquired company. Consequently, the assets and liabilities and operations that are reflected in the historical financial statements prior to the Merger will be those of Green Automotive Company and will be recorded at the historical cost basis of the Company. The consolidated financial statements after completion of the Merger include the assets and liabilities of Green Automotive Company. Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger.

 

Going Concern

 

Our condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. However, as of June 30, 2014, we have sustained recurring operating losses, past due payables and have a stockholders’ deficit of $16,467,903.  These conditions, among others, give rise to substantial doubt about our ability to continue as a going concern. Management is continuing to seek additional equity capital to fund the acquisition or to purchase an ongoing business and improving profitability of existing operations. Until such time, we anticipate our working capital needs will be funded through the issuance of debt and equity instruments; however, there can be no assurance that we will receive the sums required at the times and in the amounts needed, or that any funding will not be accompanied by conditions unfavorable to the Company. Management believes these steps will provide us with adequate funds to sustain our continued existence. There is, however, no assurance that the steps taken by management will meet all of our needs or that we will continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances, including, but not limited to, challenging economic conditions. Accordingly, future estimates may differ significantly. Significant estimates and assumptions included in our condensed consolidated financial statements relate to the valuation of long-lived assets, inventory reserves, accruals for potential liabilities, and valuation assumptions related to derivative liability, equity instruments and share based compensation.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of amounts held as bank deposits and highly liquid debt instruments purchased with an original maturity of three months or less. The Company had no cash equivalents as of June 30, 2014 and December 31, 2013.

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts receivable

 

Accounts receivable consists of trade receivables, which are recorded at the invoiced amount, net of taxes, allowances for doubtful accounts and prompt payment discounts. Trade receivables do not carry interest. The allowance for doubtful accounts represents management’s estimate of the amount of probable credit losses in existing accounts receivable, as determined from a review of past due balances and other specific account data. Account balances are written off against the allowance when management determines the receivable is uncollectible.

 

Investment in Joint Venture

 

The Company applies the equity method for the 30% investment to its joint venture interest in Powabyke, a privately-held UK company, since quoted market prices are not available and the Company, has the ability to exercise significant influence over operating and financial policies of the joint venture. Significant influence is generally defined as 20% to 50% ownership in the voting stock of an investee. Under the equity method, the Company initially records the investment at cost and then adjusts the carrying value of the investment to recognize the proportional share of the equity-accounted affiliate’s net income (loss) including changes in capital of the affiliates. In addition, dividends received from the equity-accounted company reduce the carrying value of the Company’s investment.  If there is an other-than-temporary decline in the market value of the investment, an impairment charge is recorded. Based on management’s evaluation the investment in the joint venture has been fully impaired in 2013.

 

Inventories

 

The Company’s inventories are valued at cost, as determined by the first-in, first out (FIFO) method; in aggregate such valuations are not in excess of market.

 

Concentrations

 

The Company currently maintains substantially all of its cash with major financial institutions. At times, cash balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation.

 

Comprehensive Income (Loss)

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which amends FASB Codification Topic 220 on comprehensive income disclosures.  The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements, while eliminating the option to report other comprehensive income and its components in the statement of changes in shareholders’ equity.  The provisions of ASU 2011-05 were adopted in 2012.  The adoption of ASU 2011-05 did not impact the Company’s consolidated financial position, results of operations or cash flows as it required only a change in the format of presentation.

 

Property and Equipment

 

Property and equipment consisting of leasehold improvements, furniture and fixtures, equipment and vehicles are stated at cost. Property and equipment are depreciated using the straight-line method over the estimated service lives ranging from three to seven years. Maintenance and repairs are expensed as incurred and improvements are capitalized. Gains or losses on the disposition of fixed assets are recorded upon disposal.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Impairment of Long-Lived Assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset 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 estimated undiscounted future cash flows expected to be generated by the asset.

 

If the carrying amount of an asset exceeds its undiscounted estimated future cash flows, an impairment review is performed. An impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. The Company determined that there was an indicator of impairment in goodwill and other intangibles during the year ended December 31, 2013 because of the lowered revenue and cash flow projections. The Company use the present value technique for the impairment testing. There were no impairment charges for the three months ended June 30, 2014 and 2013.

 

Derivative Instruments

 

The fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in the fair value are recorded in the condensed consolidated statement of income under other income (expense).

 

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Fair Value Measurements

 

ASC 820, “Fair Value Measurements”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, inputs other than level one that are either directly or indirectly observable such as quoted prices for identical or similar assets or liabilities on markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

We account for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

As a result of the implementation of certain provisions of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. We adopted the provisions of ASC 740 as of January 1, 2007, and have analyzed filing positions in each of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions.  We have identified the U.S. federal and California as our "major" tax jurisdictions.  Generally, we remain subject to Internal Revenue Service examination of our 2007 through 2013 U.S. federal income tax returns, and remain subject to California Franchise Tax Board examination of our 2007 through 2013 California Franchise Tax Returns.  However, we have certain tax attribute carry forwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.

 

We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position.  Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.  In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.  Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.

 

Revenue Recognition

 

We recognize revenues related to annual membership income and service of electric vehicles in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 605, Revenue Recognition.  Revenue is recognized when we have evidence of an arrangement, a determinable fee, and when collection is considered to be probable and services are provided. In the event that final acceptance of our product by the customer is uncertain, revenue is deferred until all acceptance criteria have been met.  In the event we have amounts billed or collected in accordance with contractual terms in advance of when the work is performed we treat these as deferred revenues.  These advance payments primarily relate to the Company's grant project and E-Care membership scheme. The current portion of deferred revenue represents the balance the Company estimates will be earned as revenue during the next fiscal year (see note 9).

 

Grant Income

Grant income is not recognized until a grant claim has been submitted and approved by Government representatives.

 

E-tech services

Revenues from consultancy services are recognized only when all services have been rendered and collectability is reasonably assured.

 

E-Care services

Revenues from maintenance, repair, and overhaul services are recognized only when all services have been rendered and collectability is reasonably assured.

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Earnings per Common Share (as Restated)

 

The Company computes net income per share in accordance with ASC 260, "Earnings per Share". ASC 260 requires presentation of both basic and diluted earnings (loss) per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including 582,701 Series A convertible preferred for June 30, 2014 (net of 200,000 forfeit shares) and 555,142 for June 2013 (net of 300,000 forfeit shares), using the if-converted method, 29,700,000 additional common shares for June 30, 2014 and 18,000,000 for June 30, 2013 stock options, using the treasury stock method, and 81,366,365 shares for June 30, 2014 and 3,678,138 shares for June 30, 2013 for convertible loan notes, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.

 

Share-Based Payment Arrangements

 

Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expenses resulting from share-based payments are recorded in operating expenses in the condensed consolidated statement of operations.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on previously reported net loss.

 

Recent Accounting Pronouncements

 

Adopted

 

In February 2013, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.  The objective of the amendments in this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for those obligations addressed within existing guidance in U.S. GAAP.  The amendment requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and an additional amount the reporting entity expects to pay on behalf of its co-obligors.  The entity is required to disclose the nature and amount of the obligation as well as other information about those obligations.  The Company adopted this ASU as of January 1, 2014.  This adoption did not have an effect on our financial statements.

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recent Accounting Pronouncements (continued)

 

On July 18, 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  Topic 740 does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The objective of the amendments in this update is to eliminate that diversity in practice.  The Company adopted this ASU as of January 1, 2014.  This ASU did not have an effect on our financial statements.

 

Not Adopted

 

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance is effective for periods beginning after December 15, 2014.

 

Other recent pronouncements issued by FASB (including its Emerging Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

4. ACQUISITIONS

 

On January 31, 2013, the Company signed a binding agreement to buy UK-based electric vehicle distributor GoinGreen Limited (www.goingreen.co.uk ). Doing business under the brand name, “GoinGreen”, it has sold over 1,400 of the highly successful G-Wiz electric vehicles, making it one of Europe’s largest single retailers of electric vehicles.  GoinGreen Ltd was founded in 2002 and in the early days, set itself the mission to minimize the effects of climate change by encouraging carbon-neutral motoring. The company pioneered electric vehicles in the UK with the G-Wiz, an electric vehicle designed in California and manufactured in India by the Indo-Reva Electric Car Company, making London the capital of the electric vehicle (EV). The deal was completed in the second quarter of 2013 when 1,562,498 shares of GACR common stock was exchanged for 100% of the issued and outstanding securities of GoinGreen Limited (an England and Wales private limited company). Due to the TRO the shares were not released by our transfer agent until June 24, 2013.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

4. ACQUISITIONS (continued)

 

The allocation of the purchase price and the estimated fair market values of the assets acquired and liabilities assumed of GoinGreen Limited are shown below.

 

Cash		$	14,896
Accounts receivable			29,379
Prepayments			19,623
Inventories			75,693
Other current assets			27,845
Property and equipment, net of accumulated depreciation			14,653
Goodwill			769,890
Total assets acquired			951,979
Credit Line			1,584
Accounts payable and accrued expenses			81,313
Deferred revenue			34,983
Income Tax payable			62,345
Other			206,464
Total liabilities assumed			386,689
Purchase Price		$	565,290
Final Consideration
1,562,498 of common stock issued @ $0.33 in exchange for equity			515,625
150,501 of common stock issued @ $0.33 to settle debt			49,665

 

The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The purchase price for GoinGreen businesses was allocated to the net tangible and intangible assets based upon their fair values as of the respective acquisition dates. The allocation of the purchase price was based upon a valuation and the estimates and assumptions were subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets, if any, was recorded as goodwill and is generally driven by our expectations of our ability to realize synergies and achieve our strategic growth objectives.

 

The goodwill recorded in connection with the GoinGreen acquisitions was $769,890, on the transaction acquisition date. In accordance with U.S. GAAP, impairment testing for goodwill is performed at least annually.  The Company performs its annual impairment test as of December 31.  Goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

 

The impairment test for goodwill uses a two-step approach, which is performed at the entity level as the Company has one reporting unit. Step 1 compares the fair value of the reporting unit to its carrying value including goodwill. If the carrying value exceeds the fair value, there is a potential impairment and Step 2 must be performed. Step 2 compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., the fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets). If the carrying value of goodwill exceeds its implied fair value, the excess is recorded as an impairment.

 

The Company performed its annual test of goodwill as of December 31, 2013.  The Company determined the fair value of the reporting unit exceeded the carrying value of the reporting unit.

 

For the year ended December 31, 2013, the Company concluded there were indicators of potential goodwill impairment, including the decline in the value of the Company’s revenue recognition. As a result of identifying indicators of impairment, the Company performed an impairment test of goodwill as of December 31, 2013.

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

4. ACQUISITIONS (continued)

 

In performing Step 1 of the impairment test, the Company estimated the fair value of the reporting unit using the market approach for purposes of estimating the total enterprise value for the Company.

 

The market approach is based on the guideline publicly traded company method to determine the fair value of the reporting unit. Under this method, market multiples ratios were applied to the reporting unit’s earnings with consideration given to the Company’s size, product offerings, growth, and other relevant factors compared to those of the guideline companies. The guideline companies selected were engaged in the same or a similar line of business as the Company. Market multiples were then selected based on consideration of risk, growth, and profitability differences between the Company and the guideline companies.  The selected market multiples were then multiplied by the Company’s earnings streams for the twelve months ended December, 2013.

 

Based on the above analysis, it was determined that the carrying value of the reporting unit including goodwill exceeded the fair value of the reporting unit, requiring the Company to perform Step 2 of the goodwill impairment test to measure the amount of impairment loss, if any.

 

In performing Step 2 of the goodwill impairment test, the Company compared the implied fair value of the reporting unit’s goodwill to its carrying value of goodwill.  This test resulted in a non-cash, goodwill impairment charge of $769,890 which was recognized during the year ended December 31, 2013.  This charge had no impact on our cash flows or our compliance with debt covenants.

