UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
| GENERAL FORM FOR REGISTRATION OF SECURITIES |
| PURSUANT TO SECTION 12(b) OR SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| EARTH GEN-BIOFUEL INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada |
|
46-0895129 |
| (State or other jurisdiction of |
|
(I.R.S. Employer |
| incorporation or organization) |
|
Identification Number) |
|
17870 Castleton Street, # 205
City of Industry, California |
|
91748 |
| (Address of Principal Executive Offices) |
|
(Zip Code) |
| Registrant’s telephone number, including area code: (626)-964-8808 |
| Copies to: |
| David L. Ficksman, Esq. |
| TroyGould PC |
| 1801 Century Park East, Suite 1600 |
| Los Angeles, California 90067 |
| Telephone: (310) 553-4441 |
| Securities registered pursuant to Section 12(b) of the Act: None |
| |
| Securities registered pursuant to Section 12(g) of the Act: |
| |
| Common Stock, par value $0.0001 per share |
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 |
þ |
TABLE OF CONTENTS
This Registration Statement on Form 10 contains
forward-looking statements that involve risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements
by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”,
“believes”, “estimates”, “predicts”, “potential” or “continue” or the
negative of these terms or other comparable terminology. All statements made in this Registration Statement on Form 10 other than
statements of historical fact could be deemed forward-looking statements.
By their nature, forward-looking statements
speak only as of the date they are made, are neither statements of historical fact nor guarantees of future performance and are
subject to risks, uncertainties, assumptions and changes in circumstances that are difficult to predict or quantify. These statements
are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks identified in the
section entitled “Risk Factors” in Item IA of this Registration Statement. If such risks or uncertainties materialize
or such assumptions prove incorrect, our results could differ materially from those expressed or implied by such forward-looking
statements and assumptions. Risks that could cause actual results to differ from those contained in the forward-looking statements
include but are not limited to risks related to: our need to raise additional capital and our ability to obtain financing; general
economic and business conditions; our ability to continue as a going concern; our limited operating history; our operations in
developing companies; our ability to recruit and retain qualified personnel; our ability to manage future growth; and our ability
to develop our planned products.
You should not place undue reliance on forward-looking
statements. Unless required to do so by law, we do not intend to update or revise any forward-looking statement, because of new
information or future developments or otherwise.
Introductory Comment
We are filing this General Form for Registration
of Securities on Form 10 to register our common stock pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). Once this registration statement is deemed effective, we will be subject to the requirements
of Section 13(a) under the Exchange Act, which will require us to file annual reports on Form 10-K (or any successor form), quarterly
reports on Form 10-Q (or any successor form), and current reports on Form 8-K, and we will be required to comply with all other
obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange
Act.
As used in this Form 10 and unless otherwise
indicated, the terms the “Earth Gen,” “Company,” “we,” “us” and “our”
refer to Earth Gen-Biofuel Inc.
PART I
The following discussion should be read in conjunction
with our financial statements and the related notes and other financial information appearing elsewhere in this Registration Statement
on Form 10.
Overview
The primary business of Earth Gen-Biofuel Inc.
(“Earth Gen”) is the cultivation of non-food agricultural products for use in manufacturing processes, renewable energy
and transportation fuel. Earth Gen’s current focus is the cultivation of castor beans with the goal to become a major producer
of castor beans in Southeast Asia and other tropical growing areas. Castor beans are an agricultural crop already in short supply
and in high demand for processing manufactured products in many countries. Moreover, castor bean cultivation has attracted attention
as a “renewable energy crop” with high value due to its high oil content in comparison to other oil seed crops. Earth
Gen’s business model is to meet this growing demand without competing against potentially more valuable crops by cultivating
land for growing castor beans in areas of poor soil conditions where such cultivation does not replace the production of food crops.
Earth Gen plans to build its business by providing
castor beans to satisfy current demands for chemical processes that use castor oil required by chemical conversion facilities in
China and by other major importers of castor beans such as Japan, Taiwan, Europe and the United States. As the world supply of
castor beans grows along with Earth Gen’s production, the Company will benefit from a “tipping point” created
when there is enough surplus castor bean supply to allow for its use as biodiesel. Based on current commercial demand for castor
bean oil and the long term demand for clean fuel, management believes that, subject to obtaining the necessary capital, Earth Gen
is positioned for rapid near term and long term growth due to the favorable industry conditions that persist in China, the United
States and Europe.
BACKGROUND OF EARTH GEN
The concept behind Earth Gen’s operations
began in 2010 when Earth Gen’s present management started establishing relationships with farmers, government officials and
related agencies in Laos to obtain the necessary local knowledge and expertise with the goal of starting large-scale castor bean
cultivation in Southeast Asia.
As a result of approximately two years of these
exploratory activities, Earth Gen was incorporated in the state of Nevada on August 28, 2012. Operations began by organizing farmers
in Laos and Vietnam to allocate land for growing castor beans. The farmers, under the supervision of Earth Gen’s management
team and local experts, planted their first test crop of castor beans with seeds provided by Earth Gen. Earth Gen supervised the
planting of these test sites with the goal of evaluating planting methods, local farming culture and farming conditions.
In May 2013, Earth Gen started testing its planting
programs in Laos and Vietnam. The purpose of these tests was to evaluate various growing methods and hybrid castor bean types to
refine our planting protocol. In the fall of 2013, we were able to evaluate the results of the test-planting project and decided
on which seeds to use and where the farming operations would be best located.
Earth Gen-Biofuel Lao Sole Co Ltd. was formed
in March of 2014 under the laws of Laos to meet Laos regulatory and legal requirements to do business in Laos. This company is
100% controlled by Earth Gen. Earth Gen-Biofuel Laos has its own in country bank accounts and pays all local operating expenses
of the business activities of Earth Gen in Laos.
In March 2014, Earth Gen started its first large
scale castor bean cultivation operation near the city of Xieng Khouang in the northeastern part of Laos. Between April and July
2014, the Company has prepared nearly 700 acres and completed the planting process, with a projected harvest date starting in September
and October of 2014.
Shortly after incorporating, Earth Gen began
the process of obtaining capital to support its operations. Funding was used to create the infrastructure in Laos and Vietnam and
to provide supervision by hiring subcontractors and consultants with an understanding of local culture. Funds were raised for seeds,
fertilizer, labor, transportation and economic assistance to the farmers who were part of the test-planting program.
Based on these start-up operations, Earth Gen
formulated its short-term and long term operating plan and identified the need for additional capital. The Board of Directors of
Earth Gen decided to identify a public company merger candidate that would facilitate Earth Gen’s ability to attract additional
capital. Earth Gen identified a public company, EarthBlock Technologies Inc., that had been operating in the international market
for low cost housing in several developing nations as well as in the U.S. It appeared to Earth Gen’s management that EarthBlock
would be a suitable merger partner because of EarthBlock’s knowledge of operations in developing nations. At the time of
the agreement to complete the merger, EarthBlock was quoted on the “OTC Link” market operated by the OTC Markets Group
Inc. and its Common Stock was registered with the SEC under Section 12(g) of the Exchange Act. While EarthBlock was then delinquent
in its required filings with the SEC, Earth Gen’s management’s plan was to immediately take all steps to bring EarthBlock’s
filings current.
Reverse Merger
On September 25, 2012, EarthBlock and the shareholders
of Earth Gen entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which EarthBlock agreed to issue
to the shareholders of Earth Gen a total of 1,591,660,000 shares of common stock of EarthBlock in exchange for all of Earth Gen’s
outstanding capital stock (the “Exchange”). EarthBlock shares were exchanged on the basis of four shares of EarthBlock
common stock for each one share of Earth Gen common stock. The Exchange was completed on October 22, 2012 with EarthBlock becoming
the owner of 100% of the then issued and outstanding common shares of Earth Gen. At the completion of the Exchange, Earth Gen retained
its separate corporate status and operated as a wholly owned subsidiary of EarthBlock.
Rescission of Reverse Merger
At the time of the Exchange, Earth Gen’s
management became the officers and directors of EarthBlock on November 19, 2012. On November 19, 2012, EarthBlock filed a
current report on Form 8-K pertaining to the Exchange. On November 27, 2012, EarthBlock filed a Form 8-K with respect to the
dismissal of Pollard-Kelley Auditing Services, Inc. as EarthBlock independent registered public accounting firm and the retention
of Sam Kan & Company, LLP CPA as its independent auditing firm. On November 29 and November 30, 2012, Schedule 13Ds were filed.
These filings were made as the first step of bringing current all of EarthBlock’s filings.
On November 14, 2012, the SEC sent a notice
to the prior management of EarthBlock notifying them that a hearing was scheduled to revoke EarthBlock’s status as a registered
company and to suspend trading in EarthBlock’s stock because of EarthBlock’s failure to file periodic reports. EarthBlock’s
new management did not receive this notice until November 26, 2012 and asked for a change in the scheduled hearing so as to request
an extension of time to bring all of EarthBlock’s filings current. However, it became apparent to new management that, given
the state of EarthBlock’s records, it was unlikely that EarthBlock would be in a position to comply with any extension. Accordingly,
EarthBlock consented to a deregistration order, the registration of its common stock was revoked and trading in EarthBlock’s
common stock was halted.
Additionally, the management and shareholders
of Earth Gen had not been made aware of the full extent of a material liability of EarthBlock that resulted from the operations
of EarthBlock’s non-operational subsidiary EarthBlock Texas Homes, Inc. Accordingly, EarthBlock’s previously disclosed
financial condition was inaccurate and not in conformity with generally accepted accounting principles.
Due to these issues and after discussions and
consultation with the advisors for both Earth Gen and EarthBlock, on September 25, 2013, the Board of Directors of
EarthBlock and of Earth Gen voted to rescind the acquisition of Earth Gen by EarthBlock and authorized the officers of the Corporation
to take the steps required to complete the rescission of the Exchange.
On August 30, 2013 Earth Gen amended its Articles
of incorporation to increase its authorized shares from 400,000,000 shares of which 390,000,000 shares were common stock and 10,000,000
shares were preferred stock. The authorized number of shares of stock was increased to 3,000,000,000 shares of which 2,990,000,000
shares are common stock and 10,000,000 shares are preferred stock. The Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions by resolution and fix the number of shares constituting any series.
There were two distinctive groups of shareholders
affected by the rescission of the Exchange: (i) the pre-Exchange shareholders whose original Earth Gen common stock shares
were exchanged for EarthBlock common stock shares constituting a total of 1,591,660,000 shares of common stock of EarthBlock (the
“Exchange Shares”); and (ii) the post-Exchange shareholders who invested directly in Earth Gen after the closing of
the Exchange for a total of 175,760,000 post stock split Earth Gen common stock shares (the “Additional Shares”).
A rescission agreement dated October 28, 2013
(the “Rescission Agreement”) was entered into among EarthBlock, Earth Gen and the holders of the Exchange Shares and
the Additional Shares all of whom received a disclosure document as to the reasons for the rescission and who had represented that
they were accredited investors. The Rescission Agreement set forth the terms and provisions pursuant to which the parties agreed
to take all steps necessary to unwind the Exchange including the surrender of the Exchange Shares for cancellation and Earth Gen
to issue to each Exchange Shareholder his respective original equity interests in Earth Gen, except that the Additional Shares
will remain outstanding and ratably dilute the Exchange Shareholders’ original equity ownership in Earth Gen.
Upon consummation of the Rescission Agreement,
holders of the Exchange Shares were reissued Earth Gen common stock shares commensurate with the holders’ original equity
ownership interests in Earth Gen for a total of 1,593,910,000 shares. In the event Exchange Shareholders do not become parties
to the Rescission Agreement, they will retain their respective EarthBlock common stock shares and have no equity interest in Earth
Gen. The majority of the Exchange Share and Additional Shareholders have already become parties to the Rescission Agreement and
Earth Gen anticipates that all holders will become parties in the near future.
Recapitalization of Common Stock by a Reverse Split and Reduction
of Authorized Shares of Stock
A stock dividend of three shares of common
stock for each one share owned by shareholders of record on October 14, 2013 was declared and approved by the Board of
Directors on October 15, 2013. The Company’s shareholders approved a recapitalization of the capital stock in the form
of reverse stock split of its issued and outstanding shares of common stock in a ratio of 1-for-25 on March 25, 2014.
The Shareholders also approved an amendment to the Articles of Incorporation on March 25, 2014 and filed the Amended Articles
on May 16, 2014 with the Nevada Secretary of State to reduce the number of authorized shares of stock to 700,000,000 from
3,000,000,000. Of the 700,000,000 authorized shares, there are 10,000,000 shares of Preferred Stock and 690,000,000 shares of
Common Stock. The reverse split and decrease in authorized shares were effective on May 16, 2014. All references to share
amounts referred to herein are based on post reverse split shares and giving effect to the stock dividend.
THE SEED OIL INDUSTRY
Worldwide cultivation of castor beans for the
production of castor oil is still a relatively small industry in comparison to other agricultural segments for the production of
seed oil. According to figures included in a United Nations Food and Agricultural report published in February 2012, the annual
worldwide harvest of castor bean seeds is estimated to be valued at $2.2 Billion. However, Earth Gen believes there is room for
substantial growth to meet current and future demand from the expanding biodiesel industry. Moreover, Earth Gen believes that if
the availability of castor oil increases, then the utilization of castor bean oil in manufacturing processes and clean transportation
fuels would also increase driven by its use to blend clean transportation fuels.
The U.S. is presently using food quality oil
from soybean and canola to produce vegetable oil for use in biodiesel manufacturing. Reports from the American Soybean Association
indicate that biodiesel blenders are presently using $1.9 billion worth of food seed oil to blend biodiesel. The resulting biodiesel,
as reported by the U.N. Food and Agricultural Agency, is only about 1.8% of the diesel fuel utilized in the U.S. The seed oil used
in making this small amount of U.S. biodiesel is almost as much as the total production of castor beans worldwide. Currently the
use of biodiesel is still very limited but management believes that it is a market segment that has significant growth potential.
The driving forces for the growth of biodiesel is the rising cost of fuel, environmental concerns causing the use of cleaner fuels
and the fact that newly manufactured trucks and farm equipment in the U.S. do not require modification of their engines in order
to utilize Clean Fuel B20 (20% vegetable oil and 80% petroleum diesel) and are able to use 100% vegetable oil.
In addition to the potential biodiesel uses,
castor beans are already in high demand for producing products that are important to many manufacturing processes and commercial
products. The demand for castor beans is derived from castor bean seeds having a high level of vegetable oil content (44% to 60%)
and the low cost of processing the castor beans. Processed castor seed oil is a key ingredient in the manufacture of over 700 commercial
products including nylon, fiber optics, plastics, paints, tires, cosmetics, and pharmaceuticals, and it is used as an additive
in approximately 3,000 commercial manufacturing processes. At this time, almost all castor seed oil derived from current bean production
is being used in processing commercial products.
Castor bean (Ricinus communis L.) is considered
to be one of the most promising non-edible oil crops due to its high potential for annual seed production and its tolerance to
diverse environmental conditions. In addition, castor beans can be grown on marginal lands, which are usually unsuitable for food
crops. The establishment of bioenergy crops in marginal or degraded lands may offer additional environmental benefits, such as
protection from soil erosion and nutrient leaching, and improvement of soil properties.
Findings in a study published by the periodical
“Water” found that the use of bioenergy crops is very useful as a vegetative filter to purify wastewater effluents
applied to the soil. This practice is also known as land treatment systems (LTS) or slow rate systems (SRS) and meets both environmental
and renewable bioenergy goals. Effluents can supply bioenergy crops with considerable amounts of water and nutrients, which stimulate
plant growth and yield. In addition, effluent application can reduce the competition between bioenergy crops and traditional crops
with respect to the use of fresh water, and it can also decrease production cost due to substitution of water and fertilizers.
Thus, castor beans can be grown very economically in tropical countries.
The Comprehensive Castor Oil Report on castor
oil and castor oil derivatives, updated in November 2010 by Castoroil India, a division of Energy Alternatives, a comprehensive
resource for castor industry information and castor products, reported that based on seed oil yield comparisons, castor bean production
is an attractive crop for producing seed oil. It has been estimated that farmers will be able to harvest approximately 1,600 pounds
of canola seeds per acre; this translates into approximately 111 plus gallons of vegetable oil per acre. Castor beans have an oil
yield of approximately 50% and a relatively high crop yield of 1,695 pounds per acre; this means that castor beans can supply up
to 141 gallons of castor oil per acre for each harvest cycle. This allows for a potentially positive comparison to the 111 gallons
per acre for canola oil and an even better comparison when compared to soybean oil, which yields 50 gallons to 60 gallons per acre.
Castor oil has a wide range of applications,
with uses such as cosmetics to the areas of national security involving engineering plastics, jet engine lubricants and polymers.
The chemical structure of castor oil affords a wide range of reactions to the oleochemical industry and the unique chemicals that
can be derived from it. Some of these derivatives are on par with petrochemical products for use in several industrial applications.
In fact, they may be considered superior since they are from renewable sources, biodegradable and eco-friendly.
Castor oil and its derivatives are also used
in soaps (bind ingredients in cosmetic and soap formulas, humectant for soap products), lubricants (jet engine lubricants), grease,
hydraulic brake fluids, paints (varnishes), polymers (basic ingredient in the production of nylon 11, nylon 6-10, polyurethanes),
perfumery products, surfactants, surface coatings and inks, telecom & engineering plastics (polyamide 11), pharmaceuticals,
rubber chemicals, polishes, flypapers, in addition to other chemical derivatives and medicinal, pharmaceutical and cosmetic derivatives.
The most recent available statistics indicate
that in 2012, global castor seed production was approximately two million metric tons per year. Leading areas of production are
India (with over half of the global yield), China and Brazil, and is widely grown as a crop in Ethiopia. According to the United
Nations report published in 2012, China is the second largest grower of castor beans and is also the largest importer.
WORLD CASTOR BEAN PRODUCTION
Provided by U.N. Food and Agriculture Organization
on February 2012*
| United Nations Report 2012 |
| Rank | |
Country | |
Tons | |
| 1 | |
India | |
| 1,150,000 | |
| 2 | |
China | |
| 180,000 | |
| 3 | |
Brazil | |
| 93,025 | |
| 4 | |
Mozambique | |
| 38,600 | |
| 5 | |
Paraguay | |
| 13,000 | |
| 6 | |
Thailand | |
| 12,197 | |
| 7 | |
Ethiopia | |
| 8,400 | |
| 8 | |
Angola | |
| 7,500 | |
| 9 | |
Vietnam | |
| 6,000 | |
| 10 | |
South Africa | |
| 5,500 | |
| 11 | |
Kenya | |
| 3,000 | |
| 12 | |
United Republic of Tanzania | |
| 2,900 | |
| 13 | |
Madagascar | |
| 2,600 | |
| 14 | |
Ecuador | |
| 2,200 | |
| 15 | |
Indonesia | |
| 1,900 | |
| 16 | |
Cambodia | |
| 1,600 | |
| 17 | |
Syrian Arab Republic | |
| 1,500 | |
| 18 | |
Haiti | |
| 1,200 | |
| 19 | |
Uganda | |
| 1,000 | |
| 20 | |
Sudan | |
| 1,000 | |
| 21 | |
Pakistan | |
| 720 | |
| 22 | |
Benin | |
| 600 | |
| 23 | |
Russian Federation | |
| 290 | |
| 24 | |
Bangladesh | |
| 230 | |
| 25 | |
Mexico | |
| 150 | |
| 26 | |
Morocco | |
| 140 | |
| 28 | |
Philippines | |
| 77 | |
* The castor bean productions numbers listed
are based on United Nations’ estimates and reported figures.