 

The following table sets forth the balance of the Company’s goodwill as of December 31, 2013:

 

		December 31, 2012				Additions				Impairments				December 31, 2013
Goodwill, gross		$	—			$	769,890			$	(769,890	)		$	—
Accumulated impairment losses			—				—				—				—
Total goodwill, net		$	—			$	769,890			$	(769,890	)		$	—

 

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

4. ACQUISITIONS (continued)

 

The following are unaudited pro-forma results of operations as if the acquisition has occurred at the beginning of the period for the three and six months ended June 30, 2014 and 2013:

 

Pro-forma (unaudited)

 

		For the three months ended June 30,								For the six months ended June 30,
		2014				2013				2014				2013
						(Restated)								(Restated)
Revenues		$	1,575,599			$	429,392			$	2,823,469			$	831,311
Costs of goods sold			1,452,724				409,165				2,459,563				595,645
Gross profit			122,875				20,227				363,906				235,666
Operating expenses
Depreciation and amortization			45,692				9,206				92,290				19,066
Loss on disposal of equipment			—				—				—				12,516
Impairment of assets			—				—				—				—
Stock Based Compensation			41,498				—				5,717,015				—
Stock issued for settlement of agreements			—				—				—
General and administrative			1,121,502				523,551				1,749,945				1,126,545
			1,208,692				532,757				7,559,250				1,158,127
Loss before other expenses			(1,085,817	)			(512,530	)			(7,195,344	)			(922,461	)
Other income (expenses)
Stock issued in settlement of an agreement			—				(1,237,200	)			—				(1,451,486	)
Change in fair value of derivative liability			(7,278,229	)			(1,114,759	)			56,465,415				37,616,530
(Loss) or gain on settlement of debt			—				—				(484,028	)
Loss on conversion of preferred shares			—				—				—				(20,375	)
Other income/(expense)			(200,000	)			—				(200,000	)			—
Interest expense			(1,137,218	)			(137,254	)			(1,855,906	)			(183,174	)
			(8,615,447	)			(2,489,213	)			53,925,481				35,961,495
(Loss) income before income taxes			(9,701,264	)			(3,001,743	)			46,730,137				35,039,034
Income taxes			—				—				—				—
Net (loss) income		$	(9,701,264	)		$	(3,001,743	)		$	46,730,137			$	35,039,034
(Loss) income per share (Basic)		$	(0.02	)		$	(0.01	)		$	0.09			$	0.10
(Loss) income per share (Diluted)		$	(0.02	)		$	(0.01	)		$	0.05			$	0.05
Weighted average shares outstanding (Basic)			599,459,864				342,209,651				531,791,726				342,209,651
Weighted average shares outstanding (Diluted)			599,459,864				342,209,651				991,115,183				668,564,206

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

5. ACCOUNTS RECEIVABLE

 

Accounts receivable consists of the following: as of June 30, 2014 and December 31, 2013:

 

Accounts Receivables		June 30, 2014				December 31. 2013
Trade receivables		$	106,051			$	123,254
Grant monies receivable			—				31,024
		$	106,051			$	154,278

 

6. INVENTORIES

 

Inventories consist of raw materials and work In progress. These pertain to the Bus production in the NCWI facility. The Company’s inventories are valued at cost, as determined by the first-in, first out (FIFO) method; in aggregate such valuations are not in excess of market and consisted of the following  as of June 30, 2014 and

 

		June 30, 2014				December 31. 2013
Raw materials		$	6,995			$	106,852
Goods in transit			—				12,956
Work in progress			445,613				178,596
Finished Goods			249.782				113,908
		$	702,390			$	412,312

 

7. PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following: as of June 30, 2014 and December 31, 2013:

 

		June 30, 2014				December 31, 2013
Leasehold improvements		$	15,196			$	14,828
Furniture and fixtures			8,162				8,138
Equipment			627,638				608,598
Computer hardware and software			117,991				117,028
Vehicles			23,189				29,189
			792,176				777,781
Less accumulated depreciation			(259,061	)			(169,376	)
		$	533,115			$	608,405

 

Our property and equipment in 2014 are located equally in terms of value in California and in the United Kingdom (the “UK”). The UK assets are acquired as part of LEC Entities and GoinGreen acquisitions (see Note 4). For the three months ended June 30, 2014 and June 30 2013 (restated), depreciation expense was $45,692 and $9,206 respectively.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

8. GOODWILL & INTANGIBLE ASSETS

 

Intangible assets consist of the following and were mainly related to the LEC and GoinGreen acquisitions:

 

		June 30, 2014				December 31, 2013
Goodwill on purchase of GoinGreen		$	789,890			$	769,890
Go License			500,000				500,000
Crash test homologation costs			228,912				228,912
Liberty acquired technology			619,462				619,462
Assembled workforce			689,000				689,000
Trade name and website			45,000				45,000
Non-compete agreement			1,500,000				1,500,000
			4,352,264				4,352,264
Less amortization and impairment			(4,352,264	)			(4,352,264	)
		$	—			$	—

 

Amortization expense was $0 for the three months ended June 30, 2014 and the year ended December 31, 2013. Additionally, the Company impaired the remaining basis in the intangibles during the year ended December 31, 2013 as management revised its sales forecast for the product which impaired the goodwill of $769,890 as of

 

9. DEFERRED REVENUE

 

Deferred revenue consists of the following: as of June 30, 2014 and December 31, 2013:

 

Deferred Revenues		June 30, 2014				December 31. 2013
Deferred Grant Income		$	17,964			$	17,964
Deferred membership fees			96,859				152,287
		$	114,823			$	170,251

 

10. FUNDS RECEIVED NOT CONVERTED INTO EQUITY (NET OF DISCOUNT)

 

The Company has received advances during the year ended December 31, 2013 in the amount of $215,000. These advances were made directly from the shareholders. The Company issued common shares during the six months ended June 30, 2014 to settle all these advances.

 

11. SUMS DUE TO GLOBAL MARKET ADVISORS

 

On July 19, 2010, we entered into an Advisory Agreement (the “Advisory Agreement’) with Global Market Advisors, Inc., a Nevada corporation (“GMAI”).  Under the Advisory Agreement, GMAI was retained by us to assist with a variety of services, including, but not limited to, assisting us with our filings as a public company, making the public aware of us and our business, and provide general advice to our management in order to execute our business plan and strategy. The agreement was terminated with effect on July 31, 2013. In exchange for the services we agreed to compensate GMAI and at June 30, 2014 and December 31, 2013, $170,889 has been accrued to cover all costs and fees owed.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

12. SUMS DUE TO GLOBAL TRADE FINANCE

 

On January 1, 2012 the Company made and entered into a credit facility with Global Trade Finance (“GTF”) to provide credit up to $250,000.  The Company had drawn down $79,000 of the facility through the second quarter of 2012.  The effective rate of interest is 8% on the facility, and the facility was to be secured by 5,000,000 shares of Green Auto common stock, and the advances made to the Company under the credit facility were not reduced to Convertible Notes. The facility was to be due January 1, 2013, or up to twenty four months if demand for repayment is not made, however, effective September 30, 2012, the $79,000 was converted into 1,500,000 shares of the Company’s common stock. The Company recorded $4,000 gain on settlement of debt. The Company also borrowed another $25,000 on this facility that it still owes under the same terms listed above as of June 30, 2014 and December 31, 2013.

 

 

13. NOTES PAYABLE, NET OF DISCOUNTS

 

As a result of our inability to file our Form 10-Q for the period ended June 30, 2014 within the time period required under the Securities Exchange Act of 1934, as amended, we have defaulted on certain covenants under various loan documents with Typenex, LG Capital, and JMJ Financial. We have informed each, as well as other lenders, of the default and requested a waiver from the default, which was conditionally granted. With this filing, we have cured our outstanding defaults related to the late filing.

 

Notes Payable		June 30, 2014				December 31, 2013
Blue Citi - Convertible Note Payable, 0% interest, convertible at 40% discount to market price, unsecured		$	278,500			$	—
R Knight £38,500 Note Payable, Nil Interest, when funds permit, unsecured			—				63,487
P Beitl £109,576 Note Payable, Nil Interest, when funds permit, unsecured			186,586				180,691
David Voss Note Payable, 15% Interest, unsecured, convertible at fixed 00.5 cents per share			15,000				—
Black Mountain - Convertible Note Payable, 10% interest, convertible at 35% discount to market price, unsecured			110,000				—
Union Capital Note Payable, 8% Interest, unsecured, convertible at 42% discount to market price after 180 days			50,000				—
N Jones £10,053 Note Payable, Nil Interest, unsecured			17,118				16,577
I Hobday – Note payable, Nil interest, unsecured			24,419				5,813
P Lilley £700 Note Payable, Nil Interest, unsecured			1,191				1,154
L G Capital Note payable, 8% Interest, unsecured, convertible at 50% discount to market price after 180 days			27,000				76,500
Auctus Note Payable, 8% Interest, unsecured, convertible at 42% discount to market price after 180 days			—				37,750
JMJ Financial Note Payable, interest 12% after 90 days, unsecured, convertible at 40% discount to market price			166,668				82,000
Louis Klein Note Payable, 15% Interest, unsecured, convertible at fixed 10.5 cents per share			50,000				50,000
Linda Singer Note Payable, 15% Interest, unsecured, convertible at fixed 10.5 cents per share			100,000				100,000
David Hopkins Note Payable, 15% Interest, unsecured , a conversion price of 50% of close price on date of notification			20,000				20,000
Gel Properties Note Payable, 6% Interest, unsecured, convertible at 40% discount to market price			25,000				25,000
Redwood Fund II Note Payable ,10% Interest, unsecured, convertible at 50% discount to market price			100,000				100,000
Redwood Management LLC Note Payable, Nil Interest, unsecured, convertible at 50% discount to market price			—				336,376
Bizloan Note payable, 36% Interest, secured			83,647				219,691
Typenex Note Payable, 8% Interest, unsecured, convertible at 60% discount to market price after 180 days			142,500				—
WEAM/WFC			200,000				—
Accrued interest			—				8,080
			1,597,629				1,323,119
Debt Discount			(272,766	)			(273,777	)
		$	1,324,863			$	1,049,342
Current Portion		$	1,031,506			$	845,396
Long Term			293,357				203,946
		$	1,324,863			$	1,049,342

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

13. NOTES PAYABLE, NET OF DISCOUNTS (continued)

 

In connection with the Black Mountain convertible notes issued on February 13, 2014, the Company issued a five year warrant to the note holder to purchase an additional 1,200,000 common shares at an exercise price of $0.15. The warrant has anti-dilution provisions, including adjustable provisions for the exercise price and the number of shares. As of June 30, 2014, the adjusted number of issuable shares equaled 26,865,672 shares and the strike price was $0.0067, Using the Black-Scholes model and the following inputs: $0.0523 market price, 1 year estimated term, 0.11% risk free rate and expected volatility of 176%, the warrant’s value was $ 1,266,388.

 

In connection with the Blue Citi convertible notes issued on March 21, 2014, the Company issued a three year warrant to the note holder to purchase an additional 15,218,579 common shares at an exercise price of $0.0183. The warrant has anti-dilution provisions, including adjustable provisions for the exercise price and the number of shares. As of June 30, 2014, the adjusted number of issuable shares equaled 41,567,164 shares and the strike price was $0.00670. Using the Black-Scholes model and the following inputs: $0.0158 market price, 1 year estimated term, 0.11% risk free rate and expected volatility of 176%, the warrant’s value was $ 504,027.

 

In connection with a funding transaction between the Company and Typenex Co-Investment, LLC, in June 2014 the Company issued a $665,000 secured convertible promissory note to Typenex payable 17 months after the issuance date and bearing interest at the rate of 10% per annum. The loan will be funded in six installments of which the first installment was for $142,500 and the remainder are for $110,000 each, except the last which is for $82,500. The Typenex transaction had an original issue discount of $60,000 and transaction expenses of $5,000. As the lender, Typenex is secured by a first priority security interest on the assets of the Company. The Typenex Note is convertible into shares of the Company’s common stock beginning on the date which is six months after each respective installment of the loan is received by the Company. The conversion formula is the amount of the loan being converted divided by the conversion price, which is 60% of the average of the three lowest Closing Bid Prices in the proceeding twenty trading days.  In connection with the Typenex transaction, the Company issued a five year warrant to Typenex to purchase common stock that includes anti-dilution provisions. The number of shares issuable under the warrant equal $332,500 divided by the  greater of the market price per share at the issue date of the warrant ($0.0205)  or the average trading price per share calculated on the two days prior to the date of notice of conversion. The purchase price per share is determined by using the lower of the conversion price and the market price. As of June 30, 2014, the adjusted number of issuable shares equaled 49,626,866 and the strike price was $0.00670. Using the Black-Scholes model and the following inputs: $0.0205 market price, 1 year estimated term, 0.11% risk free rate and expected volatility of 176%, the warrant’s value was $817,799.