The business of growing castor beans follows
operational models similar to most other agricultural crops. However, castor beans are not a food crop and are cultivated in soils
not usually suitable to growing most food crops. The two largest growers, India and China, utilize land that presents challenges
to cultivating even castor beans such as in areas with cold weather and poor soil. These countries have little flexibility as
to locations because of the need to grow food for domestic consumption.
Most of the castor beans currently imported
by China are being processed by large chemical conversion facilities with the castor oil being used for production of some of the
approximately 3,000 commercial products using refined and processed castor oil. China based processors are expected to prefer to
import from Earth Gen in Laos and Vietnam to take advantage of the trade agreements that include China, Vietnam and Laos as part
of the ASEAN +1 trade zone. As a national policy, China has a series of benefit packages for members of the ASEAN community. Management
of Earth Gen believes that a national policy of China is to strengthen its economic ties with members of ASEAN countries. India
is not an ASEAN member. This gives castor beans from Vietnam, Laos and Cambodia purchased by China a price advantage based on waiver
of import tariffs and lower transportation costs. When combined with other available China preferences, castor beans imported from
Vietnam and Laos are expected to be very competitive in the China market and preferred over imports from India, the largest castor
bean producer.
BUSINESS OPERATIONS
Earth Gen’s business plan is to cultivate
and sell castor beans as a feed- stock for chemical processors in China and other countries with the long-term goal of increasing
castor bean production to a level where manufacturing demand for castor bean oil and its derivatives will be satisfied and castor
bean oil will be available to be used as a biofuel feedstock. Since the Company’s incorporation in August 2012, Earth Gen
has begun developing agricultural projects in Vietnam and Laos to work with farmers to grow castor beans. Commencing in October
2012, Earth Gen entered into a series of castor bean farm agreements with smaller local farmers who are organized and managed by
Earth Gen supervisors and subcontractors in their respective countries. In addition, in February 2014, Earth Gen started leasing
land from landowners for the purpose of growing castor beans. Earth Gen is also negotiating with larger farmers for farming agreements
to grow castor beans exclusively for Earth Gen and also to encourage neighboring farms to join the Earth Gen farming group. Parties
to the farming agreements will share resources and be supervised by Earth Gen staff and subcontractors engaged by Earth Gen to
support the farming and harvesting process.
Castor beans are not a crop that is familiar
to farmers in Southeast Asian or Latin American countries where Earth Gen is targeting farm locations. Therefore, our operating
plan starts from the ground up. Our first step is evaluate the potential farm location by using a detailed check list to study
all aspects of the property and the variables that might impact farm operations and coordinating the farmers and the unique nature
of the each farm site.
Once a site is selected, Earth Gen staff will
organize training classes to teach local farmers the process of preparing the land for planting, the planting process and the maintenance
required during the 4-month growing cycle. During the planting and growing cycle, Earth Gen staff will visit the farms on a regular
basis to be sure the cultivation process is being applied according to Earth Gen’s operational methods and to provide additional
education and supervision as required.
Earth Gen staff will work with farmers and local
village chiefs and mayors, to be sure that enough labor is available for planting and harvesting operations. Within 11 to 15 weeks
the castor beans plants grow to between five to six feet tall and are ready for harvest, most of the large leaves die off and the
plant retains long stalks with the capsules containing the castor seeds. These stalks are harvested and the castor plant is then
trimmed back to about two feet tall. The trimming process starts the growing cycle over as the castor bean plant grows again to
provide a new harvest in 11 to 15 weeks. The ability of the castor bean plant to regenerate 2 to 3 times a year for a period of
3 to 5 years is one of the keys to the economic success that can be achieved cultivating castor beans in tropical growing areas.
Once the harvest occurs, the stalks will be
moved to a central storage facility. The pods are dried to facilitate the process of removing the castor bean seeds from the capsules.
The bean pods are mechanically processed and the stalks and pods are separated from the castor seeds. The stalks and capsule shells
are ground up to make a soil amendment for the castor bean fields. The castor seeds will then be stored in 75 to 100 pound poly-lined
bags for shipment to the end users.
Earth Gen will buy the castor bean crop in two
ways. When Earth Gen accepts delivery of the capsules they are weighed. Earth Gen then discounts the weight by 25% to account for
the weight of the capsule and the extra moisture associated with the product prior to the drying process. The farmer has a choice
to wait and be paid based on the weight of the dried and processed capsules, which means Earth Gen is paying for clean and dried
castor bean seeds ready for bagging and shipment. Earth Gen leaves it up to the farmer to make a choice.
All harvested castor seeds will then be prepared
for export to the end user, which at this time are large chemical processing plants in China. The castor beans will be loaded into
shipping containers and transported to the closest port for shipment. All sales will be made in US dollars and the terms are FOB
port.
The end users will then process the castor beans
to extract the oil and then further refine the castor bean oil as required for the various manufacturing process and various derivative
products.
Because Earth Gen’s operations start with
selecting the proper farmland and farmers to work with, the Company has developed a very specific method governing land and farm
selection. The process includes the following research, tasks and issues on the proposed farm location.
| · | Location elements, including what is the closest large city, district, village and exact grid coordinates |
| · | Does the individual farmer have the legal ownership of the land? What is evidence of ownership or legal right to use the land?
If the land belongs to a village and is under control of village chief or mayor, how many villagers have legal rights to use the
land? |
| · | General size of the land and description such as flat, hilly, existing plant growth or rocky. |
| · | Availability of nearby land for possible expansion of operations |
| · | Survey the land and make sure the size corresponds to what is in the land deed or description. |
| · | What is the nature of access to the land, dirt road or paved, and what are the nearby major highways? Will it be feasible to
bring in machinery for farm production? |
| · | The site should be able to produce a harvest that will fill one 18-ton container (minimum of 10 hectares). |
| · | What is the soil type? Measure soil samples in order to determine if adequate nutrient levels and chemical balance of the soil. |
| · | Irrigation, are there natural water resources to set up an irrigation system or will we be relying on rainwater? Cost evaluation
to set up an irrigation system? |
| · | What land preparation will be required to start planting, clear small trees, low brush, weeds and grasses. |
| · | Farm infrastructure; are there buildings, fencing, roads, utility lines set up to begin the operation? |
After completing the land evaluations protocol,
Earth Gen will then work with the farmer to complete the following:
Prior to Planting:
| · | Land preparation is a critical component of successful and sustainable castor farming and should be emphasized accordingly. |
| · | The land should be ripped and disced vertically and horizontally, at least 35cm deep (deeper if possible) to ensure the soil
is loosened up to allow proper drainage, soil composition is more evenly distributed, and nutrient levels are blended evenly. |
| · | Castor plants prefer deep, moderately fertile, slightly acidic soil and require soil with adequate levels of nitrogen, phosphorus,
and potassium. |
| · | Soil samples should be taken prior to sowing. |
| · | Ordinarily the yield is 2 to 3.3 metric tons per hectare. The yield can be above this with strict adherence to cultivation
methods along with irrigation. |
| · | Plants sprout after 7-14 days. Seeds take 100 to 120 days from seedlings emergence to the main fruit ears becoming ripe and
reach a height prior to harvest of about five to six feet. |
Irrigation:
| · | In the beginning stages of the planting, the plant should be watered every other day until it gains some strength. Castor oil
plants require water every 12-14 days, but require it more frequently with wind and high temperatures. |
The Planting Process:
| · | Each seed is buried in the soil, four to five inches deep. Fill the hole with water and
soil until it is completely covered. Three seeds are planted per location |
| · | After two to three weeks pesticide may be applied. |
| · | Each plant has a three to four year life so no there is no need to replant every harvest
(two to three harvests are possible each year), unless the region of the farm is at a higher elevation and cooler climate, which
will slow plant rejuvenation. |
| · | Once the stalks with the castor bean capsules are harvested they are moved to a sheltered
location to dry for three to four weeks. After the capsules are dried they are processed in equipment that splits open the pods
to separate the seeds inside. The seeds are collected and excess dirt and any plant material is removed. |
| · | The seeds are stored in 75 to 100 pound poly-lined bags to keep the seeds from absorbing
any additional moisture. |
Most of Earth Gen’s preliminary operations
have been in Laos and Vietnam. However, Earth Gen has also been developing relationships in other Southeast Asia countries such
as Cambodia as possible areas of expansion in the region when and if additional working capital and management capabilities are
available. Early in 2013, Earth Gen management also started to investigate opportunities to develop master agents in Latin America.
Based on obtaining sufficient working capital to expand operations to Latin America, Earth Gen is planning to develop farming opportunities
in Peru and Columbia. The start of operations in Latin America will depend on completing the first phase of planting in Southeast
Asia and monitoring the ability of the company to allocate capital and management ability to meet the first goal of having 10,000
hectares under cultivation. The achievement of Earth Gen’s planting goals will be dependent on having the working capital
to sustain operations at the proper level, along with the ability to make agreements with enough farmers willing to convert their
farmland to grow castor beans or obtain land that is not currently under cultivation on a basis that meets the Company’s
operating goals..
EARTH GEN-BIOFUEL’s SOUTHEAST ASIA OPERATIONS
Earth Gen provides certain start-up costs for
farmers who have agreed to work with Earth Gen based on their specific type of agreement. In addition to management oversight and
product sales, Earth Gen may provide basic items to the farmer such as seeds for planting, agricultural expertise, small planting
tools and small harvesting equipment. Earth Gen may also provide start up assistance in the form of access to tractors and land
preparation equipment, seedpod processing equipment and transportation. Farmers needing these startup assistance will agree to
repay any advances made by Earth Gen from the proceeds of selling their harvest to Earth Gen. Earth Gen has retained certain subcontractors
to provide assistance to some of these farmer operations. Additionally, to meet our projected operating requirements in Laos, the
number of Earth Gen U.S. staff supervisors on-site has been increased to four people. In addition we have full-time employees in
Laos to oversee operations.
Earth Gen has three basic operating relationships
with castor bean farmers:
The first type of arrangement is with a smaller
farmer who typically supplies land, equipment, maintenance and labor. Under the terms of this type of arrangement, Earth Gen will
provide the seeds, technical know-how, operational monitoring and personnel from Earth Gen and its subcontractors to monitor and
evaluate the growing process. Earth Gen generally will agree to purchase all harvests of castor beans for at least 12 years at
a price fixed in advance of each 12 month growing cycle.
The second type of arrangement is with a small
farm or group of farms where a village or individual small farmer controls the land. Under the terms of this type of agreement,
Earth Gen agrees to provide the seeds, technical know-how, operational monitoring and personnel to monitor and evaluate the growing
process. Earth Gen will also advance funds for farm property evaluation such as soil tests, fertilizer, pesticides and equipment.
These advances will be paid back over a period of time from the proceeds from selling the harvest. In addition, Earth Gen will
generally agree to purchase all harvest of castor beans for at least 12 years at a price fixed in advance of each 12 month growing
cycle.
The third type of arrangement is designed to
work with larger landowners who are not actively farming. Earth Gen will agree to provide all required items to farm the land on
a revenue sharing basis. Earth Gen will provide all evaluation costs, preparation costs, planting, maintenance, harvest and labor
costs. Earth Gen will agree to purchase all harvest of castor beans at an 80% to 85% discount to the fixed price being paid other
Earth Gen farm operations in the same or similar farming area as described above or at a fixed price per metric ton of the harvest.
Earth Gen plans to add additional local subcontractors
and farming agents to work with farmers and farm groups in Laos and Vietnam. In addition to farming supervisors, Earth Gen has
agreements with independent agents who are responsible for recruiting farmers and growers that have legal rights to farm land and
who will agree to grow castor beans as supervised by the staff of Earth Gen.
When Earth Gen started operations in Southeast
Asia, the Company focused on operations in Laos and Vietnam. As described, operations began with test sites. A number of test sites
were located in the Vietnam. Our operations started in Vietnam with a Joint Venture Agreement on March 15, 2013 (“Joint Venture
Agreement”), with Nam Viet Communication, a Vietnam corporation located in Hanoi, Vietnam. The business of the Joint Venture
is to plant and grow castor beans in Vietnam under the direction and protocol set up by Earth Gen, and with labor and cultivation
provided by Nam Viet utilizing local farmers, supervisors and labor from Vietnam and under the supervision of Nam Viet.
Earth Gen advanced payments to Nam Viet to pay
for land preparation, planting, fertilizer, labor and supervision. The advances were to be repaid from deducting these funds from
the payment that Earth Gen would make to Nam Viet at the time of Earth Gen’s purchase of the harvest. Nam Viet, who had agreed
to supervise these Vietnam operations, was not successful in producing an economically viable harvest. At this time, there has
been no revenue from the Vietnam operations.
Earth Gen relied on the Nam Viet Joint Venture
Agreement to provide for the proper oversight of farming operations in Viet Nam while Earth Gen’s staff was establishing
operations in Laos. As a result of the poor harvest outcomes in Vietnam based on Nam Viet’s operating practices, Earth Gen
has decided to establish new operating agreements with Nam Viet before doing any additional projects with the company. Earth Gen
is also developing other farming relationships in Vietnam based on the Company’s operating model in Laos.
In March 2014, Earth Gen-Biofuel Lao Sole Co
Ltd. (“Earth Gen Laos”) was formed under the laws of Laos to meet Laos regulatory and legal requirements to do business
in Laos. This company is 100% controlled by Earth Gen. Earth Gen Laos has its own in country bank accounts and pays all local operating
expenses of the business activities of Earth Gen in Laos.
Earth Gen’s operations in Laos are managed
by Earth Gen supervisors along with local agricultural experts. The Company will be following a similar protocol in Vietnam when
and if operations are reestablished. In addition to using our U.S.-based agricultural specialists and our in-country staff and
outside experts, Earth Gen plans to access the services of top academic institutions specializing in the region’s agriculture
with dedicated departments focused on castor bean cultivation. One of these specialists is Zibo Academy of Agricultural Sciences
in Shandong, China. Zibo Academy also specializes in the growth of castor beans and the development of hybrid seeds that are most
suited in the various growing regions in Southeast Asia. Zibo Academy has achieved worldwide prominence in the field of castor
bean agriculture, and is one of the world’s largest suppliers of hybrid castor seeds. Zibo castor seed hybrids have been
widely popularized and are in use in more than 20 provinces in China and utilized in countries such as Indonesia, Malaysia, Pakistan,
Laos, Thailand, Viet Nam, Ethiopia, Nigeria and the Netherlands. Earth Gen plans to purchase all of its castor bean seed stock
from Zibo. However, Earth Gen has also investigated alternative suppliers in case of the need to add additional suppliers and to
provide long-term flexibility in its supply chain.
To supplement our in-house staff, Zibo Academy
will be providing agricultural engineers trained in castor bean cultivation to assist Earth Gen’s staff to train local people
in the best planting and operating method. As a result, Earth Gen will have an in-country group of trained castor bean supervisors.
It is planned to have the training staff move to each new planting area to oversee and train the permanent local oversight staff
to assist the farmers. The end result will be to create a local well trained and experienced staff to oversee each growing area
and provide oversight for the continuing process of refining Earth Gen’s agricultural operations and planting and harvesting
protocols to achieve the highest possible yields.
In addition to the trained Earth Gen staff working
directly on the cultivation process, the Company’s staff is expected to handle logistics. These functions include overseeing
the harvest process and the separation of the castor seeds from the seedpod. This process employs light processing equipment. The
castor beans will then be bagged and stored in local warehouse facilities and aggregated from several farm sites and prepared for
export. The Company intends to employ light equipment operators, baggers, warehouse guards, loaders and truck drivers.
Competition
Castor beans are presently being grown in many
countries with the biggest producers being India, China and Brazil. In addition there are 25 countries growing at least 77 or more
metric tons of castor beans per year. Laos and Vietnam were reported to have produced 6,000 metric tons in 2011. India produced
over 1,000,000 metric tons and China produced 180,000 metric tons. Most other producing countries have been growing castor beans
for many years and have substantial infrastructure dedicated to the cultivation of castor beans. Earth Gen is a new enterprise
and has only grown castor beans for one season on a very limited basis in countries that are very small producers of castor bean
and have not yet developed the infrastructure to support the cultivation of the castor bean crop.
Our competitors range from small-scale operators
to fully integrated multinational enterprises with significant financial, technical, sales, marketing and other resources. In addition
to castor oil producers, our competitors also include producers of alternative vegetable oils such as soybean, rapeseed, cottonseed,
peanut, sunflower seed and corn oils.
Market fundamentals that affect supply and demand
of our products include land shortages, water constraints, climate change, global warming, low operating margin, inadequate quality
control and quality assurance mechanisms leading to adulteration, violation of food laws and poor implementation. Non-fundamental
factors include politics, inflation, investor interest, government policies and liquidity.
Multinational corporations are able to take
advantage of economies of scale that allow them to command high quality with lower costs, access cheaper credit, minimize losses
and decrease input costs. Multinational corporations also tend to have a greater ability to absorb volatility in production and
pricing and respond to uncertainty.
In addition, the other more established growers
have longer relationships with the companies that buy and process castor beans. Earth Gen has developed relationships with only
a few buyers of castor beans in China and has little history in doing business with these companies.
Employees
During the formation stage of the Company, Earth
Gen had no full time employees. In 2013, George Shen served as President, Chief Executive Officer and acting Chief Financial Officer.
Throughout 2013, Company operations have been supported by outside consultants including operational subcontractors in Laos and
Vietnam, farming oversight, bookkeeping, other advisors and a part-time accountant.
In January 2014, George Shen became an employee
of Earth Gen working substantially full-time on Company business. Mr. Shen, our President and Chief Executive Officer is also serving
as our Chief Financial Officer. The balance of our US-based staff is currently part-time or work as consultants or advisors to
the Company. The Company also employs two full time employees who live in Laos who supervise our farming operations. The company
plans to hire a Chief Financial Officer on a part-time basis and expand the position to full-time when company resources will allow.
The Company plans to add other full-time employees as soon as practical after obtaining a level of capitalization to provide sufficient
funding to retain full time management. In addition, we expect to hire additional staff and to engage consultants in regulatory,
compliance, investor and public relations, and general administration as necessary. We also expect to engage experts in farming
and processing of castor beans to advise us in various capacities.
Intellectual Property
The Company does not own any proprietary intellectual
property.