 

14. STOCK INCENTIVE PLAN

 

On May 30, 2011, the Company adopted the 2011 Non-Qualified Stock Incentive Plan (the “Plan”). Under the Plan, participants, including both employees and nonemployees of the Company, have the opportunity to acquire common units of the Company. For awards made under the Plan, participants purchase common units at the time the award is made at (i) a stated value, or (ii) a percentage that is not less than 50% of the current fair market value of the stock. Award agreements with employees have a term of ten years and typically have a graded vesting terms over five years. If a participant ceases to be employed with the Company prior to the end of the vesting period, the participant forfeits his/her rights to any unvested units at the date of the termination.

 

There were 4,000,000 unvested stock options as of December 31, 2013 and December 31, 2012. The Company granted 18,000,000 stock options during the year ended December 31, 2012. No options were granted during the year ended December 31, 2013. The Company recorded a $331,894 stock option expense for the year ended December 31, 2013 and none for 2012.  For the six month period ending June 30, 2014, the Company granted 1,303,949 options and recorded a stock option expense of $41,498.

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

14. STOCK INCENTIVE PLAN (continued)

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Because the Black-Scholes option valuation model incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on historical volatilities of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from estimates and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

		June 30, 2014				March 31, 2014
Expected Volatility			176	%			192	%
Expected dividends			—	%			—	%
Expected terms (in years)			1				1
Risk-free rate			0.11	%			0.13	%
Forfeiture rate			—	%			—	%

 

A summary of option activity as of June 30, 2014 and December 31, 2013, and changes during the periods then ended is presented below:

 

						Weighted-				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Options				Price				Life (Years)				Value
Outstanding at January 1, 2013			22,000,000			$	0.34				2.44			$	191,500
Granted			—				—				—				—
Exercised			—				—				—				—
Forfeited or expired			—				—				—				—
Outstanding at December 31, 2013			22,000,000			$	0.34				1.44			$	191,500
Exercisable at December 31, 2013			18,000,000			$	0.42				2.00			$	—

 

						Weighted-				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Options				Price				Life (Years)				Value
Outstanding at January 1, 2014			22,000,000			$	0.34				2.44			$	112,000
Granted			10,100,000				0.06				9.8				—
Exercised			—				—				—				—
Forfeited or expired			—				—				—				—
Outstanding at June 30, 2014			32,100,000			$	0.30				8.70			$	112,000
Exercisable at June 30, 2014			29,700,000			$	0.24				8.73			$	112,000

 

15. STOCKHOLDERS’ DEFICIT

 

Series A Convertible Preferred Stock (“CPS”) and Derivative Liability

 

On July 23, 2012 and in relation with the LEC Acquisition (Note 4), the Company issued 300,000 shares of restricted preferred stock to two LEC Directors as a covenant not to compete. The preferred shares are fully forfeitable in the event the Directors terminated their employment or violated the non-compete provision before the third year anniversary. Additionally, these preferred shares were valued at $5.00 per share and were recorded as part of the purchase price

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

15. STOCKHOLDERS’ DEFICIT (continued)

 

On or about September 29, 2012, the Company issued an additional 30,000 CPS to FMS to settle $150,000 of advances owed to FMS (see Note 4) at a conversion rate of $5.00 per CPS.

 

On or about December 26, 2012, the Company issued an additional 53,680 CPS to FMS for cash at a price of $5.00 per CPS.

 

On or about December 26, 2012, the Company issued an additional 12,121 CPS to FMS for cash at a price of $8.25 per CPS.

 

On or about February 15, 2013, FMS converted 62,500 Series A preferred shares into 20,437,331 shares of our common stock.

 

On or about March 6, 2013, the Company issued an additional 21,841 CPS to FMS for cash at a price of $8.25 per CPS in settlement of $180,188 advances from related party.

 

On or about July 26, 2013, the Company issued an additional 95,485 CPS to FMS for cash, 51,387 at a price of $5 per CPS and 44,098 at a price of $8.25 per CPS in settlement of $620,743 advances from related party.

 

On or about July 29, 2013, 42,152 Series A Preferred Shares were converted into 16,156,335 shares of our common stock.

 

On or about November 27, 2013 the Company issued an additional 15,891 CPS to FMS for cash, 2,800 at a price of $5 per CPS and 13,091 at a price of $8.25 per CPS in settlement of $122,001 advances from related party.

 

On January 7, 2014 the Company issued 27,000 CPS to two investors for settlement of liability, these shares were valued at $210,000.

 

During the period from January 9, 2014 to March 31, 2014, 38,665 shares of CPS were converted into 19,386,464 common shares.

 

On or about April 11, 2014 a holder of Series A Preferred shares of the Company converted 125,000 Series A Preferred Stock into 66,875,000 restricted shares of the Company’s common stock. The shares issued for the Series A Preferred stock represented 11.05% of the Company’s shares issued and outstanding as of April 11, 2014.

 

On or about May 28, 2014 the Company converted 5,000 Series A Preferred Stock into 2,289,220 shares of its common stock.

 

The CPS is convertible into Company’s common stock in accordance with the following formula:

 

No. of common shares to be issued upon conversion of CPS =

 

No. of common stock outstanding on date of conversion x 0.000001 x No. of preferred stock being converted.

 

Due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion option embedded in the CPS, the conversion feature is classified as derivative liabilities and recorded at fair value.

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

15. STOCKHOLDERS’ DEFICIT (continued)

 

Pursuant to ASC 815, “Derivatives and Hedging,” the Company initially recognized the fair value of the embedded conversion feature of the CPS on date of issuance and was charged to operations. On June 30, 2014, the Company recorded a mark-to-market adjustment based on the fair value of the derivative liability on that date which resulted in a gain of $56,465,415. The fair value of the derivative liability was determined using the Black Scholes option pricing model with a quoted market price of $0.016, a conversion price of $0.05, expected volatility of 176%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.11%. As of June 30, 2014, the number of common shares that could be potentially issued to settle the conversion of the preferred stock (net of 200,000 forfeit shares) is 375,043,538 common shares.

 

The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on June 30, 2014.

 

		Level 1				Level 2				Level 3				Total
Assets
None		$	—			$	—			$	—			$	—
Liabilities
Derivative Financial instruments		$	—			$	—			$	13,836,954			$	13,836,954

 

The following table summarizes the derivative liabilities included in the condensed consolidated balance sheet at June 30, 2014:

 

Balance at January 1, 2014		$	71,752,773
Derivative liability related to new issuance and conversion, net			(1,450,404	)
Change in Value of Historic Derivatives			(56,465,415	)
Balance at June 30, 2014 (unaudited)		$	13,836,954

 

Common Stock

 

On or about February 15, 2013 FMS converted 62,500 Preferred A shares into 20,437,331 shares of our common stock. On or about February 15, 2013, we issued 375,000 shares of our common stock to Kodiak Capital Group LLC worth $150,000 as part of the Kodiak Funding Agreement. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was either accredited or sophisticated and familiar with our operations.

 

On or about February 15, 2013, we issued 160,715 shares of our common stock to Colin Manners (part of Kodiak Capital Group LLC) worth $64,286 as part of the Kodiak Funding Agreement. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was either accredited or sophisticated and familiar with our operations.

 

On March 18, 2013, the Company entered into a funding agreement for up to $3 million with Kodiak Capital Group LLC, a Newport Beach-based institutional investor. The Company has agreed to file a registration statement with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to Kodiak under the terms of the common stock purchase agreement.  As a result of the current market price for the Company’s common stock, the Company intends to withdraw the registration statement filing.

 

On or about April 1, 2013, the Company issued 1,712,999 shares to the owners of GoinGreen Limited (a UK company) to acquire 100% of the business. Due to the TRO the shares were not released by our transfer agent until June 24, 2013.

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

15. STOCKHOLDERS’ DEFICIT (continued)

 

On or about May 9, 2013, the Company issued 1,050,000 shares of its common stock to Metro-Electric PLC to secure a 30% investment in the Powabyke brand of Electric Bikes owned by Metro-Electric PLC.

 

On or about May 9, 2013, the Company issued 1,500,000 shares of its common stock each to Gary Spaniak Sr. and Ron Davis to compensate them for Liberty Electric Cars Limited withdrawing from the Merger with ELCR in order to be acquired by GACR.

 

On or about July 18, 2013, the Company issued 27,000,000 shares of its common stock to Carter Read of which 5,000,000 was in relation to the purchase of Newport Coachworks, Inc. and 22,000,000 was in relation to Mr. Read securing purchase orders in excess of sixty (60) units.

 

On or about July 29, 2013, the Company converted 42,152 Series A Preferred Stock into 16,156,335 shares of its common stock.

 

On or about September 20, 2013, the Company issued 1,188,603 shares of its common stock. Of those shares, 1,046,618 were issued in connection with convertible debt, 27,939 were issued to a member of staff to retain their services, and 114,046 were issued in lieu of rent payments.

 

On or about October 16, 2013, the Company issued 500,000 shares of its common stock in connection with advisory services provided.

 

On or about November 8, 2013, the Company issued 625,461 shares of its common stock in connection with advisory services provided.

 

On or about November 18, 2013, the Company issued 50,000 shares of its common stock in connection with advisory services provided.

 

On or about December 11, 2013, the Company issued 7,700,000 shares of its common stock in connection with a 3(a)(10) arrangement with Ironridge.

 

On or about December 23, 2013, the Company issued 297,429 shares of its common stock to Redwood Management in connection with the repayment of convertible debt in the amount of $33,460.73.

 

On or about December 31, 2013, the Company issued 238,095 shares of its common stock to Redwood Management in connection with the repayment of convertible debt in the amount of $25,000.

 

During the three months ended March 31, 2014, the Company issued 19,644,299 shares in connection with debt conversion valued at approximately $555,490, mainly related to the LEC debt that was assumed by Redwood.

 

During the three months ended March 31, 2014, the Company issued 32,051 shares for $5,000 in cash to unrelated party.

 

During the three months ended March 31, 2014, the Company issued 278,133 shares as additional interest and penalties valued at $24,038.

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

15. STOCKHOLDERS’ DEFICIT (continued)

 

During the three months ended March 31, 2014, the Company issued 78,792,270 shares in connection with liability settlement valued at approximately $4,993,110, mainly related to Ironridge settlement agreement and other liabilities related to consultants and two officers for accrued salary.

 

During the three months ended March 31, 2014, the Company issued 872,569 shares in connection with services provided to the company by outside consultants valued at approximately $64,000.

 

On or about April 2, 2014 the Company issued 1,200,000 shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $16,920.

 

On or about April 2, 2014 the Company issued 4,821,925 shares of its common stock to LG Capital in connection with the repayment of convertible debt in the amount of $51,500 plus $2,746 in accrued interest.

 

On or about April 9, 2014 the Company issued 1,631,280 shares of its common stock to Auctus Private Equity Fund in connection with the repayment of convertible debt in the amount of $17,750 plus $1,646 in accrued interest.

 

On or about April 9, 2014 the Company issued 1,600,000 shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $22,560.

 

On or about April 11, 2014 the Company converted 125,000 Series A Preferred Stock into 66,875,000 shares of its common stock.

 

On or about April 14, 2014, the Company issued 212,500 shares of common stock in exchange to investor Maurice Graham Oates at $0.0400 per share for a total of $8,500.  

 

On or about April 22, 2014 the Company issued 1,585,930 shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $22,742.23.

 

On or about May 23, 2014 the Company issued 540,000 shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $4,472.

 

On or about May 28, 2014 the Company converted 5,000 Series A Preferred Stock into 2,289,220 shares of its common stock.

 

On or about May 30, 2014 the Company issued 900,000 shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $7,453.

 

On or about June 3, 2014 the Company issued 1,578,767 shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $13,075.

 

On or about June 5, 2014 the Company issued 4,262,943 shares of its common stock to Redwood Management in connection with the payment of accrued interest in the amount of $29,841.

 

On or about June 6, 2014 the Company issued 3,474,337 shares of its common stock to LG Capital Funding in connection with the repayment of convertible debt in the amount of $26,058 plus $1,058in accrued interest.

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

15. STOCKHOLDERS’ DEFICIT (continued)

 

On or about June 10, 2014 the Company issued 2,000,000 shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $21,827.

 

On or about June 12, 2014 the Company issued 1,700,000 shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $15,810.

 

On or about June 17, 2014 the Company issued 290,753 shares of its common stock to Gel Properties in connection with the of repayment convertible debt in the amount of $3,173.

 

On or about June 17, 2014 the Company issued 400,000 shares of its common stock to a creditor of former CFO Darren West. In exchange, the accrued salary due Darren West was reduced $17,000.

 

On or about June 18, 2014 the Company issued 3,342,831 shares of its common stock to LG Capital Funding in connection with the repayment of convertible debt in the amount of $25,000 plus $71 in accrued interest.

 

On or about June 18, 2014 the Company issued 2,200,000 shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $19,361.

 

On or about June 19, 2014 the Company issued 8,571,428 shares of its common stock to Redwood Fund III in connection with the repayment of convertible debt in the amount of $60,000.

 

On or about June 24, 2014 the Company issued 2,000,000 shares of its common stock for advisory services rendered in 2013 at $0.014 per share.

 

On or about June 27, 2014 the Company issued 7,462,686 shares of its common stock to Redwood Fund III in connection with the repayment of convertible debt in the amount of $40,000 plus $10,000 in accrued interest.

 

On or about June 27, 2014 the Company issued 640,736 shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $5,639.

 

16. CONTINGENCIES

 

Our predecessor, Go Green USA, LLC (“Go Green”) was a party defendant, along with other defendants in a civil action filed in Marshall County, West Virginia by Glen Dale Motor Co. and Tomsic Motor Co, Civil Action No. 11-C-104 H.  This undefended and previously unknown action resulted in a default judgment and related judgment order in the amount of $3,717,615 with interest accruing at 7% per annum from and after February 13, 2012.  There is no active effort to enforce this action against Go Green and we believe there are numerous defenses to the asserted judgment and any such enforcement effort.  Moreover, the existence of the liability pre-existed our acquisition of Go Green and its existence was not disclosed as a part of the acquisition.

 

Management has not accrued for this event in the financial statements as it is not determinable whether the Company is liable for this judgment. The Company expects that if efforts are made to enforce the judgment the expected loss could be from $0 to $3,717,615 not including additional accrued post-judgment interest.

 

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

16. CONTINGENCIES (continued)

 

In December 2013 we entered in to an arrangement with Ironridge Global Equity IV, Ltd. under Section 3(a)(10) of the Securities Act of 1933 that was approved by a Superior Court Judge in Los Angeles, California pursuant to which we agreed to settle approximately $543,000 of trade debt claims purchased by Ironridge in exchange for the issuance by the Company of free-trading shares of our common stock under a calculation negotiated between Ironridge and the Company (the “Stipulation”). As of December 31, 2013, we had issued 7,700,000 free trading shares of our common stock to cover the Newport Coachworks liabilities assigned to Ironridge under the Stipulation The 3(a)(10) agreement specifies a $6m “calculation period” which determines the final number of shares to be issued to Ironridge in settlement of the loan they made to the Company by purchasing Company third party debt.

 

After the initial issuance GAC issued a total of 27 million additional free trading shares to Ironridge under the Stipulation formula. On or about March 28, 2014, however, Ironridge demanded GAC issue an additional 43 million free-trading shares based on Ironridge’s calculations under the Stipulation. Ironridge’s calculation depends on its interpretation of certain clauses in the Stipulation and the allegation that GAC delayed the timely issuance of shares to which Ironridge was entitled and has thus increased the base amount of shares owed under the Stipulation. The initial Ironridge demand for 43 million shares was increased to 55 million additional shares (the “Additional Shares”).

 

On April 16, 2014 Ironridge brought an ex parte proceeding before Hon. Deirdre Hill, J. (“Judge Hill”) to compel GAC to issue the Additional Shares under the Stipulation. GAC filed its answering papers in opposition to the Ironridge motion, and the Court held a hearing on May 14, 2014.  At the conclusion of the hearing, the Court denied Ironridge’s request for the issuance of the Additional Shares without prejudice. Since the date of the May 14 hearing Ironridge has not filed any other court papers, nor has GAC had any further communications from Ironridge of any kind.

 

17. SUBSEQUENT EVENTS

 

On or about July 3, 2014, the Company sought and gained a verbal commitment to delay the acquisition of Transhock Distribution Limited and AutoParts Warehouse Limited, incorporated in England and Wales, until later in 2014, subject to (a) the completion of the Company’s U.K. re-organization, (b) the determination of the new amount of funding required on closing, the owners having renegotiated their invoice financing terms, and (c) the availability of funds to close the deal.

 

On July 22, 2014, the Company agreed to sell its 30% investment of its joint venture interest in Powabyke, to Flare Capital Limited for £15,000 or approximately $25,350. The transaction is expected to be completed during the first week of September, 2014 under a share purchase agreement signed August 21, 2014.  Based on management’s previously disclosed evaluations, the carrying value for the investment in Powabyke had been reduced to $0.

 

On July 31, 2014 the Company’s Board of Directors passed a resolution to increase the number of authorized common shares to two billion five hundred million (2,500,000,000) from nine hundred million (900,000,000). The increase is subject to approval by the Company’s shareholders and will not be effective until the filing of an amendment to the Company’s Articles of Incorporation.

 

On August 21, 2014 Director Nicholas Hewson resigned as a director of the Company with his resignation effective that day. Mr. Hewson’s resignation was not related to any disagreement with the Company on any matter relating to the Company’s operations, policies and practices.  Mr. Hewson, who resides in the United Kingdom and is retired, informed the board that the geographic separation caused by the Company’s decision to reorganize its business to focus on U.S. based domestic operations, made his ability to devote the time required to perform his oversight functions as a director more difficult.  The Company accepted Mr. Hewson’s resignation and expressed appreciation for the services he performed as a director.

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

17. SUBSEQUENT EVENTS (continued)

 

On or about August 26, 2014, the Company arranged for the disposition of the assets of its subsidiaries organized and operated in the United Kingdom (U.K.) under the circumstances and terms and conditions described below.  The decision to do so is based on management’s assessment of its U.K. operations, the working capital requirements to maintain these operations and the determination to focus the Company’s core business on the building of buses at its Newport Coachworks facility in Riverside, California.  The decision will result in, among other things, in the elimination of more than approximately $1,352,178 of Company obligations consisting of approximately $689,481 of trade creditor debt, $622,697 in tax arrears and $40,000 of lease obligations.

 

The procedures will be conducted under the U.K. Insolvency Act of 1986.  On August 26 and 27, 2014, Lamey’s, an insolvency practitioner firm (“IP Firm”) retained by the Company, caused notices of a creditors committee meeting to be sent to the following subsidiaries of GAC: GoinGreen and Liberty Electric Cars Europe.  The purpose of the meetings will be to conduct a voluntary liquidation of these subsidiaries in accordance with Section 98 of the U.K. Insolvency Act of 1986.  At the meeting, there is expected to be a creditors’ voluntary liquidation (“CVL”) of these companies. Under the procedure, the IP will supervise and conduct a sale or other disposition of the assets of the U.K. subsidiaries and use the proceeds to pay outstanding liabilities of the subsidiaries in a manner to be determined and approved at the creditors’ meeting. As a result, these U.K. subsidiaries will cease all Company affiliated operations and all liabilities of the subsidiary companies to their creditors will be paid or eliminated by operation of U.K. law.

 

Subject to approval at the creditors committee meeting for each company, former Liberty and Goingreen staff members, led by Clive Southwell, a former director of the U.K. business, have purchased the assets of Goingreen and LEC2 through a company they organized, Clean Transport and Technology Limited (“Clean Technology”), for a purchase price of $9,951 plus tax for LEC2 and $26,538 plus tax for Goingreen. The assets of LEC2 consist primarily of spare parts and batteries, and the assets of Goingreen consist primarily of parts, equipment and used vehicles. The sale proceeds have been paid to the IP and, unless there is an objection to either sale at the respective creditors’ committee meetings when held, the proceeds will be distributed to the creditors of the respective subsidiaries.  The Company has been advised by the IP that the likelihood of an objection is small in as much as the IP for the Company received an independent valuation of the assets of these subsidiaries before accepting the purchase price into escrow.

 

Mr. Nicholas Hewson, a former director of the Company, made a small investment to assist Clive Southwell and his new team in the acquisition of the assets. Similarly, Ian G. Hobday, a current director of the Company lent Clean Technology a small sum of money to enable the asset purchase to take place.

 

The IP will send similar notices of creditors meetings to the creditors for LEC2 and Liberty shortly. The delay relates to entering into arrangements for the disposition of lithium batteries owned by one or both companies that comports with U.K. environmental law requirements.  If proper arrangements cannot be made, then the IP will consider alternatives for the dissolution of these two companies that may include compulsory liquidation.

 

The final outcome will be the cessation of the Company’s U.K. business operations.

 

 

 

GREEN AUTOMOTIVE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

17. SUBSEQUENT EVENTS (continued)

 

On August 21, 2014 the Company’s Board of Directors authorized the filing of a Certificate of Designation with the Nevada Secretary of State in connection with the creation of a class of shares designated by the Board of Directors as the “Series Y Preferred Shares” with the characteristics described below.  The purpose of the Series Y Preferred Shares is to create additional authorized shares of common stock for the Company by permitting the return of issued and outstanding shares of common stock held by Company management and others to the Company’s treasury for cancellation and to be available for original issuance, in return for the issuance of an identical number of restricted Series Y Preferred Shares to each person who participates in the return of shares of common stock.  The Series Y Preferred Shares are being created in order to afford the Company time to amend its articles of incorporation to increase the authorized number of shares of common stock it may issue.  The maximum total number of issued and outstanding shares of common stock that will be subject to this arrangement is 40,000,000 shares. Officers and directors of the Company participating in this exchange are listed below together with the amounts they are returning to the Company for cancellation:

 

Name of Shareholder		Shares of Common Stock Cancelled				Series Y Preferred Issued
Ian G. Hobday			10,438,823				10,438,823
Peter C. Leeds			3,280,392				3,280,392
Carter Read			21,000,000				21,000,000

 

The Company filed the Certificate of Designation for the Series Y Preferred Shares with the Nevada Secretary of State on September 2, 2014. The Company has entered into Series Y Preferred Exchange Agreement dated September 2, 2014 with each cooperating holder of outstanding shares of common stock who will participate. Each Series Y Preferred share shall be entitled to one vote and participate together with the holders of shares of common stock on all matters presented to Company stockholders for a vote.  The Series Y Preferred will have the same economic rights as holders of shares of common stock. The Certificate of Designation mandates that the Series Y Preferred will be cancelled and an identical number of new restricted shares of common stock issued to the former holders of Series Y Preferred after the Company has amended its Articles of Incorporation to increase the authorized number of its common shares.

 

The restricted shares of Series Y Preferred will be issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as transactions by an issuer not involving a public offering.

 

As a result of our inability to file our Form 10-Q for the period ended June 30, 2014 within the time period required under the Securities Exchange Act of 1934, as amended, we defaulted on certain covenants under various loan documents with some of our lenders. We have informed each of the default and requested a waiver from the default, which was conditionally granted. With this filing, we have cured our outstanding defaults related to this late filing.

 

 

 

 

ITEM 2  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q of Green Automotive Company for the period ended June 30, 2014 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this annual report. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.

 

We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risks described  in this filing, as well as any cautionary language in this quarterly  report and our annual report on Form 10-K provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: our ability to successfully obtain financing for product acquisition; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel.

 

Overview

 

We are currently involved in the manufacturing and sale of Diesel, Gas and CNG buses at our Newport Coachworks facility in Riverside California, which we expect to be the core focus of our business activities going forward. We have recently introduced electric bus technology with the launch of our 15 to 23 seat E-Patriot model and will follow this with the launch of our E-Atlas model featuring 27 to 33 seats.  The retailing of electric vehicles through our Goingreen facility in London, England is expected to form the basis for a “franchise” type model that can be introduced into other regions and countries potentially with partners. The development of next generation electric vehicle technologies & repair techniques which is currently handled through our Liberty facility in Coventry England, will be moving to Riverside California in order to have the R&D for electric vehicle technology located where we are building our new electric bus models.

 

History and Development of the Company

 

We are a corporation originally organized under the laws of the State of Delaware in 1996, but re-incorporated in Nevada effective June 3, 2011.  We formerly operated under the name GANAS Corp. (“GANAS”).  Prior to November 2009, GANAS’ objective was to obtain through acquisition and/or merger transactions, assets, which could benefit our shareholders.  Effective November 4, 2009, GANAS acquired Go Green USA LLC, a Nevada limited liability company organized on April 28, 2009 (“Go”), in a share exchange transaction pursuant to which newly issued shares of GANAS common stock were issued in exchange for all of the issued and outstanding membership interests of Go (the “Go Merger”).  The Go Merger resulted in GANAS issuing 1,436,202.25 shares of its common stock with par value $0.001 for each 1% membership interest in Go, following which GANAS changed its name to Green Automotive Company Corporation.  Effective September 30, 2011, we effected a Change of Domicile, re-incorporating in Nevada and simplifying our name to Green Automotive Company, among other things (the “Re-Incorporation”).