Government Regulation
United States
The United States is a grower and importer of
castor beans. The importation of castor beans and transportation may be subject to regulation based on the laws and regulations
regarding all agricultural products and those that may specifically pertain to castor beans. In the U.S., the transporting of castor
beans may be subject to special requirements. In certain states and in certain agricultural areas the cultivation of castor beans
is banned. It is anticipated that all imports of Earth Gen’s castor beans will be controlled by the chemical processing facilities
that are the buyers and will not be the direct responsibility of Earth Gen.
International Regulation
Earth Gen’s management and its advisors
work very closely with all local government authorities to be sure all rules and regulations are strictly followed. The Company
is or may become subject to various laws and regulations regarding agricultural practices, as well as environmental laws and regulations
governing, among other things, the importation of seed stock for planting, processing of the seed pods after harvest and the disposal
of any agricultural waste. In addition the use of various fertilizers and pesticides is subject to regulation.
Operating in Laos, Vietnam and elsewhere in
Southeast Asia also subjects Earth Gen to a changing legal environment in regards to using land, producing crops, importing seed
stock and exporting its castor beans. There are many local government regulations regarding all of these matters that are subject
to change. As is the case in many developing companies, implementation and interpretation of laws and regulations may be arbitrary.
Rules and regulations are subject to change and may cause shifts in strategy in Earth Gen’s operations.
Our business, financial condition and results
of operations are subject to various risks and uncertainties, including those described below and elsewhere in this Registration
Statement. This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ
materially from expected and historical results. Our business, financial condition or results of operations could be materially
adversely affected by any of these risks. It is not possible to predict or identify all such factors. Consequently, the following
are not to be a complete discussion of all potential risks or uncertainties applicable to our business.
Limited operating history with net losses
Earth Gen was formed in August 2012. As a
result the Company has a limited operating history upon which an evaluation of the Earth Gen’s performance can be made.
There have been no revenues generated from the Company’s business operations in 2012, 2013 and for the three months
ended March 31, 2014. The Company expects to incur further losses in the foreseeable future due to significant costs
associated with its business development, including costs for planting additional acres of land and providing technical
services to local farmers. There can be no assurance that the Company’s operations will ever generate sufficient
revenues to fund its continuing operations, or that the Company will ever generate positive cash flow from its operations, or
that the Company will attain or thereafter sustain profitability in any future period.
The likelihood of the Earth Gen’s success
must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection
with the start and growth of a business, the implementation of the Company’s business plan, and the world agricultural environment
in which the Company operates, including but not limited to:
| · | our results of operations may fluctuate significantly, which may adversely affect the value of an investment in our common
stock; |
| · | we may be unable to build-out our farming operations in a timely manner that will meet the objectives we have established for
our business strategy or grow our business profitably or at all; and |
| · | we have only completed a limited planting and harvest cycle of land located in Laos and have no harvest in Vietnam. We have
not yet completed a full cycle of a growing season in a large-scale operation and because of our limited operating history, it
may be difficult to accurately predict our long-term castor bean production and yields and other important performance metrics. |
If we do not obtain additional financing, our business,
prospects, financial condition and results of operations will be adversely affected.
The Company anticipates that it will require
substantial working capital for the Company to pursue continued development of planting operations in Laos and elsewhere in Southeast
Asia. The timing and amount of such capital requirements cannot be accurately predicted. Additional financing may not be available
to the Company when needed or, if available, it may not be obtained on commercially reasonable terms. If the Company is not able
to obtain the necessary additional financing on a timely basis, the Company will be forced to delay or scale down some or all of
its development activities or perhaps even cease the operation of its business.
The Company has no commitments for any additional
financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional
equity financing will be dilutive to the Company’s stockholders, and debt financing, if available, may involve restrictive
covenants with respect to dividends, raising future capital and other financial and operational matters. If the Company is unable
to obtain additional financing as needed, the Company may be required to reduce the scope of its operations or its anticipated
expansion, which could have a material adverse effect on the Company.
Uncertainty as to management’s ability to control
costs and expenses.
With respect to the implementation of the Company’s
business plan, management cannot accurately project or give any assurance with respect to its ability to control operating costs
and/or expenses. Consequently, if management is not able to adequately control costs and expenses, such operations may not generate
any profit or may result in operating losses.
We may apply working capital and future funding to uses
that ultimately do not improve our operating results or increase the value of your investment.
The Company will retain virtually complete discretion
over the application of its working capital and new investment capital. Because of the number and variety of factors that could
determine the Company’s use of funds, there can be no assurances that such uses will not vary substantially from the Company’s
current operating plan.
We intend to use existing working capital and
future funding to support the expansion of the number of acres being planted and/or the support of operations to educate and supervise
the farmers working with the company. We will also use capital for market and network expansion, acquisitions and general working
capital purposes. However, we do not have more specific plans for our capital and our management will have broad discretion in
how we use available capital reserves. Our capital could be applied in ways that do not improve our operating results or otherwise
increase the value of a shareholder’s investment.
We do not have a traditional credit facility with a
financial institution.
This absence may adversely impact our operations.
We do not have a traditional credit facility with a financial institution, such as a working line of credit. The absence of a facility
could adversely impact our operations, as it may constrain our ability to have the working capital for equipment purchases or other
operational requirements. If adequate funds are not otherwise available, we may be required to delay, scale back or eliminate portions
of our business development efforts. Without credit facilities, the Company could be forced to cease operations and investors in
our securities could lose their entire investment.
Dependence upon management; possible conflict of interest.
The Company is dependent upon the efforts of
its current management. At this time, our President and Chief Executive Officer is also serving as our Chief Financial Officer.
The balance of our US-based staff is currently part-time or work as consultants or advisors to the Company. The Company also employs
two full time employees who live in Laos who supervise our farming operations. Our officers and directors have duties and affiliations
with other companies. Even though these companies are not competitors or involved in agriculture, involvement of our officers and
directors may still present a conflict of interest regarding decisions they make for Earth Gen or with respect to the amount of
time available for Earth Gen. The loss of any officer or director of the Company and in particular, Mr. Shen, could have a material
adverse effect upon our business and future prospects.
The Company does not presently have key-man
life insurance upon the life of any of its officers or directors. None of our management has been involved in farming prior to
joining the Company and, as such, did not have any technical experience in planting or harvesting for the crops prior to joining
the Company. Upon adequate funding, management intends to hire qualified and experienced personnel, including additional officers
and directors, and specialists, professionals and consulting firms to advise management as needed; however, there can be no assurance
that management will be successful in raising the necessary funds in respect of recruiting, hiring and retaining such qualified
individuals and firms.
Aggressive growth strategy.
For the foreseeable future, the Company intends
to pursue an aggressive growth strategy for the expansion of its operations through agricultural programs. The Company’s
ability to rapidly expand its operations will depend upon many factors, including the Company’s ability to work in an international
environment, establish and maintain strategic alliances with local authorities, and obtain adequate capital resources on acceptable
terms. Any restrictions on the Company’s ability to expand may have a material adverse effect on the Company’s business,
results of operations, and financial condition. Accordingly, there are no assurances that the Company will be able to achieve its
targets for sales growth, or that the Company’s operations will be successful or achieve anticipated operating results.
Timing of planting and harvest are subject to many uncontrollable
factors.
The Company has developed programs for planting
and harvesting based on local farmer knowledge and experience in each region of the countries where the Company is planting or
plans to plant. Each farm location is evaluated for suitability as a castor bean farm based on soil conditions, location, accessibility,
water supply and other growing conditions. Even with careful evaluation, there are risks associated with timing of rainfall, insect
infestations, root rot and other diseases, all of which will affect the growth and harvest of the castor bean crops. Even as the
Company endeavors to decrease these risks through good farming practices, constant monitoring and the combined experience of our
staff and our farmers, the Company may still face difficulties. Some problems or occurrences may always remain beyond our control.
Operating castor bean farms in developing countries
presents special risks.
Strong central and regional governments control
Laos, Vietnam and Cambodia. Also, those farmers who control the land and their workers have their own way of working based on long-held
tradition and government oversight. The Company plans to work closely with the regional and local government officials in an effort
to build trust and appreciation for the Company with the farmers, labor and local authorities by providing active support for local
economic needs. However, there can be no assurance that building these relationships will be successful.
Collecting and processing the castor bean harvest may
present logistical problems.
The Company’s farms are presently operating
in Laos. The farms are spread out geographically and some are separated by hundreds of miles. Based on the weather and road conditions,
these farms may be as much as 10 hours to 12 hours apart. In addition, there is no established warehouse or processing facility
convenient to each farm group, which will require on-site processing and then movement of product to a central storage area to
aggregate the harvest for quality control and preparation for export. It is anticipated that regional processing centers will collect
the harvest for the farmers and processing will be in central locations. Trucks will visit these locations and aggregate the processed
crops which will be prepared for export.
Some properties of the castor bean are highly toxic
and the beans must be handled carefully.
Ricin a highly toxic, naturally occurring protein
is produced in the seeds of the castor oil plant. The Company has set out protocols and informs its workers of the toxicity of
castor beans. Ricin is refined from the processed seeds. Earth Gen does not process seeds derived from the castor beans. All seeds
resulting from our production of castor beans are shipped to third party processors in other countries at which time the seeds
and the processing residue no longer are owned by or under the control of Earth Gen.
We are subject to risks associated with doing business
globally including compliance with domestic and foreign laws and regulations, economic downturns, political instability and other
risks that could adversely affect our operating results.
We plan to conduct our business globally and
to have assets located in several countries and geographic areas. We currently have oilseed operations in Laos and plan to begin
operations in Vietnam. We are required to comply with numerous and broad reaching laws and regulations administered by governmental
authorities. We must also comply with other general business regulations such as those directed toward accounting and income taxes,
anti-corruption, anti-bribery, global trade, handling of regulated substances, and other commercial activities, conducted by our
employees and third party representatives globally. Any failure to comply with applicable laws and regulations could subject us
to administrative penalties and injunctive relief, and civil remedies including fines, injunctions, and recalls of our products.
In addition, changes to regulations or implementation of additional regulations may require us to modify existing processing facilities
and/or processes, which could significantly increase operating costs and negatively impact operating results.
We will operate in both developed and emerging
markets which are subject to impacts of economic downturns, including decreased demand for our products, reduced availability of
credit, or declining credit quality of our suppliers, customers, and other counterparties. We anticipate that emerging market areas
could be subject to more volatile economic, political and market conditions. Economic downturns and volatile conditions may have
a negative impact on our operating results and ability to execute our business strategies.
Our operating results may be affected by changes
in trade, monetary, fiscal and environmental policies, laws and regulations, and other activities of governments, agencies, and
similar organizations. These conditions include but are not limited to changes in a country’s or region’s economic
or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and
regulations, reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on
currency exchange activities, currency exchange fluctuations, burdensome taxes and tariffs, enforceability of legal agreements
and judgments, other trade barriers, and regulation or taxation of greenhouse gases. International risks and uncertainties, including
changing social and economic conditions as well as terrorism, political hostilities, and war, may limit our ability to transact
business in these markets and may adversely affect our revenues and operating results.
We are subject to extensive regulation.
Our operations are subject to regulation by
the U.S. government and the governments of a number of other countries including China, Vietnam, Laos and the other countries where
the Company plans to operate. In addition as the company expands operations it will become subject to the regulations of additional
countries as well. Additional regulations, which may include, but not be limited to, environmental regulations, transportation
of agricultural products, shipping restrictions, and import and export restriction may all be factors in the operation of the Company.
Government policies and regulations, in general, and
specifically affecting the agricultural sector and related industries, could adversely affect our operating results.
Agricultural production and trade flows are
subject to government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs,
duties, subsidies, incentives, and import and export restrictions on agricultural commodities and commodity products, including
policies related to renewable fuel, and low carbon fuel mandates, can influence the planting of certain crops, the location and
size of crop production, whether unprocessed or processed commodity products are traded, the volume and types of imports and exports,
the viability and volume of production of certain of our products, and industry profitability. In addition, international trade
disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions.
Future government policies may adversely affect the supply of, demand for, and prices of our products, restrict our ability to
do business in its existing and target markets, and could negatively impact our revenues and operating results.
Uncertainties with respect to the Laotian, Vietnamese
and other countries’ legal system could adversely affect us.
Our castor bean operations are currently located
in Laos and Vietnam and are subject to Laotian and Vietnamese laws and regulations. Laos and Vietnam have not developed a fully
integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities
in those countries. In particular, because these laws and regulations are relatively new, the interpretation and enforcement of
these laws and regulations involve uncertainties. In addition, any litigation in Laos or Vietnam may be protracted and result in
substantial costs and diversion of resources and management attention. It is expected that this will also be the situation in many
of the other countries where the situation is the same.
In particular, among other uncertainties regarding
Laotian and Vietnamese laws and regulations that could affect us, the following uncertainties may have a significant adverse impact
on our business and operations: the uncertainties related to contract law and relevant regulations may impede our ability to enforce
contracts we have entered into with our business partners, farmers, customers and suppliers and result in substantial costs and
diversion of our resources and management attention. We also cannot predict the effect of future developments in the Laotian and
Vietnamese legal systems, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement
thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available
to us and our foreign investors.
We rely on third-party contracts.
We depend on others to provide products and
services to the Company. We do not control these companies and even though we will be non-exclusive with these companies and we
will be able to change suppliers, a change may be difficult to implement. At this time, Earth Gen has only one supplier of the
hybrid seeds that the Company uses for planting. If that supplier goes out of business or refuses to supply the Company, it could
cause a major problem for the Company. There are other suppliers of hybrid castor seeds; however, the Company has not yet conducted
tests on those seeds in the areas where Earth Gen is now actively planting or where it plans to plant in the future.
Many of our competitors are better established and have
resources significantly greater than we have, which may make it difficult to fend off competition for land workers and other resources.
The Company will compete with other agricultural
operations in Vietnam and Laos and elsewhere in the world. These operations have substantially greater financial and government
backed resources, longer operating histories, greater name recognition and more established relationships in the industry. In addition,
a number of these competitors may combine or form strategic partnerships. As a result, our competitors may be able to control a
more favorable basis in regard to pricing or other factors. Our failure to compete successfully with any of these companies would
have a material adverse effect on our business and the trading price of our common stock.
The market for castor beans is a world market
price and subject to fluctuation based on many factors, and we will compete with other companies within this market:
| · | World traded commodities markets; |
| · | Mills and processing factories around the world; |
| · | Local government supported markets. |
Moreover, we expect other existing and prospective
competitors, particularly if our development of large-scale production begins to develop as scheduled that others will adopt technologies
or business plans similar to ours, or seek other means to develop operations competitive with ours. Many of our competitors are
well established and have larger and better-developed networks and systems, longer-standing relationships with customers and suppliers,
greater name recognition and greater financial, technical and marketing resources than we have.
We may have difficulty in attracting and retaining management
and outside independent members to our board of directors as a result of their concerns relating to their increased personal exposure
to lawsuits and stockholder claims by virtue of holding these positions in a publicly quoted company.
The directors and management of publicly quoted
corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims, as well
as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws imposing
additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management
are also becoming increasingly concerned with the availability of directors’ and officers’ liability insurance to pay
on a timely basis the costs incurred in defending such claims. We currently do not carry limited directors’ and officers’
liability insurance. Directors’ and officers’ liability insurance has recently become much more expensive and difficult
to obtain. If we are unable to continue or provide directors’ and officers’ liability insurance at affordable rates
or at all, it may become increasingly more difficult to attract and retain qualified outside directors to serve on our board of
directors.
We may lose potential independent board members
and management candidates to other companies that have directors’ and officers’ liability insurance to insure them
from liability or to companies that have revenues or have received greater funding to date which can offer more lucrative compensation
packages. The fees of directors are also rising in response to their increased duties, obligations and liabilities as well as increased
exposure to such risks. As a company with limited operating history and resources, we will have a more difficult time attracting
and retaining management and outside independent directors than a more established company due to these enhanced duties, obligations
and liabilities.
We will incur increased costs as a result of becoming
a reporting company, and given our limited capital resources, such additional costs may have an adverse impact on our profitability.
Following the effectiveness of this Form 10,
we will be an SEC reporting company. The Company currently has no business that produces revenues. However, the rules and regulations
under the Exchange Act require a public company to provide periodic reports with interactive data files which will require the
Company to engage legal, accounting and auditing services, and XBRL and EDGAR service providers. The engagement of such services
can be costly and the Company is likely to incur losses, which may adversely affect the Company’s ability to continue as
a going concern. In addition, the Sarbanes-Oxley Act of 2002, as well as a variety of related rules implemented by the SEC, have
required changes in corporate governance practices and generally increased the disclosure requirements of public companies. For
example, as a result of becoming a reporting company, we will be required to file periodic and current reports and other information
with the SEC and we must adopt policies regarding disclosure controls and procedures and regularly evaluate those controls and
procedures.
The additional costs we will incur in connection
with becoming a reporting company will serve to further stretch our limited capital resources. In other words, due to our limited
resources, we may have to allocate resources away from other productive uses in order to pay any expenses we incur in order to
comply with our obligations as an SEC reporting company. Further, there is no guarantee that we will have sufficient resources
to meet our reporting and filing obligations with the SEC as they come due.
Risks Related to Our Common Stock
We will be subject to the “penny stock”
rules which will adversely affect the liquidity of our common stock.
The Company’s stock is defined as a “penny
stock” under Rule 3a51-1 of the Exchange Act. In general, a “penny stock” includes securities of companies which
are not listed on the principal stock exchanges or NASDAQ and have a bid price in the market of less than $5.00; and companies
with net tangible assets of less than $2,000,000 ($5,000,000 if the issuer has been in continuous operation for less than three
years), or which has recorded revenues of less than $6,000,000 in the last three years. “Penny stocks” are subject
to rule 15g-9, which imposes additional sales practice requirements on broker-dealers that sell such securities to persons other
than established customers and “accredited investors” (generally, individuals with net worth in excess of $1,000,000
or annual incomes exceeding $200,000, or $300,000 together with their spouses, or individuals who are officers or directors of
the issuer of the securities). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, this
rule may adversely affect the ability of broker-dealers to sell the Company’s stock, and therefore, may adversely affect
the ability of the Company’s stockholders to sell stock in the public market.
The sale of shares by our directors and officers may
adversely affect the market price for our shares.
Sales of significant amounts of shares held
by our officers and directors, or the prospect of these sales, could adversely affect the market price of our common stock. Management’s
stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us,
which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
A significant number of our shares will be eligible
for sale and their sale or potential sale may depress the market price of our common stock.
Sales of a significant number of shares of our
common stock in the public market could harm the market price of our common stock. As additional shares of our common stock become
available for resale in the public market, the supply of our common stock will increase, which could decrease its price. In addition
some or all of the shares of common stock may be offered from time to time in the open market pursuant to Rule 144, and these sales
may have a depressive effect on the market for our shares of common stock. Subject to certain restrictions, a person who has held
restricted shares for a period of six months may sell common stock into the market.