 

 

 

In August 2009, prior to the Go Merger, Go entered into a Memorandum of Understanding with a subsidiary of  Zotye Holding Group, a Chinese automotive manufacturer (collectively, “Zotye”) which, on January 29, 2010, was reduced to a definitive Exclusive Agreement of Distribution and Service between the Issuer and Zotye (the “Zotye Agreement”).  On July 20, 2010, the Zotye Agreement was amended and restated “between the Issuer and Yongkang Titan Imp. & Exp. Co., Ltd., a reported subsidiary of Zotye,” and then on December 21, 2010, the Zotye Agreement was further amended and restated between the Issuer and Zhejiang Titan Imp. & Exp. Co., Ltd., another reported Zotye subsidiary.

 

On January 29, 2010, following the execution of the Zotye Agreement we changed our primary SIC Code to 5012 for automobiles.

 

Following the Go Merger, and throughout the 2010 and 2011 fiscal years we devoted all of our resources to the homologation of the all-electric Zotye Sport Utility Vehicle (“SUV”) with the intent to import and distribute the SUV throughout the U.S. pursuant to the Zotye Agreement.  However, after taking several SUV’s through the required tests to comply with the standard safety benchmarks required by the U.S. Department of Transportation (“DOT”) and the U.S. Federal Motor Vehicle Safety Standards (“FMVSS”) to determine the safety and US marketability of the SUV, we elected to modify our business plan so as to not be dependent upon one supplier, one product and only one segment of the new all-electric automotive industry, and instead to be involved in two areas of the industry: the import, testing and distribution of foreign and domestic manufactured Eco- friendly passenger vehicles (“Passenger Vehicles”), Municipal Transit Buses, School Buses, Limousines, and Airport and Hotel Shuttle Vans (collectively, “Mass-Transit Vehicles”), and the conversion of conventional internal combustion engine driven vehicles into all-electric powered vehicles (“Conversion Vehicles”), with the medium term goal of becoming one of the first manufacturers of all-electric Mass-Transit Vehicles and Conversion Vehicles.

 

As an enticement to enter into the Zyote agreement, the Company issued Gao Xiang, a senior member of the Zyote management team, 5,000,000 GAC shares. Since the Zyote agreement was never finalized, we requested the return of these shares from Gao Xiang. Despite the Company’s best efforts to procure the return of the issued share certificate, Goa Xiang has not relinquished the share certificate. To ensure the shares could not be traded, we placed an administrative stop on the certificate.

 

On September 1, 2011, Green Automotive Company entered into a Stock Purchase Agreement and Escrow Agreement with Mark E. Crone (“Crone”) and Bosch Equities, L.P. (“Bosch”), under which we purchased 100% of the outstanding equity of Matter of Time I Co., a Nevada corporation (“MOT”), and extinguished a repayment obligation of MOT totaling $6,000, all in exchange for $30,000.

 

On February 10, 2012, we entered into a Merger Agreement and Plan of Reorganization with Matter of Time I Co., a Nevada corporation (“MOT”) (the “MOT Agreement”).  The MOT Agreement provided that, at the closing of the transaction contemplated by the MOT Agreement, MOT would dissolve into and became a part of Green Automotive Company, with Green Automotive Company being the surviving corporation and assuming MOT’s status as a reporting issuer under the Securities Exchange Act of 1934, as amended.  On December 14, 2012 the transactions contemplated by the MOT Agreement closed (the “Closing”).   As a result of the Closing, MOT was merged out of existence and Green Automotive Company became a reporting issuer under the Securities Exchange Act of 1934, as amended.

 

 

 

On June 28, 2012, we entered into a Stock Exchange Agreement (the “Liberty Agreement”) with Liberty Electric Cars Ltd., an England and Wales private company limited (“LEC”), and its wholly-owned subsidiary LEC 2 Limited, an England and Wales private company limited (“LEC2” and together with LEC, the “LEC Entities”), under which our wholly-owned subsidiary, Liberty Automotive Group, Inc. (formerly GAC EV Motors Inc.), a Nevada corporation (“LAG”) agreed to purchase 100% of the issued and outstanding securities of LEC (the “LEC Shares”), that owns 100% of the issued and outstanding securities of LEC2 (the “LEC2 Shares”) (collectively the “LEC Securities”) in exchange for the transfer of Thirty Nine Million Seven Hundred Forty Two Thousand One Hundred Seventy Eight (39,742,178) shares of our common stock held by LAG to the LEC Shareholders.  These shares represent approximately 8.19% of our outstanding voting control.  This transaction closed on July 23, 2012.  As a result of this transaction, through LEC, we design and develop electric vehicle drive solutions for use in LEC’s own converted vehicles and for sale to original equipment manufacturers (OEMs) for incorporation into their production, as well as in the aftermarket maintenance of electric vehicles. Additionally, under the June 28, 2012 Liberty Agreement, the Company is to issue 59,000,000 shares to the former Liberty shareholders for the acquisitions already identified.

 

Additionally, pursuant to the Liberty Agreement, we issued to GAC Automotive Services, Inc., a Nevada corporation and one of our wholly-owned subsidiaries (“GAC Auto”) Ten Million (10,000,000) shares of Series B Convertible Preferred Stock (the “Series B Shares”).  The issuance of the Series B shares to GAC Auto is not part of the purchase price of the LEC Entities and is not compensation to the LEC Entities or LEC Shareholders, but is reserved for issuance to certain entities that LEC and/or LEC2 have been in negotiations with at the time of execution of the Liberty Agreement if those entities and/or assets are purchased by us or our subsidiaries.  The determination as to when and if to transfer the Series B Shares from GAC Auto to a selling party must be approved by our Board of Directors.  To date, all of the Series B Shares are still held by GAC Auto. The Series B Preferred Stock have been eliminated on consolidation and are reflected as treasury shares.

 

On October 12, 2012, we entered into an Acquisition and Stock Exchange Agreement (the “NCI Agreement”) with Newport Coachworks, Inc., a California corporation (“NCI”), under which we agreed to purchase 100% of the issued and outstanding securities of NCI (the “NCI Shares”) from Mr. Carter Read, NCI’s sole shareholder, in exchange for the transfer of Five Million (5,000,000) shares of our common stock due at the closing of the transaction (the “GACR Closing Shares”), and up to an additional Twenty Two Million (22,000,000) shares of our common stock (the “GACR Additional Shares” and together with the GACR Closing Shares, the “GACR Shares”) to vest as follows:  upon NCI obtaining bona fide, binding purchase orders, with a cash down payment (or provides a truck chassis in lieu of cash deposit), standard in the industry, to NCI from third party purchasers requiring NCI to manufacturer Sixty (60) buses with diesel or compressed natural gas engines at NCI’s manufacturing facility (each a “Qualified Purchase Order”) within the first twelve (12) months following the payment of one-half of the initial forecasted funding of $500,000.  This transaction closed on October 12, 2012. On July 18, 2013 following Board approval, we issued to Mr. Read all of the GACR Additional Shares as a consequence of receiving orders for 232 buses from Don Brown Bus Sales for delivery over a 2-year period.  The GACR Shares, when issued, represented approximately 6.8% of our then outstanding common stock as of October 30, 2012.

 

On January 31, 2013, we signed a binding agreement to buy UK-based electric vehicle distributor GoinGreen Limited (www.goingreen.co.uk). Under the brand name, “GoinGreen”, it has sold over 1400 of the highly successful G-Wiz electric vehicles, making it one of Europe’s largest single retailers of electric vehicles.  GoinGreen Ltd was founded in 2002 and in the early days, set itself the mission to minimize the effects of climate change by encouraging carbon-neutral motoring. The company pioneered electric vehicles in the UK with the G-Wiz, an electric vehicle designed in California and manufactured in India by the Indo-Reva Electric Car Company, making London a centerpiece of the electric vehicle (EV) market. The deal was consummated on April 1, 2013 when 1,562,498 shares of GACR common stock was exchanged for 100% of the issued and outstanding securities of GoinGreen Limited (an England and Wales private limited company).

 

 

 

 

On or about October 29, 2012, Liberty Electric Cars agreed to acquire a 30% interest in Powabyke EV Limited from Metroelectric PLC (Metroelectric) of Stanstead Abbotts, Hertfordshire, United Kingdom under a Purchase and Management Agreement. The consideration to be paid was 1,050,000 restricted ordinary Green Automotive shares with an estimated value of £300,000 or $480,870. On or about March 22, 2013, we issued the shares to Metroelectric, with a market value of $335,895 on the day of issuance.

 

On February 17, 2014, we entered into an Acquisition and Stock Exchange Agreement (the “Blackhawk Agreement”) with Blackhawk Manufacturing, Inc., a California corporation (“Blackhawk”), Sanders, Larios, Larios & Luevanos LLC, a California limited liability company (“SLLL”), Alan Servicios S de R.I. de C.V., a Mexican corporation (“Alan Servicios”), Lalusa Investments, a Mexican corporation (“Lalusa”), and Shelmado Transporte, a Mexican corporation (“Shelmado”) (Blackhawk, SLLL, Alan Servicos, Lalusa and Shelmado together are referred to herein as the “BMI Entities”), and the individuals identified on the signature page of the Blackhawk Agreement as shareholders of the BMI Entities (the “BMI Entity Shareholders”), under which we agreed to purchase 100% of the issued and outstanding securities of the BMI Entities (the “BMI Shares”), in exchange for that number of shares of our common stock that has a fair market value of Six Million Dollars ($6,000,000), with the fair market value being the price per share as of February 15, 2014, which was $0.05 cents per share and therefore equals approximately 120,000,000 shares of our common stock (the “Purchase Price”).

 

Subsequent to the closing but prior to the issuance of the Blackhawk Shares to the BMI Entity Shareholders, certain of the BMI Entity Shareholders met with Company management and other representatives and presented information about Blackhawk’s financial condition that was materially different from the financial representations and warranties in the Blackhawk Agreement.  These related to, among other matters, Blackhawk’s operating income for the year ended December 31, 2013, its projections for calendar year 2014, its secured and unsecured debt and trade payables, and other issues concerning its cash flow and ability to operate the ongoing business. As a result of these disclosures, on May 21, 2014 GAC informed Blackhawk that it rescinded the Blackhawk Agreement and all remaining transaction documents, effective immediately, and all such agreements were terminated.  GAC did not issue and shall not issue the 120 million shares of its common stock for the Purchase Price. GAC also has reserved all other rights and remedies it may have in connection with these former transactions.

 

On or about February 25, 2014, the Company entered into an acquisition and stock exchange agreement to purchase Transhock Distribution Limited and AutoParts Warehouse Limited, incorporated in England and Wales, U.K. for cash and stock, including twenty six million (26,000,000) shares of the Company’s common stock to be issued to Derek Neale and David Peter Davies, each 50% owners of Transhock and AutoParts (the “Closing Shares”). Neale and Davies will each receive three million five hundred thousand (3,500,000) shares upon the two (2) year anniversary, and another three million five hundred thousand (3,500,000) each at three (3) years anniversary of the closing, conditionally, if they are still actively engaged with the business operations of Transhock and Autoparts (the “Earnout Shares”). Additionally, Neale and Davies are to each be issued options to purchase five hundred thousand (500,000) shares of the Company’s shares at an exercise price equal to the market price on the day the transaction is closed (the “Closing Options”). Davies and Neale are to receive a Directors and Spouse Salary and Dividend package of seven thousand one hundred twenty five pounds sterling (£7,125) each to be paid up and until the shares can be freely traded on either NASDAQ or the Dow Jones Indexes whereupon the package will be reviewed in the light of business performance and the number of hours directors want to commit to working in the business going forward. Both Neale and Davies are to have seats on to the Liberty Board. The cash consideration for the transaction is to reduce certain Transhock liabilities in relation to (a) a Government business expansion loan which needs to be paid down in the event of a change of ownership and (b) a lower level of invoice financing available in the event the personal guarantees of the two owners are removed. The total amount of the capital required to meet the liabilities is approximately $750,000 in a mixture of cash and new working capital structures. In the event the acquisition is not closed, Neale and Davies will still receive the Closing Shares. The closing was to take place on April 25, 2014. On or about  June 17, 2014 the Company signed a Deed of Addendum with Neale and Davies to extend the agreement until July 31, 2014.

 

 

 

Subsequently, on or about 3rd July 2014, the Company sought and gained a verbal commitment to delay the acquisition of Transhock, until later in 2014, subject to (a) the completion of the Company’s U.K. re-organization, (b) the determination of the new amount of funding required on closing, the owners having renegotiated their invoice financing terms, and (c) the availability of funds to close the deal.

 

Overview of Electric Vehicle and Luxury Shuttle Bus Market

 

The market for electric vehicles is growing rapidly, driven primarily by government incentives and the fuel costs for traditional vehicles.  With most major OEM’s now launching electric vehicles (EV) the general consensus is that EV’s will eventually replace traditional fossil fuel vehicles, the only question is “how quickly”. Industry analysts Frost and Sullivan’s research (2010) indicated that circa 20% of the market for EV’s will be satisfied by new entrants rather than traditional automotive OEM’s.  Indeed, Tesla’s rise to market value ($2.3bn based on the sale of just 1,500 cars worldwide in 2011, and $28bn by the end 2013 based on sales of 22,450 vehicles) shows what new entrants can achieve. Electric cars in all categories are forecasted to reach sales of 3.8m units annually by 2020 (Pike Research 2012), with electric trucks forecasted to reach annual sales of 100,000 units globally (Pike Research 2011) (excluding buses and coaches).  The development of infrastructure for charging EV’s lags the introduction of vehicles, and as such, the main initial market will be for EV’s that regularly drive the same or similar routes (delivery vehicles, school buses, shuttle buses etc.).  These vehicles, which return to base regularly, and can therefore be charged easily, represent the vanguard of EV adoption.  As infrastructure for charging becomes better and more readily available, coupled with a reduction in component costs driven by volume growth and technology development, the adoption of EVs by the public for personal use should increase. The market features two types of products: “ground up” electric vehicles (Renault Zoe, Modec truck, Tesla sports car) and converted product (Smiths Electric Trucks, Azure E Connect).  Converted vehicles are quicker to market and remove the need to design an entire vehicle.  Adoption of EVs in the business-to-business segment is driven by a number of factors: pollution and emission reduction; lower fuel costs; legislation; incentives; health issues; driver satisfaction; noise reduction and total cost of ownership benefits.

 

The luxury shuttle bus market represents the top 20% of the overall market for shuttle buses. Typical customers include 5 Star hotels and resorts; luxury touring companies; Limo buses and other high end transport providers. The vehicles in this sector range in capacity from 15 through 52 seats, and can be powered by Gas, Diesel, CNG and as a recent development by both electric and hydrogen fuel cells. The trend is towards more environmentally friendly products, which saw the introduction a few years ago of clean diesel engines, then CNG and more recently zero emission solutions. The buses are constructed on a variety of major OEM chassis (including but not limited to Ford, Freightliner, GM, Mercedes, Navistar etc.). Sales opportunities for these bus types exist not only in America, but also in Canada and a number of export markets (South America, Caribbean, Middle East, South Africa etc.). Typically the buses feature a high number of operator specified options and additions, ranging from large screen TV’s to bars, bathrooms and luxury seating. Limo buses, which have begun replacing the more traditional stretched Limo, feature even more extravagant interiors, including disco style music systems, multi bar installations, and bench style seating. Limo buses currently account for 10% of the Luxury shuttle bus segment but this is growing as traditional stretched Limos are replaced.

 

 

 

Results of Operations for the Three Months Ended June 30, 2014 and June 30, 2013

 

Summary of Results of Operations

 

		For the three months ended June 30,
		2014				2013
						(Restated)
Revenues		$	1,575,599			$	429,392
Costs of goods sold			1,452,724				409,165
Gross profit			122,875				20,227
Operating expenses
Depreciation and amortization			45,692				9,206
Loss on disposal of equipment			—				—
Stock based compensation			41,498				—
Stock issued for settlements			—				—
General and administrative			1,121,502				523,551
			1,208,692				532,757
Loss before other expenses			(1,085,817	)			(512,530	)
Other income (expenses)
Change in fair value of derivative liability			(7,278,229	)			(1,114,759	)
Stock issued for settlements			—				(1,237,200	)
(Loss)/gain on settlement of debt			—				—
Loss on conversion of preferred shares			—				—
Other income/expense			(200,000	)			—
Interest expense			(1,137,218	)			(137,254	)
			(8,615,447	)			(2,489,213	)
Income/(Loss) before income taxes			(9,701,264	)			(3,001,743	)

 

Operating Loss; Net Loss

 

Our net loss was ($9,701,264) for the three months ended June 30, 2014 compared to ($3,001,743) for the three months ended June 30, 2013 (restated)  These net income figures were largely a result of non-cash income due to a change in the fair value of derivative liabilities primarily related to our convertible preferred stock and outstanding convertible loan notes, and, as a result, our net loss of ($9,701,264) is not indicative of the results of our operations and should not be viewed as an indicator of our future results.

 

Our management believes our operating loss of $1,085,817 for the three months ended June 30, 2014, compared to our operating loss of $512,530 for the three months ended June 30, 2013, is an accurate indicator of our current results. We continue to see an improvement in Gross Margin as a consequence of production efficiencies and as revenue continues to grow; we expect this trend in our core activity to continue in future quarters.

 

Revenue

 

Our revenue from the three months ended June 30, 2014 was $1,575,599 compared to $429,392 for the three months ended June 30, 2013.  Our revenue was derived from the operations of our subsidiaries Newport Coachworks, Inc., Liberty Electric Cars Ltd., Liberty Electric Cars Europe Limited and GoinGreen Limited. The growth in the Company’s revenue was largely due to the sale of buses from our Newport Coachworks facility in California, which grew from $223,514 during the three months ended June 30, 2013 to $1,090,571 for the three months ended June 30, 2014.

 

 

 

Cost of Goods Sold

 

Our cost of goods sold for the three months ended June 30, 2014 were $1,452,724 compared to $409,165 for the three months ended June 30, 2013 (restated).  The cost of goods sold for the three months ended June 30, 2014 was in line with the revenues generated from the operations of our subsidiaries Newport Coachworks, Inc., Liberty Electric Cars Ltd., Liberty Electric Cars Europe Limited and GoinGreen Limited.  The cost of sales content varies substantially depending upon whether it is cost related to a bus being manufactured in-house at Newport Coachworks, which has a high material and labor content, or is grant work completed by Liberty Electric Cars Ltd., which has negligible material and no direct labor costs.

 

Depreciation and Amortization

 

Our expenses related to depreciation and amortization were $45,692 for the three months ended June 30, 2014, compared to $9,206 for the three months ended June 30, 2013. The increase was attributable to investment in plant and equipment related to continuing growth in our Newport Coachworks business.

 

Stock-Based Compensation

 

Our expenses related to stock-based compensation were $41,498 for the three months ended June 30, 2014, compared to $0 for the three months ended June 30, 2013.

 

General and Administrative Expenses

 

General and administrative expenses were $1,121,502 for the three months ended June 30, 2014, compared to $523,551 for the three months ended June 30, 2013, primarily due to the expenses in the Company and each of the Company’s subsidiaries, as well as increased legal expenses for the Company.

 

Change in Fair Value of Derivative Liability

 

During the three months ended June 30, 2014, we had a change in fair value of derivative liability of ($7,278,229), compared to ($1,114,759) for the three months ended June 30, 2013, primarily related to the conversion of Series A Preferred Stock to common stock, the issuance of convertible notes and warrants and the declining price of our common stock.

 

Loss on Settlement of Debt

 

During the three months ended June 30 2014 and June 30, 2013, we had no settlement of debt.

 

Interest Expense

 

During the three months ended June 30, 2014, we had interest expense of $1,121,502 compared to $523,551 for the three months ended June 30, 2013. The main interest expense in 2014 stemmed from interest expenses paid on convertible notes and the amortization and debt discount related to convertible debt issued and converted.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Results of Operations for the Six Months Ended June 30, 2014 and June 30, 2013

 

Summary of Results of Operations

 

		For the six months ended June 30,
		2014				2013
						(Restated)
Revenues		$	2,823,469			$	647,788
Costs of goods sold			2,459,563				488,012
Gross profit			363,906				159,776
Operating expenses
Depreciation and amortization			92,290				18,082
Loss on disposal of equipment			—				12,516
Stock based compensation			5,717,015				214,286
Stock issued for settlements			—				—
General and administrative			1,749,945				1,009,699
			7,559,250				1,254,583
Loss before other  income (expenses)			(7,195,344	)			(1,094,807	)
Other income (expenses)
Change in fair value of derivative liability			56,465,415				37,616,530
Stock issued for settlements			—				(1,237,200	)
(Loss)/gain on settlement of debt			(484,028	)			—
Loss on conversion of preferred shares			—				(20,375	)
Other income/expense			(200,000	)			—
Interest expense			(1,855,906	)			(183,174	)
			53,925,481				36,175,781
Income/(Loss) before income taxes			46,730,137				35,080,974

 

Operating Income; Net Income

 

Our net income was $46,730,137 for the six months ended June 30, 2014 compared to net income of $35,080,974 for the six months ended June 30, 2013 (restated)  These net income figures were largely a result of non-cash income due to a significantly favorable change in the fair value of derivative liabilities primarily related to our convertible preferred stock and outstanding convertible loan notes of $56,465,415 and $ 37,616,530 for the six months ended June 30, 2014 and June 30,2013 (restated) respectively, and, as a result, our net income for these periods is not indicative of the results of our operations and should not be viewed as an indicator of our future results.

 

Our management believes our operating loss before other income (expenses) of ($7,195,344) for the six months ended June 30, 2014, compared to our operating loss before income (expenses) of ($1,094,807) for the six months ended June 30, 2013(restated), is a better indicator of our current results, although a non-cash expense of $5,717,015 was recorded in the six months ended June 30, 2014 for stock based compensation , compared with stock based compensation of $214,286 for the six months ended June 30, 2013 (restated) which largely resulted in the higher operating loss for the six months ended June 30, 2014 . We continue to see an improvement in Gross Margin (the Gross Margin was $363,906 for the six months ended June 30, 2014 compared to $159,776 for the six months ended June 30, 2013, restated ) as a consequence of production efficiencies and higher revenues.

 

Revenue

 

Our revenue from the six months ended June 30, 2014 was $2,823,469 compared to $647,788 for the six months ended June 30, 2013 (restated).  Our revenue was derived from the operations of our subsidiaries Newport Coachworks, Inc., Liberty Electric Cars Ltd., Liberty Electric Cars Europe Limited and GoinGreen Limited. The growth in the Company’s revenue in the six months ended June 30, 2014 was largely due to the increased sales of buses from our Newport Coachworks facility in California,

 

Cost of Goods Sold

 

Our cost of goods sold for the six months ended June 30, 2014 were $2,459,563 compared to $488,012 for the six months ended June 30, 2013 (restated).  The cost of goods sold for the six months ended June 30, 2014 was in line with the revenues generated from the operations of our subsidiaries Newport Coachworks, Inc., Liberty Electric Cars Ltd., Liberty Electric Cars Europe Limited and GoinGreen Limited.  The cost of sales content varies substantially depending upon whether it is cost related to a bus being manufactured in-house at Newport Coachworks, which has a high material and labor content, or is grant work completed by Liberty Electric Cars Ltd., which has negligible material and no direct labor costs.

 

Depreciation and Amortization

 

Our expenses related to depreciation and amortization were $92,290 for the six months ended June 30, 2014, compared to $18,082 for the six months ended June 30, 2013 (restated) . The increase was attributable to investment in plant and equipment related to continuing growth in our Newport Coachworks business.

 

Stock-Based Compensation

 

Our expenses related to stock-based compensation were $5,717,015 for the six months ended June 30, 2014, compared to $214,286 for the six months ended June 30, 2013( restated).

 

General and Administrative Expenses

 

General and administrative expenses were $1,749,945 for the six months ended June 30, 2014, compared to $1,009,699 for the six months ended June 30, 2013 (restated) related to our general operating expenses and each of our subsidiaries, as well as increased legal expenses for us.