The elimination of monetary liability against the Company’s
directors, officers and employees under Nevada law and the existence of indemnification rights to the Company’s directors,
officers and employees may result in substantial expenditures by the Company and may discourage lawsuits against the Company’s
directors, officers and employees.
The Company’s articles of incorporation
contain a specific provision that eliminates the liability of directors for monetary damages to the Company and the Company’s
stockholders; further, the Company is prepared to give such indemnification to its directors and officers to the extent provided
by Nevada law. The Company may also have contractual indemnification obligations under its employment agreements with its executive
officers. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the
cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions
and resultant costs may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties and may similarly discourage the filing of derivative litigation by the Company’s stockholders against the
Company’s directors and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.
There is no market for our shares. If we become a publicly
quoted company, our common stock will most likely be thinly quoted, so you may be unable to sell at or near bid prices or at all
if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Our shares are not quoted or quoted on any securities
market. If our shares become publicly traded or quoted for sale, our common stock will likely be sporadically or “thinly-quoted,”
meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively
small or nonexistent. This situation will be attributable to a number of factors, including the fact that we are a small company
which will be relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community
that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse
and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such
time as we became more seasoned and viable.
As a consequence, there may be periods of several
days or more when trading activity in our shares is minimal or non-existent, as compared to a mature issuer which has a large and
steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. It is
possible that a broader or more active public trading market for our common stock will not develop or be sustained, or that trading
levels will not continue.
Our stock may be traded on the OTCQB. The OTCQB
is an electronic quotation system operated by OTC Markets Group that displays quotes from broker-dealers for many over-the-counter
securities. These securities tend to be inactively quoted stocks, including penny stocks and those with a narrow geographic interest.
Market makers and other brokers can use OTC Markets to publish their bid and ask quotation prices. The OTC Markets is not a stock
exchange. To be quoted in the OTC Markets, companies do not need to fulfill any financial requirements. The companies quoted in
the OTC Markets tend to be closely held, extremely small, thinly quoted, or bankrupt. Most do not meet the minimum U.S. listing
requirements for trading on a stock exchange such as the New York Stock Exchange.
Our stock also may be traded on the OTCBB. The
OTCBB is a quotation service for the Financial Industry Regulatory Authority (“FINRA”) market makers, and not an issuer
listing service or securities market. There is no minimum bid price requirement. OTCBB companies are not considered to be “listed.”
There are, however, certain requirements an issuer must meet in order for its securities to be eligible for a market maker to enter
a quotation on the OTCBB. In order for a security to be eligible for quotation by a market maker on the OTCBB, the security must
be registered with the SEC and the issuer must be current in its required filings.
We have never paid or declared any dividends on our
common stock.
We have never paid or declared any dividends
on our common stock. Likewise, we do not anticipate paying, in the near future, dividends or distributions on our common stock.
Any future dividends will be declared at the discretion of our board of directors and will depend, among other things, on our earnings,
our financial requirements for future operations and growth, and other facts as we may then deem appropriate.
Our directors have the right to authorize the issuance
of shares of preferred stock and additional shares of our common stock.
Our directors, within the limitations and restrictions
contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of
preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights,
voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of
any such series. Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock. Should
we issue additional shares of our common stock at a later time, each investor’s ownership interest in our stock would be
proportionally reduced. No investor will have any preemptive right to acquire additional shares of our common stock, or any of
our other securities.
If our shares become publicly quoted and our shares
are quoted on the OTCQB or the OTCBB, and we fail to remain current in our reporting requirements, we could be removed from the
OTCBB or OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.
Companies whose shares are quoted for sale on
the OTCBB and the OTCQB must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under
Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCQB and OTCBB. If we fail to remain current
in our reporting requirements, we could be removed from the OTCBB or OTCQB. As a result, the market liquidity for our securities
could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to
sell their securities in the secondary market.
If our shares become publicly quoted, the market price
for our common stock will most likely be particularly volatile given our status as a relatively unknown company with a small and
thinly quoted public float, limited operating history and lack of net revenues which could lead to wide fluctuations in our share
price. The price at which you purchase our common stock may not be indicative of the price that will prevail in the trading market.
If our shares become publicly quoted, the market
for our common stock will most likely be characterized by significant price volatility when compared to seasoned issuers, and we
expect that our share price will be more volatile than a seasoned issuer for the indefinite future. The volatility in our share
price would be attributable to a number of factors. First, as noted above, the shares of our common stock will likely be sporadically
and/or thinly quoted. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders
may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline
precipitously in the event that a large number of shares of our common stock are sold on the market without commensurate demand,
as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price.
Anti-takeover provisions may impede the acquisition
of Earth Gen.
Certain provisions of the Nevada Revised Statutes
have anti-takeover effects and may inhibit a non-negotiated merger or other business combination. These provisions are intended
to encourage any person interested in acquiring Earth Gen to negotiate with, and to obtain the approval of, our directors, in connection
with such a transaction. As a result, certain of these provisions may discourage a future acquisition of Earth Gen, including an
acquisition in which the stockholders might otherwise receive a premium for their shares.
If we fail to establish and maintain an effective system
of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report
and file our financial results accurately and timely could harm our business and adversely impact the trading price of our common
stock.
Effective internal control is necessary for
us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we
may not be able to manage our business as effectively as we would if an effective control environment existed, and our business,
brand and reputation with investors may be harmed.
In addition, reporting a material weakness may
negatively impact investors’ perception of us. We have allocated, and will continue to allocate, significant additional resources
to remedy any deficiencies in our internal control. There can be no assurances that our remedial measures will be successful in
curing the any material weakness or that other significant deficiencies or material weaknesses will not arise in the future.
Our Chairman and Chief Executive Officer is also our
largest stockholder, and as a result he can exert control over us and has actual or potential interests that may diverge from yours.
Mr. Shen may have interests that diverge from
those of other holders of our common stock. As a result, Mr. Shen may vote the shares he owns or controls or otherwise cause us
to take actions that may conflict with your best interests as a stockholder, which could adversely affect our results of operations
and the trading price of our common stock.
Through this control, Mr. Shen can control our
management, affairs and all matters requiring stockholder approval, including the approval of significant corporate transactions,
a sale of our company, decisions about our capital structure and the composition of our Board of Directors.
Our stock price might be volatile.
If a market develops for our stock, the price
of our stock may be highly volatile and could be subject to fluctuations in price in response to various factors, some of which
are beyond our control. These factors include:
| · | quarterly variations in our results of operations or those of our competitors; |
| · | announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital
commitments; |
| · | disruption to our operations or those of other sources critical to our operations; |
| · | the emergence of new competitors; |
| · | our ability to develop and market new and enhanced products on a timely basis; |
| · | seasonal or other variations; |
| · | commencement of, or our involvement in, litigation; |
| · | dilutive issuances of our stock or the stock of our subsidiaries, or the incurrence of additional debt; |
| · | changes in our board or management; |
| · | adoption of new or different accounting standards; |
| · | changes in governmental regulations or in the status of our regulatory approvals; |
| · | changes in earnings estimates or recommendations by securities analysts; |
| · | general economic conditions and slow or negative growth of related markets. |
In addition, the stock market in general, and
the market for shares of agricultural companies in particular, have experienced price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of those companies. We expect the value of our Common stock will be
subject to such fluctuations.
| ITEM 2. | FINANCIAL INFORMATION |
Discussions
of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and
the related notes and other financial information appearing elsewhere in this Form 10. Readers are also urged to carefully review
and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business,
including without limitation the disclosures made in Item1A of this Registration Statement under the caption “Risk Factors.”
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and other sections
of this report contain forward-looking statements. We make forward-looking statements, as defined by the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995, and in some cases, you can identify these statements by forward-looking
words such as “if,” “shall,” “may,” “might,” “will likely result,”
“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“project,” “intend,” “goal,” “objective,” “predict,” “potential”
or “continue,” or the negative of these terms and other comparable terminology. These forward-looking statements, which
are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors,
may include projections of our future financial performance based on our growth strategies and anticipated trends in our business.
These statements are only predictions based on our current expectations and projections about future events that we believe to
be reasonable. There are important factors that could cause our actual results, level of activity, performance or achievements
to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied
by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption “Risk
Factors” in this report. We undertake no duty to update any of these forward-looking statements after the date of filing
of this report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required
by law.
Overview
Our primary business is the cultivation of non-food
agricultural products for use in manufacturing processes, renewable energy and transportation fuel. Currently, our focus is on
the cultivation of castor beans, an agricultural crop currently in high demand and short supply. Castor beans are an integral component
in processing manufactured products for many countries and have attracted attention as a “renewable energy crop” with
great value due to its high oil content in comparison to other oil seed crops.
Our goal is to become a major producer of castor
beans in Southeast Asia and other tropical growing areas. Our business model is to supply the growing demand for castor beans by
cultivating and growing in areas not suitable for food crops. Our plan to use areas of relatively poor soil conditions allows us
to produce castor beans without competing with potentially more valuable products.
We plan to build our business by providing castor
beans to chemical conversion facilities, which utilize chemical processes that require the use castor oil, in China and other countries
such as Japan, Taiwan, Europe and the United States. Furthermore, as the world supply of castor beans grows along with our own
production, we will benefit from a “tipping point” created when there is enough surplus castor bean supply to allow
for its use as biodiesel. Based on current commercial demand for castor bean oil, long term need for clean fuel, and favorable
industry conditions in China, the United States and Europe, we believe that, subject to obtaining the necessary capital, we are
positioned for rapid near and long term growth.
Background
We were incorporated in the state of Nevada
on August 28, 2012.
Reverse Merger
On September 25, 2012, EarthBlock and our shareholders
entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which EarthBlock agreed to issue to our shareholders
a total of 1,591,660,000 shares of common stock of EarthBlock in exchange for all of Earth Gen’s outstanding capital stock
(the “Exchange”). The Exchange was completed on October 14, 2012 with EarthBlock becoming the owner of 100% of the
then issued and outstanding common shares of Earth Gen. At the completion of the Exchange, we retained our separate corporate status
and operated as a wholly owned subsidiary of EarthBlock.
Rescission of Reverse Merger
On November 14, 2012, the SEC sent a notice
to the management of EarthBlock notifying them that a hearing was scheduled to revoke EarthBlock’s status as a registered
company and to suspend trading in EarthBlock’s stock because of EarthBlock’s failure to file periodic reports. Our
management became the officers and directors of EarthBlock on November 19, 2012, and did not receive the SEC notice until November
26, 2012. Our management asked for a change in the scheduled hearing so as to request an extension of time to bring all of EarthBlock’s
filings current. However, it became apparent, given the state of EarthBlock’s records, it was unlikely that EarthBlock would
be in a position to comply with any extension. Accordingly, EarthBlock consented to a deregistration order, the registration of
its common stock was revoked and trading in EarthBlock’s common stock was halted.
Our management and shareholders had not been
made aware of the full extent of a material liability of EarthBlock that resulted from the operations of EarthBlock’s non-operational
subsidiary EarthBlock Texas Homes, Inc. Accordingly, EarthBlock’s previously disclosed financial condition was inaccurate
and not in conformity with generally accepted accounting principles.
Due to these issues and after discussions and
consultation with the advisors for both Earth Gen and EarthBlock, on September 25, 2013, the Board of Directors of
EarthBlock and of Earth Gen voted to rescind the acquisition of Earth Gen by EarthBlock and authorized the officers of the Corporation
to take the steps required to complete the rescission of the Exchange.
On August 30, 2013 we amended our Articles of
incorporation to increase the authorized shares from 400,000,000 shares of which 390,000,000 shares were common stock and 10,000,000
shares were preferred stock. The authorized number of shares of stock was increased to 3,000,000,000 shares of which 2,990,000,000
shares are common stock and 10,000,000 shares are preferred stock. Our Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions by resolution and fix the number of shares constituting any series.
There were two distinctive groups of shareholders
affected by the rescission of the Exchange: (i) the pre-Exchange shareholders whose original Earth Gen common stock shares
were exchanged for EarthBlock common stock shares constituting a total of 1,591,660,000 shares of common stock of EarthBlock (the
“Exchange Shares”); and (ii) the post-Exchange shareholders who invested directly in Earth Gen after the closing of
the Exchange for a total of 175,760,000 post stock split Earth Gen common stock shares (the “Additional Shares”).
A rescission agreement dated October 28, 2013
(the “Rescission Agreement”) was entered into among EarthBlock, Earth Gen and the holders of the Exchange Shares and
the Additional Shares all of whom received a disclosure document as to the reasons for the rescission and who had represented that
they were accredited investors. The Rescission Agreement set forth the terms and provisions pursuant to which the parties agreed
to take all steps necessary to unwind the Exchange including the surrender of the Exchange Shares for cancellation and Earth Gen
to issue to each Exchange Shareholder his respective original equity interests in Earth Gen, except that the Additional Shares
will remain outstanding and ratably dilute the Exchange Shareholders’ original equity ownership in Earth Gen.
Upon consummation of the Rescission Agreement,
holders of the Exchange Shares were reissued Earth Gen common stock shares commensurate with the holders’ original equity
ownership interests in Earth Gen for a total of 1,591,660,000 shares. In the event Exchange Shareholders do not become parties
to the Rescission Agreement, they will retain their respective EarthBlock common stock shares and have no equity interest in Earth
Gen. The majority of the Exchange Share and Additional Shareholders have already become parties to the Rescission Agreement and
Earth Gen anticipates that all holders will become parties in the near future.
Recapitalization of Common Stock by a Reverse Split and Reduction
of Authorized Shares of Stock
A stock dividend of three shares of common stock
for each one share owned by shareholders of record on October 14, 2013 was declared and approved by the Board of Directors on October
15, 2013. Our shareholders approved a recapitalization of the capital stock in the form of reverse stock split of the issued and
outstanding shares of common stock in a ratio of 1-for-25 on March 25, 2014. The Shareholders also approved an amendment to
the Articles of Incorporation on March 25, 2014 and filed the Amended Articles on May 16, 2014 with the Nevada Secretary of State
to reduce the number of authorized shares of stock to 700,000,000 from 3,000,000,000. Of the 700,000,000 authorized shares, there
are 10,000,000 shares of Preferred Stock and 690,000,000 shares of Common Stock. The reverse split and decrease in authorized shares
were effective on May 16, 2014. All references to share amounts referred to herein are based on post reverse split shares and giving
effect to the stock dividend.
Results of Operations
Our
consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles ("GAAP"). The discussion of the results of our operations compares the year
ended December 31, 2013 with the period four months ended December 31, 2012 and three months ended March 31, 2014
with the three months ended March 31, 2013, and is not necessarily indicative of the results which may be expected for any
subsequent periods. Our prospects should be considered in light of the risks, expenses and difficulties encountered by companies
in similar positions. We may not be successful in addressing these risks and difficulties.
Comparison of Fiscal Years Ended December 31, 2012 and
Year Ended December 31, 2013
We are a development stage
enterprise. To-date, we have incurred significant losses from operations, and at December 31, 2013, had an accumulated deficit
of approximately $776,142. At December 31, 2013, we had $154,178 of cash and cash equivalents. Since inception we raised an aggregate
of approximately $ $1,344,758 in financing to fund our operations. Until such time when we generate sufficient revenues from operations,
we will continue to be dependent on raising substantial amounts of additional capital through any one of a combination of debt
or equity offerings. There is no assurance that we will be able to raise additional capital when necessary.
The financial data for the year ended December
31, 2012 reflecting four months and three days of operations do not provide a good comparison for the twelve months of operations
for the year ended December 31, 2013 as Earth Gen was formed on August 28, 2012. There were no operations prior to that date, therefore
only partial year-end December 31, 2012 and the twelve-month period ended December 31, 2013 is presented in the following table
and the results of these two periods are used in the discussion thereafter to provide information reflecting the change in operations
based on a full twelve months of operation.
| | |
4 Months of Operations
Ended
December 31, 2012 ($) | | |
12 Months of Operations
Ended
December 31, 2013 ($) | |
| Revenue | |
| — | | |
| — | |
| Operating expenses | |
| | | |
| | |
| Consulting fees | |
| 71,137 | | |
| 175,582 | |
| Legal and professional fees | |
| 32,749 | | |
| 57,548 | |
| Stock based compensation | |
| - | | |
$ | 257,347 | |
| Impairment | |
| - | | |
| 71.037 | |
| Other general and administrative | |
| 24,981 | | |
| 85,761 | |
| Loss from operations | |
| (128,867 | ) | |
| (647,275 | ) |
| | |
| | | |
| | |
| Other income (expense) | |
| — | | |
| — | |
| Net loss before income taxes | |
| (128,867 | ) | |
| (647,275 | ) |
| Income tax provision | |
| — | | |
| — | |
| Net loss | |
| (128,867 | ) | |
| (647,275 | ) |
General and Administrative (“G&A”)
In the 12-month ended December 31, 2013, the
G&A expense increased by $518,408 compared with the 4-month operation in 2012. The increase was mainly due to the $257,347
stock based compensation incurred in 2013, the $104,445 increase in consulting fees, the $71,037 impairment for other receivable
and seeds inventory resulting from failed test planting, and the $24,799 increase in legal and professional fees.
Operations in general were subject to the same
conditions in both periods even though there were only four months of operations at year-end December 31, 2012 and there were twelve
months of operations for year-end December 31, 2013. Earth Gen had higher expenses as the Company started operating internationally
to organize its operations in Laos and Vietnam. In addition the costs associated with this early period of operations were increased
due to the generally higher expenses associated with new operations.
In 2012 the Earth Gen was organizing infra-structure
in Laos and Vietnam to support test planting, complying with local government and Laos and Vietnam regulation on agriculture. This
included test planting to determine the safety of growing plants and other import requirements. In addition visits with local mayors
who control land and workers in various villages and areas of the country. In 2013 Earth Gen began test planting and preparing
for planting operations to be started in 2014. Based on experience of limited planting operations in 2013 management started preparing
budgets and operating procedures that would provide operating plans and planting protocols for expanding planting in 2014. Preparations
included negotiating with local landowners and securing farming rights for farmland to cover 600 to 800 acres to be cultivated
for castor beans. The full extent of planting operations are subject to the availability of capital and development of staff and
infrastructure in the planting areas.
Liquidity and Capital Resources
Working Capital
Our working capital as of December 31, 2012
and 2013 is summarized as follows:
| | |
Four Months Ended
December 31, 2012 ($) | | |
Year Ended December
31,2013
($) | |
| Current assets | |
| 85,333 | | |
| 211,136 | |
| Current liabilities | |
| 9,000 | | |
| 66,617 | |
| Working capital | |
$ | 76,333 | | |
$ | 144,519 | |
The following table shows cash flows for the
periods presented:
| | |
Years Ended December 31, | |
| | |
2013 | | |
2012 | |
| Net cash (used in) operating activities | |
$ | (316,764 | ) | |
$ | (199,849 | ) |
| Net cash (used in) investing activities | |
| (6,170 | ) | |
| (1,167 | ) |
| Net cash provided by financing activities | |
| 471,800 | | |
| 206,328 | |
| Net increase in cash | |
$ | 148,866 | | |
$ | 5,312 | |
Operating Activities
For the year ended December 31, 2013, net cash
used in operating activities was $316,764. This was primarily due to net loss of $647,275, adjusted by non-cash related expenses
including depreciation of $779, impairment of $71,037, and stock-based compensation of $257,347, then increased by slightly favorable
changes in working capital of $1,349.