 

Change in Fair Value of Derivative Liability

 

During the six months ended June 30, 2014, we had a favorable change in fair value of derivative liability of $56,465,415 compared to a favorable change of $37,616,530 for the six months ended June 30, 2013 (restated), primarily related to the conversion of Series A Preferred Stock to common stock, the issuance of new convertible notes and warrants and the change in the trading price of our common stock.

 

Loss on Settlement of Debt

 

During the six months ended June 30 2014 we had a loss on settlement of debt of $484,028 compared to no loss on settlement of debt during the six months ended June 30, 2013 (restated).

 

Interest Expense

 

During the six months ended June 30, 2014, we had interest expense of $1,855,906 compared to $183,174 for the six months ended June 30, 2013 (restated). The increase in interest expense in 2014 stemmed from interest expenses paid on convertible notes and the amortization and debt discount related to new convertible debt issued and converted.

 

Liquidity and Capital Resources for Six Months Ended June 30, 2014 and 2013

 

Introduction

 

During the six months ended June 30, 2014 and 2013, because of our operating losses, we did not generate positive operating cash flows.  Our cash on hand as of June 30, 2014 was $40,810 and our monthly cash flow burn rate is approximately $350,000. As a result, we have significant short term cash needs.  Our method for satisfying these needs has been to increase sales, lower costs where possible, and generate proceeds through the sale of our common stock, the issuance of debt, and the issuance of convertible notes. We currently believe it is unlikely that we will be able to satisfy our cash needs for operational purposes from our revenues by the end of 2014.

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2014 compared to December 31, 2013, respectively, are as follows:

 

		June 30, 2014				December 31, 2013				Change
Cash		$	40,810			$	61,723			$	(20,913	)
Total Current Assets			911,014				1,218,463				(307,449	)
Total Assets			1,468,129				1,886,868				(418,739	)
Total Current Liabilities			17,642,675				75,345,683				(57,703,008	)
Total Liabilities		$	17,936,032			$	75,549,629			$	(57,613,597	)

 

Our current liabilities were reduced by $57,703,008 from December 31, 2013 to June 30, 2014 primarily by a $57,915,819 reduction in derivative liabilities.

 

Cash Requirements

 

We had cash available as of June 30, 2014 of $40,810 and $61,723 on December 31, 2013.  Based on our revenues, cash on hand and current monthly burn rate, around $350,000, we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, and/or the issuance of debt to fund operations.

 

In order to repay our obligations in full or in part when due, we will be required to raise significant capital from external sources. There is no assurance, however, that we will be successful in these efforts or that these efforts will not be highly dilutive. As of June 30, 2014, we had outstanding cash payments due to our CEO Ian G. Hobday of $211,318 for unpaid and accrued salary and expenses, covering the period from July 1, 2012 through to June 30,  2014, including the conversion of $160,000 of accrued and unpaid salary to stock during the period ending March 31, 2014; to our former CFO Darren West of  $253,500 for unpaid and accrued salary and expenses, covering the period from July 1, 2012 through to April 31, 2014 including a 30-day notice period following his death; to our Global Marketing Director, Petra Beitl of $260,898, for unpaid and accrued salary and expenses, covering the period from July 1, 2012 through to June 30, 2014; to Carter Read, President of our subsidiary Newport Coachworks, of $94,000, for unpaid and accrued salary and expenses, covering the period from November 1, 2012 through to June 30, 2014 and including the conversion of $100,000 of accrued and unpaid salary to stock during the period ending March 31, 2014; to Peter Leeds, a director of the Company of $25,000 for payments made on behalf of the company between June 2013 and June 2014.  The Company is currently negotiating agreements with all of the above named individuals pursuant to which all of the outstanding accrued salaries, expenses and loans listed above will be cancelled by converting them to restricted Series A Preferred Shares of the Company.

 

Sources and Uses of Cash

 

Operations

 

We had net cash (used) by operating activities of ($945,766) for the six months ended June 30, 2014, as compared to ($671,072) for the six months ended June 30, 2013 (restated).  For the period in 2014, the net cash used in operating activities consisted primarily of our net income of $46,730,137, adjusted by the change in fair value of derivative liability of ($56,465,415), share based compensation of $5,717,015 depreciation and amortization of $92,290,  amortization of debt discount of $1,681,307, shares issued as additional interest of $24,038, and changes to operating assets and liabilities, consisting of: other assets of $3,224, prepaid expenses $525,163, accounts payable and accrued expenses of $343,351, value added taxes of ($83,561), lease payable of $2,095, deferred financing costs of ($36,000), accounts receivable of ($48,227), deferred revenue of ($55,428), inventory of $290,078, and changes in other liabilities of  $24,537.

 

 

 

Investments

 

We had $(17,000) in net cash used in investing activities for the six months ended June 30, 2014.  In the same period in 2013 (restated), we had ($377,236) in net cash used in investing activities, related to purchase of property and equipment of ($17,000), proceeds from disposal of vehicles of $0, and proceeds from disposal of investments of $0.

 

Financing

 

Our net cash provided by financing activities for the six months ended June 30, 2014 was $878,519 compared to $946,030 for the six months ended June 30, 2013. For the first six months of 2014, our financing activities consisted of $930,827 in proceeds from notes payable, $10,707 from payments to reduce a line of credit, $68,015 as payments on notes payable and $5,000 as proceeds from the issuance of common stock. For the same period in 2013, our financing activities consisted of $985,838 in proceeds from notes payable and $39,808 from payments to reduce a line of credit.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

ITEM 3  Quantitative and Qualitative Disclosures About Market Risk

 

As a result of our inability to file our Form 10-Q for the period ended June 30, 2014 within the time period required under the Securities Exchange Act of 1934, as amended, we have defaulted on certain covenants under various loan documents with some of our lenders. We have informed each of the default and requested a waiver from the default, which was conditionally granted. With this filing, we have cured our outstanding defaults related to this late filing

 

ITEM 4  Controls and Procedures

 

(a)  Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-l5(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer (our Principal Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer (one individual), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2014, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.

 

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

 

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-l5(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, management believes that, as of June 30, 2014, the Company’s internal control over financial reporting was ineffective based on the COSO criteria, due to the following material weaknesses listed below.

 

Insufficient segregation of duties in our finance and accounting functions due to limited personnel. We internally performed all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact these duties were performed by limited personnel (one person), a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC.

 

Insufficient corporate governance policies. We have not documented our internal controls.  We have limited policies and procedures that cover the recording and reporting of financial transactions and accounting provisions.  As a result we may be delayed in our ability to calculate certain accounting provisions.  While we believe these provisions are accounted for correctly in the attached unaudited financial statements our lack of internal controls could lead to a delay in our reporting obligations.  We were required to provide written documentation of key internal controls over financial reporting beginning with our fiscal year ending December 31, 2009.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

Effective controls over the control environment were not maintained.  Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place.  Additionally, management has not developed and effectively communicated to our employees its accounting policies and procedures.  This has resulted in inconsistent practices.  Further, our Board of Directors does not currently have a director that qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.  Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

 

Failure to properly account for our revenue and assets.  We do not have formal procedures in place to regularly review our revenue recognition and impairment of long-lived assets.  As a result, in the past, we did not originally correctly record our revenue and test the impairments of long-lived assets, which caused us to have a high number of audit adjustments proposed by our independent auditor, particularly in our fiscal year ended December 31, 2012.  If we did not adjust these errors based on the proposals by our independent auditor the magnitude of the resulting misstatements in our financial statements could reasonably be expected to have been material.  As a result, we are currently looking to hire additional personnel with U.S. GAAP experience to assist in the preparation of our financial statements.

 

These control deficiencies could result in a material misstatement to our interim or annual financial statements that possibly would not be prevented or detected.

 

When we are financially able, we intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies and we intend to consider the results of our remediation efforts and related testing as part of our next assessment of the effectiveness of our internal control over financial reporting.

 

(c)  Changes in Internal Control over Financial Reporting

 

On March 29, 2014, Darren West, our then-Chief Financial Officer, passed away.  Mr. West’s passing was a change in our internal control over financial reporting during the period ended March 31, 2014, which may have materially affected our internal control over financial reporting.  In an effort to minimize the impact of Mr. West’s passing and until we hire a permanent Chief Financial Officer we are working with a consultant in order to assist with the preparation of our financial statements.

 

(d)  Officer’s Certifications

 

Appearing as an exhibit to this quarterly report on Form 10-Q are “Certifications” of our Chief Executive and Financial Officer. The Certifications are required pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the quarterly report on Form 10-Q contains information concerning the Controls Evaluation referred to in the Section 302 Certifications. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

 

 

PART II – OTHER INFORMATION

 

ITEM 1  Legal Proceedings

 

On February 10, 2014, Mr. Ray Mariorenzi filed a lawsuit against our Company and an additional defendant alleging breach of an oral contract.  The lawsuit is entitled Ray Mariorenzi v. Global Market Advisors, Inc. and Green Automotive Company Corporation, Superior Court of the State of California for the County of Orange, Central Justice Center - Case No. 30-2014-00704187, and in the complaint Mr. Mariorenzi alleges that at  a meeting in March, 2012, he made an oral agreement with an officer and director of Global Market Advisors, Inc. for the purpose of Mr. Mariorenzi performing consulting services to benefit Green Automotive Company and that such services would be provided from March 2012 through end of 2013.  In the Complaint, Mr. Mariorenzi alleges he performed the services but has not been completely compensated for such services and, as a result, claims he is owed $123,500 and 5,750,000 shares of our common stock from the defendants.  We were served on or about February 27, 2014.  We filed an Answer, with a general denial, on April 16, 2014.  The Court set a Case Management Conference for June 10, 2014, and a court date has been set for 2015.  We intend to vigorously defend against the unsubstantiated claims in the Complaint.

 

Our predecessor, Go Green USA, LLC (“Go Green”) was a party defendant, along with other defendants in a civil action filed in Marshall County, West Virginia by Glen Dale Motor Co. and Tomsic Motor Co, Civil Action No. 11-C-104 H.  The basis for this action was a claim by the plaintiffs that the defendants breached a dealer agreement entered into by and between the plaintiffs and the defendants by accepting a franchise fee and payment for vehicles (totaling approximately $250,000) from the plaintiffs but failing to deliver any of the purchased vehicles to the plaintiffs.  This undefended and previously unknown action resulted in a default judgment and related judgment order in the amount of $3,717,615 with interest accruing at 7% per annum from and after February 13, 2012.  There is no active effort to enforce this action against Go Green and we believe there are numerous defenses to the asserted judgment and any such enforcement effort.  Moreover, the existence of the liability pre-existed our acquisition of Go Green and its existence was not disclosed as a part of the acquisition. Management has not accrued for this event in the financial statements as its not determinable whether we are liable for this case. We expect that if we are properly served and are a proper party to the litigation that the expected loss could be zero to $3,717,615.

 

In the fall of 2013, by prearrangement, Ironridge Global Partners,IV, Ltd. (“Ironridge”) as plaintiff filed a complaint against Green Automotive Company (“GAC” or the “Company”) as defendant in Superior Court, County of Los Angeles, California (the “Superior Court”) alleging that the Company owed Ironridge $545,049.08 as a result of certain trade debt of GAC that Ironridge arranged to purchase.  On December 2, 2013 GAC and Ironridge entered into a stipulation (the “Stipulation”) for the settlement of Ironridge’s complaint pursuant to which Ironridge would forgive the indebtedness in exchange for which GAC would issue a certain number of shares to Ironridge calculated in accordance with a formula set forth in the Stipulation. On December 4, 2013 counsel for Ironridge and GAC appeared before the Hon. Deirdre Hill, Judge (Judge Hill) in the Superior Court, and the Court approved the Stipulation under procedures authorized in Section 25107 of the California Corporations Code and in accordance with a transaction exemption under Section 3(a)(10) of the Securities Act of 1933 (the “Securities Act”) described immediately below.

 

Ordinarily the shares the Company would have issued to Ironridge would have been restricted, and Ironridge would not have been able to sell them in the open market without (i) the effectiveness of a registration statement for the shares under the Securities Act of 1933 as amended (the “Securities Act”), or (ii) the availability of an exemption from registration under the Securities Act, such as Rule 144. Ironridge and the Company agreed that Ironridge would prepare documentation to invoke a transactional exemption under Section 3(a)(10) of the Securities Act which permits certain original (new) share issuances by a reporting company issuer to be exempt from the Securities Act registration requirements if the conditions of the Section 3(a)(10) exemption are met.  Among these conditions is the approval by a Court with proper standing of the fairness of the issuances to, among others, the issuer and the recipient of the shares, after the conduct of a fairness hearing.

 

 

 

Accordingly, the Stipulation described earlier was submitted to the Court and the Court approved the Stipulation. As a result GAC was required to issue unrestricted free-trading shares of its common stock to Ironridge. Under the Stipulation the initial issuance was 7,700,000 free-trading shares. Judge Hill retained jurisdiction over the parties for all purposes related to the Stipulation.

 

After the initial issuance GAC issued a total of 27 million additional free trading shares to Ironridge under the Stipulation formula. On or about March 28, 2014, however, Ironridge demanded GAC issue an additional 43 million free-trading shares based on Ironridge’s calculations under the Stipulation. Ironridge’s calculation depends on its interpretation of certain clauses in the Stipulation and the allegation that GAC delayed the timely issuance of shares to which Ironridge was entitled and has thus increased the base amount of shares owed under the Stipulation. The initial Ironridge demand for 43 million shares has increased to 55 million additional shares (the “Additional Shares”), and may increase further based on remarks in the Ironridge papers described below.  GAC has disputed the demand and has refused to issue the Additional Shares.

 

On April 16, 2014 Ironridge brought an ex parte proceeding before Judge Hill to compel GAC to issue the Additional Shares under the Stipulation. GAC filed its answering papers in opposition to the Ironridge motion, and the Court scheduled a hearing for May 14, 2014.

 

On May 14, 2014 counsel for the Company and counsel for Ironridge Global Partners IV, Ltd. (“Ironridge”) appeared before the Hon. Deirdre Hill, Judge (“Judge Hill” or the “Court”) for a hearing in connection with Ironridge’s motion for an order of the Court directing the Company to issue 55 million free-trading shares (the “Additional Shares”) of the Company’s common stock pursuant to a stipulation entered into before Judge Hill and approved by the Court on December 4, 2014 (the “Stipulation”). The Company opposed Ironridge’s application and refused to issue the Additional Shares.

 

At the conclusion of the hearing, the Court denied Ironridge’s request for the issuance of the Additional Shares without prejudice. Since the conclusion of the hearing and the entry of the Court’s order denying Ironridge’s application, Ironridge has not made any further demands on the Company to issue Additional Shares under the Stipulation or otherwise.

 

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions.  The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations.  However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

ITEM 1A  Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended June 30, 2014, we issued the following unregistered securities:

 

On or about April 2, 2014 the Company issued 1,200,000 unrestricted shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $16,920 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) as transactions by an issuer not involving a public offering.

 

On or about April 2, 2014 the Company issued 4,821,925 unrestricted shares of its common stock to LG Capital in connection with the repayment of convertible debt in the amount of $51,500 issued more than six months prior plus $2,745.67 in accrued interest. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about April 9, 2014 the Company issued 1,631,280 unrestricted shares of its common stock to Auctus Private Equity Fund in connection with the repayment of convertible debt in the amount of $17,750 issued more than six months prior plus $1,645.92 in accrued interest. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

 

On or about April 9, 2014 the Company issued 1,600,000 unrestricted shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $22,560 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about April 11, 2014 a holder of Series A Preferred shares of the Company converted 125,000 Series A Preferred Stock into 66,875,000 restricted shares of the Company’s common stock. The shares issued for the Series A Preferred stock represented 11.05% of the Company’s shares issued and outstanding as of April 11, 2014.

 

On or about April 14, 2014, the Company issued 212,500 restricted shares of common stock in exchange for a cash investment of $8,500. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about April 22, 2014 the Company issued 1,585,930 unrestricted shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $22,742.23 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about May 23, 2014 the Company issued 540,000 unrestricted shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $4,472 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about May 28, 2014 a holder of Series A Preferred shares of the Company converted 5,000 Series A Preferred Stock into 2,289,220 restricted shares of its common stock. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about May 30, 2014 the Company issued 900,000 unrestricted shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $7,453 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about June 3, 2014 the Company issued 1,578,767 unrestricted shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $13,075 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about June 5, 2014 the Company issued 4,262,943 unrestricted shares of its common stock to Redwood Management in connection with the payment of accrued interest in the amount of $29,840.60. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about June 6, 2014 the Company issued 3,474,337 unrestricted shares of its common stock to LG Capital Funding in connection with the repayment of convertible debt in the amount of $26,058 issued more than six months prior plus $1,057.53 in accrued interest. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about June 10, 2014 the Company issued 2,000,000 unrestricted shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $21,827 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about June 12, 2014 the Company issued 1,700,000 unrestricted shares of its common stock to JMJ Financial in connection with the repayment of convertible debt in the amount of $15,810. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

 

On or about June 17, 2014 the Company issued 290,753 unrestricted shares of its common stock to Gel Properties in connection with the of repayment convertible debt in the amount of $3,173 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about June 17, 2014 the Company issued 400,000 restricted shares to a creditor of former CFO Darren West. In exchange, the accrued salary due Darren West was reduced $17,000.

 

On or about June 18, 2014 the Company issued 3,342,831 unrestricted shares of its common stock to LG Capital Funding in connection with the repayment of convertible debt in the amount of $25,000 issued more than six months prior plus $71.23 in accrued interest. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about June 18, 2014 the Company issued 2,200,000 unrestricted shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $19,361 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about June 19, 2014 the Company issued 8,571,428 unrestricted shares of its common stock to Redwood Fund III in connection with the repayment of convertible debt in the amount of $60,000 issued more than six months prior.  These shares were exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

 

On or about June 24, 2014 the Company issued 2,000,000 restricted shares of its common stock for advisory services rendered in 2013. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about June 27, 2014 the Company issued 7,462,686 unrestricted shares of its common stock to Redwood Fund III in connection with the repayment of convertible debt in the amount of $50,000 issued more than six months prior plus $10,000 in accrued interest. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

On or about June 27, 2014 the Company issued 640,736 unrestricted shares of its common stock to Gel Properties in connection with the repayment of convertible debt in the amount of $5,639 issued more than six months prior. These shares were exempt from registration under Section 4(a)(2) of the Securities Act  as transactions by an issuer not involving a public offering.

 

For the three month period June 30, 2014 the Company issued a total of 119,580,336 shares of its common stock, representing 18.6% of the Company’s issued and outstanding shares as of June 30, 2014.

 

ITEM 3  Defaults Upon Senior Securities

 

During the period covered by this report there were no events which are required to be reported under this Item.

 

ITEM 4  Mine Safety Disclosures

 

During the period covered by this report there were no events which are required to be reported under this Item.

 

ITEM 5  Other Information

 

On March 29, 2014, our Chief Financial Officer and Secretary, Mr. Darren West, passed away.  On March 31, 2014, our Board of Directors appointed Mr. Ian Hobday, our current Chief Executive Officer, to the positions of interim Chief Financial Officer and interim Secretary. We plan to hire a new Chief Financial Officer and Secretary as soon as possible and until then are working with a consultant to provide a full spectrum of financial support services.

 

 

ITEM 6  Exhibits

 

3.1 (1)		Articles of Incorporation of Green Automotive Company, filed June 3, 2011
3.2 (1)		Articles of Merger of Green Automotive Company, filed October 19, 2011
3.3 (1)		Articles of Merger between Green Automotive Company and Matter of Time I Co., filed December 13, 2012
3.4 (1)		Amended and Restated Bylaws of Green Automotive Company
10.1 (1)		Advisory Agreement by and between Green Automotive Company and Global Market Advisors, Inc. dated July 19, 2010
10.2 (1)		Credit Agreement by and between Green Automotive Company and Global Trade Finance, Inc. dated January 1, 2012
10.3 (1)		Settlement, General Release and Conversion Agreement by and between Green Automotive Company and Global Trade Finance, Inc. dated June 30, 2012
10.4 (1)		Assignment Agreement by an between Green Automotive Company and Investment Finance IFC Ltd. Dated January 27, 2012
10.5 (1)		Merger Agreement and Plan of Reorganization by and between Green Automotive Company and Matter of Time I Co. dated February 10, 2012 and completed December 12, 2012.
10.6 (1)		Stock Exchange Agreement by and between Green Automotive Company and Liberty Electric Cars Ltd. Dated June 28, 2012
10.7 (1)		Amendment No. 1 to Stock Exchange Agreement by and between Green Automotive Company and Liberty Electric Cars Ltd. Dated December 4, 2012
10.8 (1)		Stock Purchase Agreement by and between Green Automotive Company and First Market Services dated June 29, 2012
10.9 (1)		Acquisition and Stock Exchange Agreement by and between Green Automotive Company and Newport Coachworks, Inc. dated October 12, 2012
10.10 (1)		Amended and Restated Independent Contractor Agreement by and between Liberty Electric Cars Ltd. and Ian Hobday dated December 4, 2012
10.11 (1)		Amended and Restated Independent Contractor Agreement by and between Liberty Electric Cars Ltd. and Darren West dated December 4, 2012
10.12 (1)		Employment Agreement by and between Newport Coachworks, Inc. and Carter Read dated October 2012
10.13 (1)		Distribution Agreement by and between Newport Coachworks, Inc. and Don Brown Bus Sales, Inc. dated November 1, 2012
10.14 (1)		Employment Agreement with Mark Aubry dated December 17, 2012
10.15 (1)		Stock Purchase Agreement by and between Green Automotive Company and First Market Services dated November 20, 2012
10.16 (1)		Stock Purchase Agreement by and between Green Automotive Company and Mark E. Crone and Bosch Equities, LP dated September 1, 2011
10.17 (1)		Exchange Agreement by and between Green Automotive Company and Investment Finance Company IFC Limited dated March 31, 2012
10.18 (2)		Investment Agreement with Kodiak Capital Group, LLC dated March 14, 2013
10.19 (2)		Registration Rights Agreement with Kodiak Capital Group, LLC dated March 14, 2013
10.20 (3)		Acquisition and Stock Exchange Agreement by and between Green Automotive Company, Liberty Electric Cars Ltd. and  GoinGreen Limited dated February 28, 2013
10.21 (4)		Securities Purchase Agreement with Auctus Private Equity Fund, LLC, dated August 26, 2013
10.22 (4)		Promissory Note issued to Auctus Private Equity Fund LLC, dated August 26, 2013
10.23 (4)		Securities Purchase Agreement with LG Capital Funding, LLC, dated August 21, 2013
10.24 (4)		Promissory Note issued to LG Capital Funding, LLC, dated August 21, 2013
10.25 (5)		Services Agreement by and between Navistar, Inc. and Liberty Electric Cars Ltd. dated May 3, 2011
10.26 (6)		Summary of Amendment to D Distribution Agreement by and between Newport Coachworks, Inc. and Don Brown Bus Sales, Inc. dated November 1, 2012
10.27 (7)		Acquisition and Stock Exchange Agreement by and between Green Automotive Company, the BMI Entities and the BMI Entity Shareholders dated February 17, 2014
10.28 (7)		Amendment No. 1 to the Blackhawk Agreement dated February 20, 2014
10.29 (7)		Amendment No. 2 to the Blackhawk Agreement dated March 4, 2014
10.30 (7)		Amendment No. 3 to the Blackhawk Agreement dated March 17, 2014
10.31 (7)		Amendment No. 4 to the Blackhawk Agreement dated April 14, 2014
10.32 (7)		Consulting Agreement with Floyd Sanders dated April 8, 2014
10.33 (7)		Consulting Agreement with Sergio Larios dated April 8, 2014
10.34 (7)		Consulting Agreement with Carlos Larios dated April 8, 2014
10.35 (7)		Consulting Agreement with Lin Austin dated April 8, 2014
21.1*		List of Subsidiaries
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
32.1*		Section 1350 Certification of Chief Executive Officer

 

 

 

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

 

* Filed herewith.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

(1) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 20, 2012.

(2) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 19, 2013.

(3) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 15, 2013.

(4) Incorporated by reference from our Registration Statement on Form S-1/A filed with the Commission on November 12, 2013.

(5) Incorporated by reference from our Amended Current Report on Form 8-K/A filed with the Commission on June 17, 2013.

(6) Incorporated by reference from our Amended Current Report on Form 8-K/A filed with the Commission on November 29, 2013.

(7) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 17, 2014.

 

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	Green Automotive Company a Nevada corporation
Dated:  December 23, 2015		/s/ Ben Rainwater
	By:	Ben Rainwater
	Its:	Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.

Document

 

31.1

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.

 

31.2

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.

 

32.1

Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

 

32.2

Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.