For the year ended December 31, 2012, net cash
used in operating activities was $199,849. This was primarily due to net loss of $128,867, adjusted by non-cash related expenses
including depreciation of $39, then decreased by unfavorable changes in working capital of $71,021. The unfavorable changes in
working capital mainly resulted from an increase in prepaid expenses and other receivable of $22,750 for test planting, an increase
in related party payable of $57,271, partly offset by a decrease in accounts payable of $9,000.
Investing activities:
Net cash used in investing
activities was due to the acquisition of equipment of $6,170 and $1,167 for the years ended December 31, 2013 and 2012 respectively.
Financing activities
Net cash provided by financing
activities mainly resulted from stocks issued in private placements of $466,800 and $206,328 for the years ended December 31, 2013
and 2012 respectively.
Comparison of Quarter Ended March 31, 2013 and Quarter
Ended March 31, 2014
We are a development stage enterprise. To-date,
we have incurred significant losses from operations, and at March 31, 2014, had an accumulated deficit of approximately $1,100,164.
At March 31, 2014, we had $508,831 of cash and cash equivalents. Since inception we raised an aggregate of approximately $1,344,758
in financing to fund our operations. Until such time when we generate sufficient revenues from operations, we will continue to
be dependent on raising substantial amounts of additional capital through any one of a combination of debt or equity offerings.
There is no assurance that we will be able to raise additional capital when necessary.
The financial data for the quarter ended March
31, 2014 when being compared with the operations for the quarter ended March 31, 2013 reflect a different stage of the Company’s
development. In the first quarter of 2013 the company was just starting to establish its U.S. base of operations and starting develop
infrastructure and relationships with national and local government officials and farmers in Vietnam and Laos.
There were limited operation in the three months
ended March 31, 2013 as the Company was just beginning to create the infrastructure and identify the staff and consultants needed
to begin farming operations in Southeast Asia. Operations were more advanced in the three months ended March 31, 2014 as test planting
was being finalized and agreements for land and operations to start large scale farming operations were being planned to start
in May and June of 2014.
| | |
Three Months Ended
March 31, 2014
($) | | |
Three Months Ended
March 31, 2013
($) | |
| Revenue | |
| — | | |
| — | |
| Operating expenses | |
| | | |
| | |
| Consulting fees | |
| 135,256 | | |
| 14,888 | |
| Outside services | |
| 30,992 | | |
| | |
| Stock based compensation | |
| 66,590 | | |
| | |
| Travel | |
| 30,146 | | |
| 369 | |
| Other general and administrative | |
| 61,038 | | |
| 3,331 | |
| Loss from operations | |
| (324,002 | ) | |
| (18,588 | ) |
| | |
| | | |
| | |
| Other income (expense) | |
| — | | |
| — | |
| Net loss before income taxes | |
| (324,002 | ) | |
| (18,588 | ) |
| Income tax provision | |
| — | | |
| — | |
| Net loss | |
| (324,002 | ) | |
| (18,588 | ) |
General and Administrative (“G&A”)
The $305,434 increase in G&A expenses, for
the three months ended March 31, 2014 versus the quarter ended March 31, 2013, were due to a general increase in corporate activity
to support plans for expanded operations in Laos and support staff in the U.S. In Laos, staff and consultants were hired to plan
farming operations, train farm labor, and evaluate farming properties to prepare for planting in May and June of 2014. Funds were
also used to evaluate farm properties in Vietnam and Cambodia. As a result, in the first quarter of 2014, consulting fees increased
by $135,256, $30,992 paid for outside services for tractor crew in Laos, and travel expense increased by $30,146. The stock based
compensation of $66,590 incurred in the first quarter of 2014 also contributed to the increase in G&A expenses.
Operations in general were subject to the same
conditions in both periods even though the Company was still in the early stages of planning its Southeast Asia farming operations
in the quarter ended on March 31, 2013. Earth Gen had higher expenses as the Company started expanding its operations internationally
to organize and supervise operations in Laos and Vietnam. In addition the costs associated with this early period of operations
in the March 31, 2013 quarter were increased in the same period for 2014 due to the generally higher expenses associated with new
and expanding operations.
In the three months ended March 31, 2013, Earth
Gen was organizing infrastructure in Laos and Vietnam to support test planting, and comply with local government and Laos and Vietnam
regulation on agriculture. This included test planting to determine the safety of growing plants and other import requirements.
In addition, visits were conducted with local mayors who control land and workers in various villages and areas of the country.
In the first quarter of 2013, Earth Gen began test planting and preparing for planting operations to be started in 2014. Based
on limited planting operations in the three months ended March 31, 2013, operating costs were low when compared with operating activities
in the three months ended March 31, 2014.
Liquidity and Capital Resources
Working Capital
Our working capital as of March 31, 2013 and
2014 is summarized as follows:
| | |
Three Months Ended
March 31, 2014
($) | | |
Three Months Ended
March 31, 2013
($) | |
| Current assets | |
| 587,695 | | |
| 71,887 | |
| Current liabilities | |
| 28,663 | | |
| 16,500 | |
| Working capital | |
$ | 559,032 | | |
$ | 55,387 | |
The following table shows cash flows for the
periods presented:
| | |
Three Months Ended March 31, | |
| | |
2014 | | |
2013 | |
| Net cash (used in) operating activities | |
$ | (316,977 | ) | |
$ | (9,946 | ) |
| Net cash (used in) investing activities | |
| - | | |
| (2,500 | ) |
| Net cash provided by financing activities | |
| 671,630 | | |
| 15,000 | |
| Net increase in cash | |
$ | 354,653 | | |
$ | 2,554 | |
Operating Activities
For the three months ended March 31, 2014, net
cash used in operating activities was $316,977. This was primarily due to net loss of $324,022, adjusted by non-cash related expenses
including depreciation of $314 and stock-based compensation of $66,590, then decreased by unfavorable changes in working capital
of $59,859. The unfavorable changes in working capital mainly resulted from an increase in inventory of $17,340 for seeds and supplies,
an increase in prepaid expenses and other receivable of $3,965, a decrease in related party payable of $25,274 and a decrease in
accounts payable and accrued expense of $13,280.
For the three months ended March 31, 2013, net
cash used in operating activities was $9,946. This was primarily due to net loss of $18,588, adjusted by non-cash related expenses
including depreciation of $142, then increased by slightly favorable changes in working capital of $8,500.
Investing activities:
For the three months ended
March 31, 2013, net cash used in investing activities was the acquisition of equipment of $2,500.
Financing activities
For the three months ended
March 31, 2014, net cash provided by financing activities resulted from stocks issued in private placements of $671,630.
For the three months ended
March 31, 2013, net cash provided by financing activities was $15,000 received from short-term borrowings.
Equity Financings Since
August 28, 2012
Since inception Earth Gen’s funding has
been provided by the sale of its common stock for cash. In the quarter ending March 31, 2014, the company raised $671,630. A total
of $1,344,758 has been raised from inception to March 31, 2014.
Cash Requirements
Our primary objectives for the year 2014 period
are to develop and pursue the commercialization of our planned farming operations. We continuously search for industry experts
to expand our management team and better position our company. In addition, we expect to raise sufficient capital to fund our operations
and to develop additional farmland for cultivation of castor beans and provide support in the form of equipment and personnel to
expand operations and provide required working capital.
We estimate our operating expenses and working
capital requirements for the next 12 months to be approximately as follows:
| Expense | |
Amount | |
| Castor bean agricultural operation | |
$ | 600,000 | |
| Employee compensation | |
| 250,000 | |
| General and administration | |
| 150,000 | |
| Professional services fees | |
| 125,000 | |
| Total | |
$ | 1,125,000 | |
Historically our funding has been a mixture
of private offerings and debt. As of March 31, 2014, we had cash and cash equivalents of approximately $508,831 and other current
assets of $78,864. Of this $78,864 in current assets, we have no specific time at which the Company will receive cash for the other
current assets. We know that additional funds will be needed to continue to expand our planting and to support our operations and
cover general and administrative expenses.
Since inception, we have funded our operations
primarily through equity financing and we expect to continue to do so in the future although no assurance can be given that we
will be able to obtain financing on reasonable terms. If we obtain additional financing by issuing equity securities, our existing
stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase
our liabilities and future cash commitments. We may be unable to maintain operations at a level sufficient for investors to obtain
a return on their investments in our common stock. Further, we may continue to be unprofitable.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial
statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the
use of estimates about the effect of matters that are inherently uncertain. Such critical accounting policies, including the assumptions
and judgments underlying them, are disclosed in Note 1 to the Financial Statements included in this Form 10. However, we do not
believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial
statements.
Accounting for Long-Lived Assets / Intangible Assets
We assess the impairment of long-lived assets,
consisting of property and equipment, and finite-lived intangible assets, whenever events or circumstances indicate that the carry
value may not be recoverable. Examples of such circumstances include: (1) loss of legal ownership or title to an asset; (2) significant
changes in our strategic business objectives and utilization of the assets; and (3) the impact of significant negative industry
or economic trends.
Recoverability of assets to be held and used
in operations is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated
by the assets. The factors used to evaluate the future net cash flows, while reasonable, require a high degree of judgment and
the results could vary if the actual results are materially different than the forecasts. In addition, we base useful lives and
amortization or depreciation expense on our subjective estimate of the period that the assets will generate revenue or otherwise
be used by us. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less selling costs.
We also periodically review the lives assigned
to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect
to realize cash flows from the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the
likelihood of a material change in our reported results would increase.
Derivative Liabilities
Warrants
All reference to numbers of shares issued for
warrants and per share price is based on a post-stock-dividend and post-reverse-split amount.
The Company issued warrants for 6,400,000 to
purchase shares of Earth Gen Common Stock on August 1, 2013 and 1,600,000 warrants to purchase shares on September 12, 2013. Each
of these warrants entitled the holder to purchase a share of Earth Gen Common Stock at $0.03 per share starting on January 1, 2014
and ending on December 15, 2016. These warrants have standard anti-dilution language to allow for recapitalizations and distributions.
The Company issued warrants to purchase 202,000
shares of Earth Gen Common Stock on March 20, 2014 with an exercise price of $0.50 per share starting on July 15, 2014 and ending
on September 30, 2016. These warrants have standard anti-dilution language to allow for recapitalizations and distributions.
Description of Property
We do not own any real property. The Company
leases space for its U.S. office at 17870 Castleton Street, # 205 City of Industry, CA. 91748 from its CEO and shareholder, George
Shen under a month to month lease agreement. George Shen leases the space to be used by the Company for a two year term from December
1, 2013 to November 30, 0215. The annual base lease obligation is $40,320.00 for year one, $41,940 in the second year. On May 31,
2013, we entered into a month to month lease agreement for office space for the headquarters for our operations in Laos at the
Mekong Hotel Business Building “B”, Sithanneua Souphanouvong Road, Suite #2121, Vientiane, Lao, P.D.R., with an initial
base monthly rent of approximately $900.00 plus utilities costs of $200.00 per month. Earth Gen has leased office space in Las
Vegas, NV. The lease is a month-to-month obligation and was entered into on December 23, 2013 at the rate of $59 per month.
On March 10, 2014, Earth Gen entered into a
lease agreement with one landowner for land totaling 183 hectares in Laos. The term of the lease is for twelve years with an option
for Earth Gen to renew for an additional twelve years. Earth Gen is obligated to pay taxes on the land of up to $1,000 per year
with any taxes in excess of that amount are the obligation of the landowner. In addition, Earth Gen is obligated to provide all
elements required to grow castor beans on the land and start using the land for castor bean farming operations before the end of
2014. The compensation to the landowner is based on the size of the harvest produced on the land. The payment is a fixed fee per
metric ton for all castor beans harvested on the land.
In April 2014 Earth Gen entered into agreements
with two landowners for leases to create castor bean farms in close proximity to the Company’s other operations. These additional
parcels total 103 hectares. The Company’s agreements the with landowners is substantially the same as the first lease agreement
from March 2014.
We believe our current and future facilities
are adequate for our current and near-term needs. Additional space may be required as we expand our activities. We do not currently
foresee any significant difficulties in obtaining any required additional facilities.
| ITEM 4. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
The following table sets forth certain information
regarding the beneficial ownership of our common stock by George Shen, the only officer and director and other beneficial owners
who own more than 5% of our common stock as of August 11, 2014. Unless otherwise indicated in the footnotes to the following table,
the address of each person named in the table is: c/o Earth Gen-Biofuel Inc. at 7870 Castleton Street, # 205, City of Industry,
California 91748. All amounts are based on post reverse split shares as filed with the Nevada Secretary of State on May 16, 2014
and was effective as July 24, 0214.
CURRENT NUMBERS
| Name of Beneficial Owner | |
Number of
Shares
Beneficially
Owned | | |
Percentage
Beneficially
Owned(1) | |
| Directors and Named Executive Officers: | |
| | | |
| | |
| George Shen | |
| 20,000,000 | | |
| 28.4% | |
| Current Directors and Executive Officers as a Group (1 person) | |
| 20,000,000 | | |
| 28.4% | |
| | |
| | | |
| | |
| Sean Kai Dan | |
| 9,280,000 | | |
| 13.2 | |
| Elias Chavando (2) | |
| 5,623,000 | | |
| 7.9% | |
| | |
| | | |
| | |
| All 10% shareholders | |
| 34,912,000 | | |
| 51.4% | |
| (1) | Based on 70,501,680 shares of our common stock issued and outstanding as of August 11, 2014. |
| (2) | Elias Chavando has voting control of Conexus Telecom Inc. which owns 3,072,000 shares. Mr. Chavando owns 2,560,000 shares in
his own name for total voting control 5,632,000 shares or 7.9%. |
| (3) | Except as otherwise indicated, we believe that the beneficial owner of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws
where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. |
| ITEM 5. | DIRECTORS AND OFFICERS |
Set forth below is certain information regarding
our directors and executive officers as of August 11, 2014:
| Name |
|
Position |
|
Age |
|
Director/Officer
Since |
| George Shen |
|
President, Chairman, Officer and Director |
|
57 |
|
August 28, 2012 |
Business Experience
The following is a brief account of the education
and business experience of our sole director and executive officer during at least the past five years, indicating their principal
occupation during the period, and the name and principal business of the organization by which he was employed.
George Shen, Chairman, President, Chief Executive Officer
Mr. Shen is the Chairman, President, Chief Executive
Officer and acting Chief Financial Officer of Earth Gen and brings extensive international business experience to his executive
and director positions. Mr. Shen has held senior management positions for companies operating in China, Hong Kong, Taiwan, Columbia,
Nicaragua, and Peru. Mr. Shen has worked for, and or represented Bank of America, Dean Witter Reynolds (now Morgan Stanley), Clarion
Communication (now part of Qwest) in Asia as the President of Asian Operations, and Realforce Energy Group, as well as served as
a senior advisor for business development for Davis Petroleum in China and in Latin America. Mr. Shen is also a former member of
the US Department of Commerce Advisory Committee on Environment and Energy. and served on the Board of Director of Justiceville.
Mr. Shen served in the US Marine Corps from 1979 to 1983 and volunteered to go back to the California National Guard post the events
of 9/11. Mr. Shen received a JD degree from Northwestern California School of Law and received his BS degree in Business Economics
from Chapman University. He later earned an MBA degree from Central China Normal University with a special thesis on Chinese Banking
Reform.
Term of Office
Our directors are elected at each annual meeting
of stockholders and serve until the next annual meeting of stockholders or until their successor has been duly elected and qualified,
or until their earlier death, resignation or removal.
| ITEM 6. | EXECUTIVE COMPENSATION |
The following table summarizes all compensation
recorded by us in each of Fiscal 2013 and Fiscal 2012 for our named executive officer.
Summary Compensation Table
| Name | |
For the Periods | |
Salary
($) | | |
Stock
Awards | |
All Other
Compensation
($) | |
Total ($) | |
| | |
| |
| | |
| |
| |
| |
| George Shen (1) | |
12 months ended
December 31, 2013 | |
$ | 60,000 | | |
— | |
— | |
$ | 60,000 | |
| | |
| |
| | | |
| |
| |
| | |
| George Shen (1) | |
4 months ended December 31, 2012 | |
$ | 20,277 | | |
— | |
— | |
$ | 20,277 | |
| (1) | Mr. Shen was appointed our President, Chief Executive Officer and acting Chief Financial Officer on August 28, 2012. |
Employment Agreements
Earth Gen has not entered into any employment
agreements at this time. It is anticipated that in future that if Company operations reach a sustainable level and that the Company’s
working capital has reach proper levels that the Board of Directors will consider providing certain key employees with employment
and bonus agreements.
Compensation of Directors
Mr. Shen, the sole director of the Company,
received no compensation for his services as a director.
| ITEM 7. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE |
Transactions with Related Persons
Since August 28, 2012, there have been no transactions,
or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000
or one percent of the average of our total assets at year-end for the last completed fiscal years and in which any related person
had or will have a direct or indirect material interest.
Director Independence
We are not currently listed on any national
securities exchange that has a requirement that the majority of our Board of Directors be independent. George Shen is currently
our only director and he is also the largest shareholder and would not be considered independent because he is also our President,
Chief Executive Officer and acting Chief Financial Officer.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a Code of
Business Conduct and Ethics that applies to all of our directors, officers and employees. The Code of Business Conduct and Ethics
is available for review in print, without charge, to any stockholder who requests a copy by writing to us at Earth Gen-Biofuel
Inc., 7870 Castleton Street, # 205, City of Industry, CA. 91748 , Attention: Investor Relations. Each of our directors, employees
and officers are required to comply with the Code of Business Conduct and Ethics. There have not been any amendments or waivers
from the Code of Business Conduct and Ethics relating to any of our executive officers or directors in the past year.
We are not currently a party to any proceedings.
In the ordinary course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation,
if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business.
PART II
| ITEM 9. | MARKET PRICE OF, AND DIVIDENDS ON, THE REGISTRANT’S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
Trading Information
Our common stock has never been quoted or qualified
for trading.
The transfer agent for our common stock is Corporate
Stock Transfer located at 3200 Cherry Creek Drive South, #430, Denver CO 80209.
All references to numbers of shares are based
on a post reverse split of one for twenty-five basis approved by shareholders on March 25, 2014, and filed with the Nevada Secretary
of State on May 15, 2014 with an effective date of July 24, 2014.
As of December 31, 2013, there were 129 holders
of record of our common stock with 74,292,880 shares outstanding, All shares were restricted
and there were no shares held in street name.
As of August 11, 2014 there were 524 holders
of record of our Common stock with 70,645,680 shares outstanding. All shares were restricted and there were no share shares held
in street name.
Dividends
We have never declared or paid any cash dividends.
We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not
anticipate paying any cash dividends on our common stock in the foreseeable future.
A stock dividend of 3 shares of common stock
for each one share owned by shareholders of record was declared and approved by the Board of Directors on October 15, 2013.
| ITEM 10. | RECENT SALES OF UNREGISTERED SECURITIES |
Since our inception on August 28, 2012, we issued
and sold the following securities without registration under the Securities Act:
1. In conjunction with the formation of our
company, on August 28, 2012 we issued and sold, to our officers and directors, an aggregate of 54,644,000 shares of our common
stock.
2. On October 24, 2012 we issued and sold to
investors an aggregate of 9,022,400 shares of our common stock for aggregate gross consideration of $192,328. A total of $5,500
was paid for legal and accounting fees accrued through this offering.
3. On October 24, 2012 we were acquired by EarthBlock.
Concurrent with the merger, EarthBlock issued four shares of its common stock for each one of the Company’s shares. A total
of 1,591,660,000 pre-stock-dividend and pre-reverse-split shares were issued on November 9, 2013 to shareholders of the Company
following the terms of the merger.
4. In May 2013, under an EarthBlock subsidiary
named Earth Gen-Biofuel Inc., we issued 128,000 shares of common stock for an aggregate total of $8,000.
5. On August 1, 2013, the Company issued warrants
to purchase 6,400,000 shares of Earth Gen Common Stock, entitling the holder to purchase a share of Earth Gen Common Stock at $0.03
per share starting on January 1, 2014 and ending on December 15, 2016.
6. On September 12, 2013, the Company issued
warrants to purchase 1,600,000 shares of common stock which entitled the holder to purchase a share of Earth Gen Common Stock at
$0.03 per share starting on January 1, 2014 and ending on December 15, 2016.
7. On September 25, 2013, the acquisition of
the Company by EarthBlock was rescinded . Following the rescission, the Company’s Board of Directors authorized the issuance
of 7,672,800 shares of common stock for an aggregate total of $472,800.
8. On March 20, 2014, we issued warrants to
purchase 202,000 shares of Earth Gen Common Stock . Each warrant entitled the holder to purchase one (1) share of Earth Gen at
$0.50 per share starting on July 15, 2014 and ending on September 30, 2016.
9. Between April 7, 2014 and June 6, 2014, the
Company issued 1,440,400 shares of its common stock for an aggregate total of $168,307.
The securities described above were issued to
investors in reliance upon the exemption from registration requirements of the Securities Act, as set forth in Section 4(2) under
the Securities Act and Regulation D promulgated thereunder relating to transactions by an issuer not involving any public offering.
All Purchasers of shares described above represented to us in connection with their purchase that they were accredited investors
and were acquiring the shares for their own account for investment purposes only and not with a view to, or for sale in connection
with, any distribution thereof. The purchasers received written disclosures that the securities had not been registered under the
Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.
The warrants and shares of common stock described
above were issued pursuant to written compensatory plans or arrangements with our employees and directors, in reliance on the exemption
from the registration of the Securities Act provided by Rule 701 promulgated under the Securities Act or the exemption set forth
in Section 4(2) under the Securities Act and Regulation D promulgated thereunder relating to transactions by an issuer not involving
any public offering. All recipients either received adequate information about us or had access, through their employment or other
relationship with us, to such information.
| ITEM 11. | DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED |
All information on Company securities are based
on post March 26, 2014 approved reverse split of one share for every twenty five shares and amended Articles of Incorporation filed
with the Nevada Secretary of State on May 16, 2014. Our authorized capital stock consists of 700,000,000 shares of capital stock
of which 690,000,000 shares are common stock, $0.0001 par value per share, and 10,000,000 shares are “blank check”
preferred stock, par value $0.0001 per share. We are registering our common stock under this Form 10 pursuant to Section 12(g)
of the Exchange Act.
As of August 11, 2014 there were 70,501,680 shares of our common stock issued and outstanding. Subject to preferences that
may be applicable to any preferred stock outstanding at the time, the holders of common stock are entitled to receive dividends
out of legally available assets at such times and in such amounts as our Board of Directors may from time to time determine.
There are no Preferred shares issued at the time of this filing. Each stockholder is entitled to one vote for each share of
common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not
authorized.
Our common stock is not subject to conversion
or redemption and holders of common stock are not entitled to preemptive rights. Upon the liquidation, dissolution or winding up
of the Company, the remaining assets legally available for distribution to stockholders, after payment of claims of creditors and
payment of liquidation preferences, if any, on outstanding preferred stock, are distributable ratably among the holders of common
stock and any participating preferred stock outstanding at that time. Each outstanding share of common stock is fully paid and
non-assessable. Our Board of Directors has the authority to issue authorized but unissued shares of common stock without any action
by our stockholders.
Anti-Takeover Effects of Certain Provisions of Nevada State
Law
We may in the future become subject to Nevada’s
control share law. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least
100 of who are stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation.
The law focuses on the acquisition of a “controlling
interest” which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the
acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability
to exercise such voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that
the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred
by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share
law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip
voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant
voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The
acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest,
the control share law does not govern their shares.
If control shares are accorded full voting rights
and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other
than an acquiring person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder’s
shares.
Nevada’s control share law may have the
effect of discouraging takeovers of the corporation. In addition to the control share law, Nevada has a business combination law,
which prohibits certain business combinations between Nevada corporations, and “interested stockholders” for three
years after the “interested stockholder” first becomes an “interested stockholder” unless the corporation’s
board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder” is
any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding
voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous
years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares
of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any
kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise
to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination
law is to discourage parties interested in taking control of the company from doing so if it cannot obtain the approval of our
board of directors.
| ITEM 12. | INDEMNIFICATION OF DIRECTORS AND OFFICERS |
The Company’s Articles of Incorporation,
as amended, provides that, to the fullest extent that limitations on the liability of directors and officers are permitted by the
Nevada Revised Statutes, no director or officer of the Company shall have any liability to the Company or its stockholders for
monetary damages. The Nevada Revised Statutes provide that a corporation’s charter may include a provision which restricts
or limits the liability of its directors or officers to the corporation or its stockholders for money damages except: (1) to the
extent that it is provided that the person actually received an improper benefit or profit in money, property or services, for
the amount of the benefit or profit in money, property or services actually received, or (2) to the extent that a judgment or other
final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person’s
action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding.
The Company’s Bylaws, as amended, include
an indemnification provision under which the Company shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the Company, by reason of the fact that he is or was a director, officer, employee or agent
of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another Company,
partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
The Company’s Bylaws further provide that
the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise against expenses, including
amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company. Additionally, the Company’s Bylaws provide that expenses incurred by an officer or director
in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized under the Bylaws.
The Nevada Revised Statutes also permits a corporation,
and our Articles of Incorporation and Bylaws therefore permit the Company to purchase and maintain liability insurance or make
other financial arrangements on behalf of any person who is or was a director, officer, employee or our agent, or is or was serving
at the request of the corporation as a director, officer, employee or agent, of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against them and incurred by them in any such capacity, or arising out
of their status as such, whether or not we would have the power to indemnify them against such liability under our Bylaws.
However, nothing in our charter or Bylaws protects
or indemnifies a director, officer, employee or agent against any liability to which he would otherwise be subject because of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent
that a director has been successful in defense of any proceeding, the Nevada Revised Statutes provide that he shall be indemnified
against reasonable expenses incurred in connection therewith.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES
ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
| ITEM 13. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements required by this item
are set forth beginning on page F-1 and are incorporated herein by reference. We are not required to provide the supplementary
data required by this item as we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act.
| ITEM 14. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
PART III
| ITEM 15. | FINANCIAL STATEMENTS AND EXHIBITS |
See the index to consolidated financial statements
set forth on page F-1.
The exhibit index included at the end of this
report is incorporated by reference herein.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d)of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
| |
EARTH GEN-BIOFUEL INC. |
| |
|
| Date: August 14, 2014 |
By: |
/s/ George Shen |
| |
|
President, Chief Executive Officer and acting Chief Financial Officer |
INDEX TO EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
| Exhibit No. |
|
Description |
| 2.1 |
|
Agreement of Share Exchange and Plan of Reorganization dated September 25, 2012 by and between EarthBlock Technologies Inc. and Earth Gen-Biofuel Inc. |
| 3.1 |
|
Bylaws of Earth Gen-Biofuel Inc. |
| 3.2 |
|
Amended and Restated Articles of Incorporation of Earth Gen-Biofuel Inc. |
| 4.1 |
|
Form of Warrant 2013 |
| 4.2 |
|
Form of Warrant 2014 |
| 10.1 |
|
Form of Farm Cooperative Agreement |
| 10.2 |
|
Rescission Agreement by and among EarthBlock Technology, Inc., Earth Gen-Biofuel Inc. and certain shareholders of EarthBlock Technology, Inc. dated October 21, 2013 |
| 10.3 |
|
Agreement of Exchange by and between EarthBlock Technology, Inc., Earth Gen-Biofuel Inc. dated September 25, 2012 |
| 14.1 |
|
Code of Conduct |
| 21.1 |
|
Subsidiaries of Registrant |
INDEX TO FINANCIAL
STATEMENTS
| |
Page |
| Report of Independent Registered Public Accounting Firm |
F-1 |
| |
|
| Balance Sheets as of December 31, 2012 and December 31, 2013 |
F-2 |
| |
|
| Statement Operations and Comprehensive Loss for years-ended December 31, 2012 and December 31, 2013 |
F-3 |
| |
|
| Statements of Stockholders’ Equity (Deficit) for the Period From Inception through December 31, 2013 |
F-4 |
| |
|
| Statements of Cash Flows for the years ended December 31, 2012 and December 31, 2013 |
F-5 |
| |
|
Notes to the Financial Statements
|
F-6 |
| |
|
| Unaudited Consolidated Balance Sheets as of March 31, 2014 and
December 31, 2013 |
F-17 |
| |
|
| Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and March 31, 2013 |
F-18 |
| |
|
| Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and March 31, 2014 |
F-19 |
| |
|
| Notes to the Unaudited Consolidated Financial Statements |
F-20 |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
Earth Gen-Biofuel, Inc.
We have audited the accompanying
balance sheets of Earth Gen-Biofuel, Inc. (“the Company”) as of December 31, 2013 and 2012 and the related statements
of operations, stockholders’ equity and cash flows for the year ended December 31, 2013 and for the period from inception
on August 28, 2012 through December 31, 2012. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion the financial statements
referred to above present fairly, in all material respects, the financial position of Earth Gen-Biofuel, Inc. as of December 31,
2013 and 2012, and the results of their operations and cash flows for the year ended December 31, 2013 and for the period from
inception on August 28, 2012 through December 31, 2012, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the
Company has not yet established an ongoing source of revenue sufficient to cover its operating costs which raises substantial doubt
about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note
3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
August 14, 2014
EARTH GEN-BIOFUEL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
For Years Ended December 31, 2013 and December
31, 2012
| | |
December 31, | | |
December 31, | |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Current Assets | |
| | | |
| | |
| Cash | |
$ | 154,178 | | |
$ | 5,312 | |
| Inventories, net of reserve of $71,037 and $-0- | |
| - | | |
| - | |
| Prepaid expenses | |
| - | | |
| 22,750 | |
| Due from related party | |
| 56,958 | | |
| 57,271 | |
| Total Current Assets | |
| 211,136 | | |
| 85,333 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 6,519 | | |
| 1,128 | |
| | |
| | | |
| | |
| Security deposit | |
| 3,294 | | |
| - | |
| | |
| | | |
| | |
| Total Assets | |
$ | 220,949 | | |
$ | 86,461 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 22,281 | | |
$ | 9,000 | |
| Loan payable | |
| 5,000 | | |
| - | |
| Due to officer | |
| 39,335 | | |
| - | |
| Total Current Liabilities | |
| 66,616 | | |
| 9,000 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders' Deficit | |
| | | |
| | |
| Common stock, $.0001 par value, 2,990,000,000 shares
authorized, 74,292,880 and 63,666,400 shares issued and outstanding, respectively | |
| 7,429 | | |
| 6,366 | |
| Additional paid-in capital | |
| 923,046 | | |
| 185,962 | |
| Stock subscriptions payable | |
| - | | |
| 14,000 | |
| Deficit accumulated during the development stage | |
| (776,142 | ) | |
| (128,867 | ) |
| Total Stockholders' Equity | |
| 154,333 | | |
| 77,461 | |
| | |
| | | |
| | |
| Total Liabilities and Stockholders' Equity | |
$ | 220,949 | | |
$ | 86,461 | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
For Years Ended December 31, 2013 and December
31, 2012
| | |
| | |
August 28, 2012 | |
| | |
For the Years Ended | | |
(inception) to | |
| | |
December 31, | | |
December 31, | |
| | |
2013 | | |
2012 | | |
2013 | |
| | |
| | |
| | |
| |
| Revenues | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | |
| Operating expenses | |
| | | |
| | | |
| | |
| General and administrative | |
| 576,238 | | |
| 128,867 | | |
| 705,105 | |
| Impairment | |
| 71,037 | | |
| - | | |
| 71,037 | |
| Total operating expenses | |
| 647,275 | | |
| 128,867 | | |
| 776,142 | |
| | |
| | | |
| | | |
| | |
| Loss from operations and before income taxes | |
| (647,275 | ) | |
| (128,867 | ) | |
| (776,142 | ) |
| Income taxes | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Net Loss | |
$ | (647,275 | ) | |
$ | (128,867 | ) | |
$ | (776,142 | ) |
| | |
| | | |
| | | |
| | |
| Net loss per common share | |
| | | |
| | | |
| | |
| Basic and diluted | |
$ | (0.01 | ) | |
$ | (0.00 | ) | |
| | |
| | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding | |
| | | |
| | | |
| | |
| Basic and diluted | |
| 65,770,672 | | |
| 61,393,714 | | |
| | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period From Inception through December
31, 2013
| | |
| | |
| | |
| | |
| | |
Deficit | | |
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| | |
| | |
| | |
Additional | | |
Stock | | |
During the | | |
Total | |
| | |
Common Stock | | |
Paid-in | | |
Subscriptions | | |
Development | | |
Stockholders' | |
| | |
Shares | | |
Amount | | |
Capital | | |
Payable | | |
Stage | | |
Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE, AUGUST 28, 2012 (INCEPTION) | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued as founders' shares | |
| 54,644,000 | | |
| 5,464 | | |
| (5,464 | ) | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for cash | |
| 9,022,400 | | |
| 902 | | |
| 191,426 | | |
| 14,000 | | |
| - | | |
| 206,328 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (128,867 | ) | |
| (128,867 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE, DECEMBER 31, 2012 | |
| 63,666,400 | | |
| 6,366 | | |
| 185,962 | | |
| 14,000 | | |
| (128,867 | ) | |
| 77,461 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for cash | |
| 3,800,800 | | |
| 380 | | |
| 355,720 | | |
| (14,000 | ) | |
| - | | |
| 342,100 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock and warrants issued for cash | |
| 4,000,000 | | |
| 400 | | |
| 124,300 | | |
| - | | |
| - | | |
| 124,700 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services | |
| 2,825,680 | | |
| 283 | | |
| 257,064 | | |
| - | | |
| - | | |
| 257,347 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (647,275 | ) | |
| (647,275 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE, DECEMBER 31, 2013 | |
| 74,292,880 | | |
$ | 7,429 | | |
$ | 923,046 | | |
$ | - | | |
$ | (776,142 | ) | |
$ | 154,333 | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
For Years Ended December 31, 2013 and December
31, 2012
| | |
| | |
August 28, 2012 | |
| | |
For the Years Ended | | |
(inception) to | |
| | |
December 31, | | |
December 31, | |
| | |
2013 | | |
2012 | | |
2013 | |
| Operating Activities: | |
| | | |
| | | |
| | |
| Net Income (loss) | |
$ | (647,275 | ) | |
$ | (128,867 | ) | |
$ | (776,142 | ) |
| Adjustments to reconcile net loss to net cash used by operating activities: | |
| | | |
| | | |
| | |
| Depreciation expense | |
| 779 | | |
| 39 | | |
| 818 | |
| Impairment on inventory | |
| 71,037 | | |
| - | | |
| 71,037 | |
| Stock-based compensation | |
| 257,347 | | |
| - | | |
| 257,347 | |
| Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
| Inventory | |
| (18,287 | ) | |
| - | | |
| (18,287 | ) |
| Prepaid expenses and other receivable | |
| (30,000 | ) | |
| (22,750 | ) | |
| (52,750 | ) |
| Related party payables | |
| 39,649 | | |
| (57,271 | ) | |
| (17,622 | ) |
| Accounts payable and accrued expenses | |
| 13,281 | | |
| 9,000 | | |
| 22,281 | |
| Security deposits | |
| (3,294 | ) | |
| - | | |
| (3,294 | ) |
| Net cash used by operating activities | |
| (316,764 | ) | |
| (199,849 | ) | |
| (516,613 | ) |
| | |
| | | |
| | | |
| | |
| Investing Activities: | |
| | | |
| | | |
| | |
| Acquisitions of property and equipment | |
| (6,170 | ) | |
| (1,167 | ) | |
| (7,337 | ) |
| Net cash used in investing activities | |
| (6,170 | ) | |
| (1,167 | ) | |
| (7,337 | ) |
| | |
| | | |
| | | |
| | |
| Financing Activities: | |
| | | |
| | | |
| | |
| Proceeds from loans payable | |
| 5,000 | | |
| - | | |
| 5,000 | |
| Proceeds from stock issuances | |
| 342,100 | | |
| 206,328 | | |
| 548,428 | |
| Proceeds from stock and warrant issuances | |
| 124,700 | | |
| - | | |
| 124,700 | |
| Net cash provided in financing activities | |
| 471,800 | | |
| 206,328 | | |
| 678,128 | |
| | |
| | | |
| | | |
| | |
| Net increase (decrease) in cash | |
| 148,866 | | |
| 5,312 | | |
| 154,178 | |
| Cash, beginning of period | |
| 5,312 | | |
| - | | |
| - | |
| Cash, end of period | |
$ | 154,178 | | |
$ | 5,312 | | |
$ | 154,178 | |
| | |
| | | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | | |
| | |
| Cash paid during the period | |
| | | |
| | | |
| | |
| Interest | |
$ | - | | |
$ | - | | |
$ | - | |
| Income taxes | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | |
| Non-cash investing and financing activities: | |
| | | |
| | | |
| | |
| Stock issued for stock subscriptions | |
$ | 14,000 | | |
$ | - | | |
$ | 14,000 | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 1—Nature of Operations and Basis of Presentation
Earth Gen-Biofuel, Inc. (the “Company”
or “Earth Gen”) was incorporated in the state of Nevada on August 28, 2012 to pursue the business of becoming an international
agricultural company focused on growing plants that are the basis for providing renewable sources for manufacturing processes and
energy.
On September 25, 2012, Earth Gen entered into
an Agreement of Share Exchange and Plan of Reorganization (the “Exchange Agreement”) with EarthBlock Technologies,
Inc. (“EarthBlock”), a Nevada publicly traded corporation, pursuant to which EarthBlock acquired 100% of the ownership
of the Company in exchange for 1,591,660,000 shares of EarthBlock’s common stock (the “Exchange”) on the basis
of four shares of EarthBlock for one share of Earth Gen outstanding as of October 14, 2012.
Upon the completion of the Exchange, Earth Gen
operated as a wholly owned subsidiary of EarthBlock and focused its efforts to begin its international agricultural operations.
In October of 2012, Earth Gen began to organize farmers and government related agencies in Laos and Vietnam to control land for
growing castor beans. Prior to Earth Gen becoming a subsidiary of EarthBlock, Earth Gen’s management had spent over two years
creating the relationships and working with local farmers to build an organization and obtain the knowledge and expertise to become
a major grower of castor beans in these countries.
The common stock of EarthBlock was registered
with the SEC under the Exchange Act and was quoted on OTCQB operated by the OTC Markets Group Inc. EarthBlock failed to comply
with Exchange Act Section 13(a) because it had not filed any periodic reports with the SEC since the period ended December 31,
2007. EarthBlock consented to a deregistration order of the SEC, and pursuant to Section 12(j) of the Exchange Act, registration
of EarthBlock’s common stock was revoked and trading in EarthBlock’s common stock was suspended.
Additionally, the shareholders of Earth Gen
were not made aware of the full extent of a material liability of EarthBlock that resulted from the operations of EarthBlock’s
non-operational subsidiary EarthBlock Texas Homes, Inc. As a result of the liability not being included in proper detail and information
regarding its effect on EarthBlock’s financial statements, EarthBlock’s previously disclosed financial condition was
inaccurate.
On September 25, 2013, the Board of Directors
of EarthBlock and of Earth Gen voted to rescind the acquisition of Earth Gen by EarthBlock and authorized the officers of the Corporation
to take the steps required to complete the rescission of the Exchange.
A rescission agreement dated October
28, 2013 (the “Rescission Agreement”) was entered into by and among EarthBlock, Earth Gen and the shareholders. A majority
of Earth Gen shareholders approved the Rescission Agreement on October 28, 2013. The Rescission Agreement sets forth the terms
and provisions where the parties agreed to take all steps necessary and proper to unwind the Exchange including the surrender of
the Exchange Shares for cancellation and Earth Gen to issue to each Exchange Share shareholder his respective original equity interests
in Earth Gen. The Additional Shares will remain outstanding and will ratably dilute the Exchange Share shareholders pre-Exchange,
original equity ownership in Earth Gen as a result.
Upon consummation of the Rescission Agreement,
holders of the Exchange Shares were reissued Earth Gen common stock shares commensurate with the holders’ original equity
ownership interests in Earth Gen for a total of 1,591,660,000 shares. Over eighty percent of the holders of the Exchange Shares
and the holders of the Additional Share became parties to the Rescission Agreement.
From inception, Earth Gen has not generated
any revenues from its agricultural operations, as only test plantings were completed in 2012 and 2013 and the first commercial
planting began in April of 2014. Earth Gen has organized farmers in Laos and Vietnam who are working with Earth Gen to plant their
farmland with seeds provided by Earth Gen and under the supervision of Earth Gen’s management team and local experts. The
company also has entered into agreements with landowners for the use of their land to plant castor beans in exchange for a per
ton fee after harvest.
The accompanying financial statements include
the accounts of Earth Gen from its inception on August 28, 2012 through December 31, 2013.
Note 2—Going Concern
These financial statements have been prepared
on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the
normal course of business. As of December 31, 2013, the Company has an accumulated deficit since inception. The continuation of
the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify
future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the
Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a
going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3—Significant Accounting Policies
The accounting policies
of the Company are in accordance with the accounting principles generally accepted in the United States of America and are presented
in United States dollars (“USD”) using the accrual basis of accounting. Outlined below are those policies considered
particularly significant.
Development-Stage Company
The Company is considered
a development-stage company in accordance with Accounting Standards Codification (“ASC”) 915 – “Development-Stage
Entities.” Upon distribution of the Company’s products, it will exit the development stage. The nature of the Company’s
operations is highly speculative, and there is consequently a risk of loss of your investment. The success of the Company’s
plan of operation will depend to a great extent on the operations, financial condition, and management of the identified business
opportunity.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The carrying amounts reported
in the accompanying financial statements for current assets and current liabilities approximate the fair value because of the immediate
or short-term maturities of the financial instruments.
Fair value is defined as
the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability
and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect
the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance
establishes three levels of inputs that may be used to measure fair value:
Level 1 - Observable
inputs such as quoted prices in active markets;
Level 2 - Inputs, other than
the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 - Unobservable inputs
in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities are classified
based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy
classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels
for certain securities within the fair value hierarchy.
As of December 31, 2013, the Company's cash are considered Level
1 instruments. The Company does not have any Level 2 or 3 instruments.
Basic and Diluted Loss per Common Share
Basic loss per share is
calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common
shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders
by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Diluted loss per share excludes all
dilutive potential shares if their effect is anti-dilutive.
The Company has issued common stock purchase
warrants; however, they are anti-dilutive given the net loss incurred for the periods presented. As a result, 6,000,000 potentially
dilutive common stock equivalents (presented post-dividend and post-split) were excluded from the calculation of diluted earnings
per common share as of December 31, 2013. Therefore, dilutive and basic losses per common share are equal.
Comprehensive Income
The Company has no items
that represent other comprehensive income (loss). Net loss and comprehensive loss are identical.
Cash and Cash Equivalents
All highly-liquid investments
with a maturity of three (3) months or less are considered to be cash equivalents.
Inventory
Inventory consists of raw
materials consisting of castor bean seeds. Inventories are recorded at the lower of cost or market, using the first-in, first-out
method. Cost is determined at the actual cost for raw materials.
Expenditures on growing
crops are valued at the lower of cost or market and are deferred and charged to cost of sales when the related crops are harvested
and sold. The deferred growing costs included in inventories in the balance sheets consist primarily of land rental cost and service
costs.
In assessing the ultimate
realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory
levels. The Company’s reserve requirements generally increase or decrease with its projected demand requirements and market
conditions. The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales
contracts and orders in hand.
In addition, the Company
estimates net realizable value based on intended use, current market value and inventory ageing analyses. The Company writes down
the inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and
the estimated market value based upon assumptions about future demand and market conditions.
Based on the above assessment,
the Company has established a provision of 100% for inventory as of December 31, 2013 and 2012 given that Earth Gen has not generated
any revenues from its agricultural operations, and only test plantings have been completed.
Property and Equipment
Property and equipment
are stated at cost. The Company’s fixed assets are depreciated using the straight-line method over the assets' estimated
useful lives. Maintenance and repairs are charged to operations as incurred. Significant renewals and betterments are capitalized.
At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in operations.
Depreciation is computed for financial statement
purposes on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable
assets are:
| Category |
|
Estimated Useful Lives |
| Computers and technology |
|
2 – 3 years |
| Office equipment |
|
3 – 5 years |
| Machinery |
|
5 – 7 years |
Impairment of Long-lived Assets
Long-lived assets are tested for impairment
in accordance with ASC 360-10-45 “Impairment or Disposal of Long-Lived Assets”. The Company periodically evaluates
potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
The Company recognizes impairment of long-lived assets in the event that the net book values of such assets exceed the future undiscounted
cash flows attributable to such assets. During the reporting periods, the Company has not identified any indicators that would
require testing for impairment.
Revenue Recognition
Revenue from sales of the Company’s products
is recognized upon customer acceptance, which occurs at the time of delivery to the customer, provided persuasive evidence of an
arrangement exists, such as signed sales contract, the significant risks and rewards of ownership have been transferred to the
buyer at the time when the products are delivered to its customers with no significant post-delivery obligation on our part, the
sales price is fixed or determinable and collection is reasonably assured. The Company does not provide its customers with contractual
rights of return and post-delivery discount for any of its products. When there is any significant post-delivery performance obligations
exists, revenue is recognized only after such obligations are fulfilled. The Company evaluates the terms of sales agreement with
its customers in order to determine whether any significant post-delivery performance obligations exist.
Income Taxes
The Company follows ASC
740, Income Taxes for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable
when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion
or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision
for deferred income taxes in the period of change.
Deferred income taxes may
arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities
to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse.
In addition, the calculation
of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities
for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions
taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining
the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments
and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to
a revision become known.
Stock-based Compensation
The Company will account
for stock options issued to employees under ASC 718 “Compensation-Stock Compensation”. Under ASC 718, share-based compensation
cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over
the employee's requisite vesting period.
The Company measures compensation
expense for its non-employee stock-based compensation under ASC 505 “Equity”. The fair value of the option issued or
committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received.
The fair value is measured at the value of the Company's common stock on the date that the commitment for performance by the counterparty
has been reached or the counterparty's performance is complete. The fair value of the equity instrument is charged directly to
stock-based compensation expense and credited to additional paid-in capital.
Concentration of Credit Risks
Financial instrument that
potentially subject the Company to concentrations of credit risk is cash. The Company places its cash in what it believes to be
credit-worthy financial institutions, but at times, the amount may exceed the federally insured limit. The total cash balances
held in a commercial bank are secured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, although
on January 1, 2014 this amount is scheduled to return to $100,000 per depositor, per insured bank.
New Accounting Pronouncements
Accounting Standards Update No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation removes all incremental financial reporting requirements from GAAP for
development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. For organizations
defined as public business entities, for the first annual period beginning after December 15, 2014, the presentation and disclosure
requirements in Topic 915 will no longer be required. The revised consolidation standards are effective one year later, in annual
periods beginning after December 15, 2015. Early adoption is permitted. For other organizations, for the first annual period beginning
after December 15, 2014, the presentation and disclosure requirements in Topic 915 will no longer be required. The revised consolidation
standards are effective two years later, in annual periods beginning after December 15, 2016. Early adoption is permitted. The
adoption of this pronouncement will not have a material impact on the Company’s financial statements.
Note 4—Inventory
The Company has established a provision of 100%
for inventory as of December 31, 2013 given that Earth Gen has not generated any revenues from its agricultural operations, and
only test plantings have been completed.
Inventories consist of:
| | |
December 31, | | |
December 31, | |
| | |
2013 | | |
2012 | |
| | |
| | | |
| | |
| Seed | |
$ | 71,037 | | |
$ | - | |
| Less: inventory reserve | |
| (71,037 | ) | |
| - | |
| | |
| | | |
| | |
| Inventory, net | |
$ | - | | |
$ | - | |
Note 5— Due from Related Parties
In 2013 and
2012 the Company and EarthBlock advanced each other monies during the normal course of business. During the period ended December
31, 2013 and 2012, net funds provided to EarthBlock were $56,958 and $57,271, respectively. The advances do not have written note,
do not accrued interest and are due on demand.
As of December 31, 2013, the Company owed service
fees of $39,336 to George Shen, CEO and shareholder of the Company.
Prior to June 30, 2013, the Company was provided
office space at no charge by George Shen. Starting July 1, 2013, the Company has been paying office rent at $3,360 per month on
a month to month basis without lease agreement.
Note 6— Property and Equipment
Property and equipment consist of:
| | |
December 31, | | |
December 31, | |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| Machinery and equipment | |
$ | 3,670 | | |
$ | - | |
| Computers and office equipment | |
| 3,667 | | |
| 1,167 | |
| Total | |
| 7,337 | | |
| 1,167 | |
| Less: accumulated depreciation | |
| (818 | ) | |
| (39 | ) |
| | |
| | | |
| | |
| Property and equipment, net | |
$ | 6,519 | | |
$ | 1,128 | |
Note 7— Loan Payable
The Company borrowed funds based on ashort-term
loan from an unrelated individual for working capital purpose. The loan bears no interest and is due upon demand. As of December
31, 2013 and 2012, the loan balance was $5,000 and $-0-, respectively.
Note 8—Stockholders’ Equity
At December 31, 2013, the Company is authorized to issue 2,990,000,000
shares of $0.0001 par value common stock and 10,000,000 of $0.0001 par value preferred stock.
In anticipation of the rescission of the Exchange
Agreement with Earthblock and to prevent dilution to existing shareholders of the Company, on October 15, 2013, the board of directors
of the Company approved a stock dividend of three shares for each outstanding share. The stock dividend is being treated as a stock
split due to its high volume. All share and per share information has been retroactively adjusted to reflect the stock split.
On March 27, 2014, the Company’s shareholders
approved a recapitalization of the capital stock in the form of reverse stock split of its common stock in a ratio of 1-for-25.
All shares and per share amounts set forth herein assume the effectiveness of the reverse stock split. The Shareholders also approved
an amendment to the Articles of Incorporation to reduce the number of authorized shares of stock to 700,000,000 from 3,000,000,000.
Of the 700,000,000 authorized shares, there are 10,000,000 shares of Preferred Stock and 690,000,000 shares of Common Stock.
As a result of above stock split and reverse
split, the number of outstanding shares at December 31, 2012 decreased from 397,915,000 to 63,666,400. At December 31, 2013, 74,292,880
shares were issued and outstanding after adjusted for the stock split and reverse split.
Founders’ Shares
All reference to numbers of shares issued as
founders shares is based on a post-stock-dividend and post-reverse-split amount The Company issued founders shares upon Inception
of the Company. Founder shares of 54,644,000 were issued at $0.0001 per share. No monies were received as for the issuance of these
shares.
2012 Private Placements
All reference to numbers of shares issued in
2012 is based on a post stock split and reverse split amount. During the period from Inception to October 28, 2012, the Company
entered into subscription agreements with various accredited investors and sold 9,022,400 shares of common stock for an aggregate
of $192,328. All shares were placed by the officers and employees of Earth Gen and there were no commissions paid and no costs
attributed to the offering. There was no agreement to register shares offered in this private placement.
2013 Private Placements
All reference
to numbers of shares issued in 2013 is based on a post stock split and reverse split amount. During 2013, the Company entered into
subscription agreements with various accredited investors and sold 3,800,800 shares of common stock for an aggregate of $356,100.
All shares were placed by the officers and employees of Earth Gen and there were no commissions paid and no costs attributed to
the offering. There was no agreement to register shares offered in this private placement.
Also during 2013, the Company entered into subscription
agreements with various accredited investors and sold 4,000,000 shares of common stock and warrants to purchase an additional 8,000,000
shares of common stock at a post-split price of $0.03 per share, for an aggregate of $124,700. All shares were placed by the officers
and employees of Earth Gen and there were no commissions paid and no costs attributed to the offering. There was no agreement to
register shares offered in this private placement.
Warrants
All reference to numbers of shares issued for
warrants and per share price is based on a post stock split and reverse split amount.
The Company issued warrants for 6,400,000 shares of Earth Gen Common
Stock on August 1, 2013 and 1,600,000 warrants on September 12, 2013. Each of these warrants entitled the holder to purchase one
(1) share of Earth Gen Common Stock at $0.03 per share starting on January 1, 2014 and ending on December 15, 2016.
The warrants are equity classified and amounts
attributable to the warrants are classified within additional paid-in capital.
Restricted Stock Awards (“RSA”)
Issued for Services
All reference to numbers of shares issued for
warrants and per share price is based on a post-stock-dividend and post-reverse-split amount. During 2013, the Company granted
2,825,680 RSAs to various consultants for their services provided to the Company. As of December 31, 2013, all RSAs are vested
and there was no unrecognized compensation cost related to RSAs. For the year ended December 31, 2013 and 2012, stock-based compensation
expense of $257,347 and $-0- respectively was included in general and administrative expenses. The value of the shares issued
was based on the fair value of the stock issued, which was based on the most recent sale of common stock for cash.
Note 9—Income Taxes
The Company is subject to taxation in the United
States. As of December 31, 2013, the Company had Federal net tax operating loss carry forwards of approximately $710,133 available
to offset future taxable income. The carry forwards expire in varying amounts through 2033.
Significant components
of the Company’s deferred tax assets as of December 31, 2013 and 2012 are listed below:
| | |
December 31, | | |
December 31, | |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| Deferred tax assets: | |
| | | |
| | |
| Net operating loss carry forwards | |
$ | 220,074 | | |
$ | 43,815 | |
| Total deferred tax assets | |
| 220,074 | | |
| 43,815 | |
| Less: valuation allowance | |
| (220,074 | ) | |
| (43,815 | ) |
| Net deferred tax assets | |
$ | - | | |
$ | - | |
A valuation allowance of $220,074 and $43,815
for the year ended December 31, 2013 and 2012, respectively, was recognized to offset the net deferred tax assets, as realization
of such assets is uncertain.
A reconciliation
of incomes taxes using the statutory income tax rate, compared to the effective rate, is as follows:
| | |
Year Ended December 31, | | |
| |
| | |
2013 | | |
2012 | | |
Since Inception | |
| | |
| | |
| | |
| |
| Federal tax benefit at the expected statutory rate | |
| 34 | % | |
| 34 | % | |
| 34 | % |
| Change in valuation allowance | |
| -34 | % | |
| -34 | % | |
| -34 | % |
| | |
| | | |
| | | |
| | |
| Effective rate | |
| - | | |
| - | | |
| - | |
Uncertain Tax Positions
Interest associated with unrecognized tax benefits
are classified as income tax and penalties are classified in general and administrative expenses in the consolidated statements
of operations.
For the year
ended December 31, 2013 and 2012, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently,
the Company is not subject to examination by major tax jurisdictions.
Note 10—Commitments and Contingencies
Earth Gen has leased office space in Las Vegas, NV. The lease is
a month to month obligation and was entered into on December 23, 2013 at the rate of $59 per month.
Note 11 — Subsequent Events
All reference to numbers of shares issued and
per share price below is based on a post-stock-dividend and post-reverse-split amount.
Common Stock Reverse
Split and Reduction of Authorized Shares of Stock
On March 27, 2014, the Company’s shareholders
approved a recapitalization of the capital stock in the form of reverse stock split of its common stock in a ratio of 1-for-25.
All shares and per share amounts set forth herein assume the effectiveness of the reverse stock split. The Shareholders also approved
an amendment to the Articles of Incorporation to reduce the number of authorized shares of stock to 700,000,000 from 3,000,000,000.
Of the 700,000,000 authorized shares, there are 10,000,000 shares of Preferred Stock and 690,000,000 shares of Common Stock.
January 2014 Private Placement of Common Stock
On January
7, 2014, a private placement of the Common stock of Earth Gen was approved by the Board of Directors. Earth Gen placed 6,088,800
shares of its Common stock for an aggregate amount of $667,330. This placement was terminated on March 31, 2014. All shares were
placed by the officers and employees of Earth Gen and there were no commissions paid. There was no agreement to register shares
offered in this private placement.
April 2014 Private Placement of Common Stock
On April 7, 2014, a private placement of the
Common stock of Earth Gen was approved by the Board of Directors. Earth Gen placed 1,440,400 shares of its Common stock for an
aggregate amount of $168,307. All shares were placed by the officers and employees of Earth Gen and there were no commissions paid.
There was no agreement to register shares offered in this private placement. This offering was terminated on June 6, 2014 to evaluate
the Company’s additional needs for funding based on planting and harvesting operations in Laos.
Warrants
The Company issued warrants to purchase 202,000
shares of Earth Gen Common Stock on March 20, 2014. Each warrant entitled the holder to purchase one (1) share of Earth Gen at
$0.50 per share starting on July 15, 2014 and ending on September 30, 2016. These warrants have standard anti-dilution language
to allow for recapitalizations and distributions.
Farm Agreements
On March 10, 2014, Earth Gen entered into a
lease agreement for 136 hectares of farm land located at Phoengam Neua Village, Pek Districk, Xiengkhuang Province in the People’s
Republic of Lao. The term of the lease is for twelve years with an option for Earth Gen to renew for an additional twelve years.
Earth Gen is obligated to pay taxes on the land of up to $1,000 per year any taxes in excess of that amount are the obligation
of the landowner. In addition, Earth Gen is obligated to provide all elements required to grow castor beans on the land and start
using the land partial or in full for castor bean farming operations before the end of 2014. The compensation to the landowner
is contingent of the size of the harvest produced on the land. The contingent payment of $50.00 per metric ton is due ninety days
after the harvest to the landowner for all castor beans harvested on the land that is the subject of this Lease and Farm Cooperative
Agreement.
In addition to this agreement Earth Gen has
entered into two additional agreements under the same terms for 103 hectares in Xiengkhuang Province in close proximity to the
Phoengram Neua Village farm. The terms of these additional agreements are substantially the same.
Formation of Earth Gen-Biofuel Laos
Earth Gen-Biofuel Lao Sole Co Ltd (“Earth
Gen Laos”) was formed in March of 2014 under the laws of Laos to meet Laos regulatory and legal requirements to do business
in Laos. This company is 100% controlled by Earth Gen. Earth Gen Laos has its own bank accounts in Laos and pays all local operating
expenses of the business activities of Earth Gen in Laos. Earth Gen Laos banking is a U.S. dollar account. All payments and receipts
are made in U.S. dollars.
EARTH GEN-BIOFUEL INC
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
| | |
March 31, | | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
(Unaudited) | | |
| |
| | |
| | |
| |
| ASSETS | |
| | | |
| | |
| Current Assets | |
| | | |
| | |
| Cash | |
$ | 508,831 | | |
$ | 154,178 | |
| Prepaid expenses | |
| 3,965 | | |
| - | |
| Inventories | |
| 17,340 | | |
| - | |
| Due from related party | |
| 57,559 | | |
| 56,958 | |
| Total Current Assets | |
| 587,695 | | |
| 211,136 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 6,204 | | |
| 6,519 | |
| | |
| | | |
| | |
| Security deposit | |
| 3,294 | | |
| 3,294 | |
| | |
| | | |
| | |
| Total Assets | |
$ | 597,193 | | |
$ | 220,949 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 9,000 | | |
$ | 22,281 | |
| Loan Payable | |
| 5,000 | | |
| 5,000 | |
| Due to Officer | |
| 14,663 | | |
| 39,335 | |
| Total Current Liabilities | |
| 28,663 | | |
| 66,616 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders' Deficit | |
| | | |
| | |
Common stock, $.0001 par value, 690,000,000 shares authorized,
88,701,680 and 74,292,880 shares issued and outstanding at
March 31, 2014 and December 31, 2013 | |
| 8,870 | | |
| 7,429 | |
| Paid-in capital | |
| 1,655,524 | | |
| 923,046 | |
| Stock Subscription Payable | |
| 4,300 | | |
| - | |
| Accumulated earnings (deficit) | |
| (1,100,164 | ) | |
| (776,142 | ) |
| Total Stockholders' Equity | |
| 568,530 | | |
| 154,333 | |
| | |
| | | |
| | |
| Total Liabilities and Stockholders' Equity | |
$ | 597,193 | | |
$ | 220,949 | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL INC
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | |
| | |
| | |
September 1, 2012 | |
| | |
| | |
| | |
(inception) to | |
| | |
Three Months Ended March 31, | | |
March 31, 2014 | |
| | |
2014 | | |
2013 | | |
2014 | |
| | |
| | |
| | |
| |
| Revenues | |
$ | - | | |
$ | - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | |
| General and administrative | |
| 324,022 | | |
| 18,588 | | |
| 1,100,164 | |
| Total operating expenses | |
| 324,022 | | |
| 18,588 | | |
| 1,100,164 | |
| | |
| | | |
| | | |
| | |
| Income (Loss) from operations and before income taxes | |
| (324,022 | ) | |
| (18,588 | ) | |
| (1,100,164 | ) |
| | |
| | | |
| | | |
| | |
| Income taxes | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Net Income (Loss) | |
$ | (324,022 | ) | |
$ | (18,588 | ) | |
$ | (1,100,164 | ) |
| | |
| | | |
| | | |
| | |
| Net income per common share | |
| | | |
| | | |
| | |
| Basic and diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
| | |
| | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding | |
| | | |
| | | |
| | |
| Basic and diluted | |
| 84,431,128 | | |
| 63,666,400 | | |
| | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL INC
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | |
| | |
| | |
September 1, 2012 | |
| | |
| | |
| | |
(inception) to | |
| | |
Three Months Ended March 31, | | |
March 31, | |
| | |
2014 | | |
2013 | | |
2014 | |
| Operating Activities: | |
| | | |
| | | |
| | |
| Net loss | |
$ | (324,022 | ) | |
$ | (18,588 | ) | |
$ | (1,100,164 | ) |
| Adjustments to reconcile net loss to net cash used by operating
activities: | |
| | | |
| | | |
| | |
| Depreciation expense | |
| 314 | | |
| 142 | | |
| 1,132 | |
| Impairment | |
| - | | |
| - | | |
| 71,037 | |
| Stock-based compensation | |
| 66,590 | | |
| - | | |
| 323,937 | |
| Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
| Inventory | |
| (17,340 | ) | |
| - | | |
| (35,627 | ) |
| Prepaid expenses and other receivables | |
| (3,965 | ) | |
| - | | |
| (56,715 | ) |
| Related party payables | |
| (25,274 | ) | |
| 16,000 | | |
| (42,896 | ) |
| Security Deposit | |
| - | | |
| - | | |
| (3,294 | ) |
| Accounts payable and accrued expenses | |
| (13,280 | ) | |
| (7,500 | ) | |
| 9,001 | |
| | |
| | | |
| | | |
| | |
| Net cash used in operating activities | |
| (316,977 | ) | |
| (9,946 | ) | |
| (833,590 | ) |
| | |
| | | |
| | | |
| | |
| Investing Activities: | |
| | | |
| | | |
| | |
| Acquisitions of property and equipment | |
| - | | |
| (2,500 | ) | |
| (7,337 | ) |
| | |
| | | |
| | | |
| | |
| Net cash used in investing activities | |
| - | | |
| (2,500 | ) | |
| (7,337 | ) |
| | |
| | | |
| | | |
| | |
| Financing Activities: | |
| | | |
| | | |
| | |
| Proceeds from loan | |
| - | | |
| 15,000 | | |
| 5,000 | |
| Proceeds from stock issuances | |
| 621,130 | | |
| - | | |
| 1,220,058 | |
| Proceeds from stock and warrant issuances | |
| 50,500 | | |
| - | | |
| 124,700 | |
| | |
| | | |
| | | |
| | |
| Net cash provided by financing activities | |
| 671,630 | | |
| 15,000 | | |
| 1,349,758 | |
| | |
| | | |
| | | |
| | |
| Net increase in cash | |
| 354,653 | | |
| 2,554 | | |
| 508,831 | |
| | |
| | | |
| | | |
| | |
| Cash, beginning of period | |
| 154,178 | | |
| 5,312 | | |
| - | |
| | |
| | | |
| | | |
| | |
| Cash, end of period | |
$ | 508,831 | | |
$ | 7,866 | | |
$ | 508,831 | |
| | |
| | | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | | |
| | |
| Cash paid during the period | |
| | | |
| | | |
| | |
| Interest | |
$ | - | | |
$ | - | | |
$ | - | |
| Income taxes | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | |
| Non-cash investing and financing activities: | |
| | | |
| | | |
| | |
| Stock issued for stock subscriptions | |
$ | - | | |
$ | - | | |
$ | - | |
The accompanying notes are an integral part
of these financial statements.
EARTH GEN-BIOFUEL,
INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Nature of Operations and Basis of Presentation
Earth Gen-Biofuel Inc. (the “Company”
or “Earth Gen”) was incorporated in the state of Nevada on August 28, 2012 to pursue the business of becoming an international
agricultural company focused on growing plants that are the basis for providing renewable sources for manufacturing processes
and energy.
On September 25, 2012, Earth Gen entered into
an Agreement of Share Exchange and Plan of Reorganization (the “Exchange Agreement”) with EarthBlock Technologies,
Inc. (“EarthBlock”), a Nevada publicly traded corporation, pursuant to which EarthBlock acquired 100% of the ownership
of the Company in exchange for 1,591,660,000 shares of EarthBlock’s common stock (the “Exchange”) on the basis
of four shares of EarthBlock for one share of Earth Gen outstanding as of October 14, 2012.
Upon the completion of the Exchange, Earth
Gen operated as a wholly owned subsidiary of EarthBlock and focused its efforts to begin its international agricultural operations.
In October of 2012, Earth Gen began to organize farmers and government related agencies in Laos and Vietnam to control land for
growing castor beans. Prior to Earth Gen becoming a subsidiary of EarthBlock, Earth Gen’s management had spent over two
years creating the relationships and working with local farmers to build an organization and obtain the knowledge and expertise
to become a major grower of castor beans in these countries.
The common stock of EarthBlock was registered
with the SEC under the Exchange Act and was quoted on OTCQB operated by the OTC Markets Group Inc. EarthBlock failed to comply
with Exchange Act Section 13(a) because it had not filed any periodic reports with the SEC since the period ended December 31,
2007. EarthBlock consented to a deregistration order of the SEC, and pursuant to Section 12(j) of the Exchange Act, registration
of EarthBlock’s common stock was revoked and trading in EarthBlock’s common stock was suspended.
Additionally, the shareholders of Earth Gen
were not made aware of the full extent of a material liability of EarthBlock that resulted from the operations of EarthBlock’s
non-operational subsidiary EarthBlock Texas Homes, Inc. As a result of the liability not being included in proper detail and information
regarding its effect on EarthBlock’s financial statements, EarthBlock’s previously disclosed financial condition was
inaccurate.
On September 25, 2013, the Board of Directors
of EarthBlock and of Earth Gen voted to rescind the acquisition of Earth Gen by EarthBlock and authorized the officers of the
Corporation to take the steps required to complete the rescission of the Exchange.
A rescission agreement dated October
28, 2013 (the “Rescission Agreement”) was entered into by and among EarthBlock, Earth Gen and the shareholders. A
majority of Earth Gen shareholders approved the Rescission Agreement on October 28, 2013. The Rescission Agreement sets forth
the terms and provisions where the parties agreed to take all steps necessary and proper to unwind the Exchange including the
surrender of the Exchange Shares for cancellation and Earth Gen to issue to each Exchange Share shareholder his respective original
equity interests in Earth Gen. The Additional Shares will remain outstanding and will ratably dilute the Exchange Share shareholders
pre-Exchange, original equity ownership in Earth Gen as a result.
Upon consummation of the Rescission Agreement,
holders of the Exchange Shares were reissued Earth Gen common stock shares commensurate with the holders’ original equity
ownership interests in Earth Gen for a total of 1,591,660,000 shares. Over eighty percent of the holders of the Exchange Shares
and the holders of the Additional Share became parties to the Rescission Agreement.
From inception, Earth Gen has not generated
any revenues from its agricultural operations, as only test plantings were completed in 2012 and 2013 and the first commercial
planting began in April of 2014. Earth Gen has organized farmers in Laos and Vietnam who are working with Earth Gen to plant their
farmland with seeds provided by Earth Gen and under the supervision of Earth Gen’s management team and local experts. The
company also has entered into agreements with landowners for the use of their land to plant castor beans in exchange for a per
ton fee after harvest.
In March 2014, Earth Gen-Biofuel Lao Sole Co
Ltd (“Earth Gen Laos”) was formed under the laws of Laos to meet Laos regulatory and legal requirements to do business
in Laos. This company is 100% controlled by Earth Gen. Earth Gen Laos has its own in country bank accounts and pays all local
operating expenses of the business activities of Earth Gen in Laos.
Note 2—Going Concern
These financial
statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. As of March 31, 2014, the Company has an accumulated deficit since
inception. The continuation of the Company as a going concern is dependent upon the continued financial support from its management,
and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating
profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern.
Note 3—Significant Accounting Policies
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Basic and Diluted (Loss) per Common Share
Basic earnings (loss)
per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number
of common shares during the period. Diluted earnings (loss) per share is calculated by dividing the Company’s net income
available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted
average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
Diluted earnings (loss) per share excludes all dilutive potential shares if their effect is anti-dilutive.
The Company has issued
common stock purchase warrants; however, they are anti-dilutive given the net loss incurred for the periods presented. As a result,
6,000,000 potentially dilutive common stock equivalents (presented post-dividend and post-split) were excluded from the calculation
of diluted earnings per common share as of March 31, 2014. Therefore, dilutive and basic losses per common share are equal.
Inventory
Inventory consists of
raw materials consisting of castor bean seeds. Inventories are recorded at the lower of cost or market, using the first-in, first-out
method. Cost is determined at the actual cost for raw materials.
Expenditures on growing
crops are valued at the lower of cost or market and are deferred and charged to cost of sales when the related crops are harvested
and sold. The deferred growing costs included in inventories in the balance sheets consist primarily of land rental cost and service
costs.
In assessing the ultimate
realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory
levels. The Company’s reserve requirements generally increase or decrease with its projected demand requirements and market
conditions. The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales
contracts and orders in hand.
In addition, the Company
estimates net realizable value based on intended use, current market value and inventory ageing analyses. The Company writes down
the inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and
the estimated market value based upon assumptions about future demand and market conditions.
Based on the above assessment,
the Company had an inventory reserve of $-0- and $71,037 as of March 31, 2014 and December 31, 2013, respectively.
New Accounting Pronouncements
Accounting Standards Update No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable
Interest Entities Guidance in Topic 810, Consolidation removes all incremental financial reporting requirements from GAAP
for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. For
organizations defined as public business entities, for the first annual period beginning after December 15, 2014, the
presentation and disclosure requirements in Topic 915 will no longer be required. The revised consolidation standards are
effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted. For other
organizations, for the first annual period beginning after December 15, 2014, the presentation and disclosure requirements in
Topic 915 will no longer be required. The revised consolidation standards are effective two years later, in annual periods
beginning after December 15, 2016. Early adoption is permitted. The adoption of this pronouncement will not have a material
impact on the Company’s financial statements.
Note 4—Inventory
Inventory consists of:
| | |
March 31, | | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Seeds | |
$ | 7,340 | | |
$ | 71,037 | |
| Supplies | |
| 10,000 | | |
| - | |
| | |
| | | |
| | |
| Total inventory | |
$ | 17,340 | | |
$ | 71,037 | |
| Less: inventory reserve | |
| - | | |
| (71,037 | ) |
| | |
$ | 17,340 | | |
$ | - | |
Note 5— Due from Related Parties
The Company
and EarthBlock advance each other monies in the normal course of business. During the period ended March
31, 2014 and December 31, 2013, net funds provided to EarthBlock were $57,558 and $56,958, respectively. The advances do
not have written note, do not accrued interest and are due on demand.
As of March 31, 2014 and December 31, 2013,
the Company owed $14,663 and $39,336 to George Shen, CEO and shareholder of the Company for accrued service fees.
Prior to
June 30, 2013, the Company was provided office space at no charge by George Shen. Starting July 1, 2013, the Company has been
paying office rent at $3,360 under a month to month lease agreement.
Note 6— Loan Payable
The Company borrowed short-term loan from an
unrelated individual for working capital purpose. The loan bears no interest and is due upon demand. As of March 31, 2014 and
December 31, 2013, the loan balance was $5,000 and $5,000, respectively.
Note 7—Stockholders’ Equity
At March 31, 2014, the
Company is authorized to issue 690,000,000 shares of $0.0001 par value common stock and 10,000,000 of $0.0001 par value preferred
stock.
In anticipation of the
rescission of the Exchange Agreement with EarthBlock and to prevent dilution to existing shareholders of the Company, on October
15, 2013, the board of directors of the Company approved a stock dividend of three shares for each outstanding share. The stock
dividend is being treated as a stock split due to its high volume. All share and per share information has been retroactively
adjusted to reflect the stock split.
On March 27, 2014, the
Company’s shareholders approved a recapitalization of the capital stock in the form of reverse stock split of its common
stock in a ratio of 1-for-25. All shares and per share amounts set forth herein assume the effectiveness of the reverse stock
split. The Shareholders also approved an amendment to the Articles of Incorporation to reduce the number of authorized shares
of stock to 700,000,000 from 3,000,000,000. Of the 700,000,000 authorized shares, there are 10,000,000 shares of Preferred Stock
and 690,000,000 shares of Common Stock.
As a result of above stock
split and reverse split, at December 31, 2013, 74,292,880 shares were issued and outstanding after adjusted for the stock split
and reverse split. At March 31, 2014, 88,701,680 shares were issued and outstanding.
January 2014 Private Placement
of Common Stock
On January
7, 2014, a private placement of the Common stock of Earth Gen was approved by the Board of Directors. Earth Gen placed 6,088,800
shares of its Common stock for an aggregate amount of $667,330. This placement was terminated on March 31, 2014. All shares were
placed by the officers and employees of Earth Gen and there were no commissions paid. There was no agreement to register shares
offered in this private placement.
Restricted Stock Awards (“RSA”)
Issued for Services
All reference to numbers of shares issued for
warrants and per share price is based on a post-stock-dividend and post-reverse-split amount. During year 2013, the Company granted
2,825,680 RSAs to various consultants for their services provided to the Company.
As of March 31, 2014 and December 31, 2013,
all RSAs are vested and there was no unrecognized compensation cost related to RSAs.
For the three months ended March 31, 2014 and
2013, stock-based compensation expense of $66,590 and $0 respectively was included in general and administrative expenses. The
value of the shares issued was based on the fair value of the stock issued, which was based on the most recent sale of common
stock for cash.
Warrants
All reference to numbers of shares issued for
warrants and per share price is based on a post-stock-dividend and post-reverse-split amount.
The Company issued warrants for 6,400,000 shares
of Earth Gen Common Stock on August 1, 2013 and 1,600,000 warrants on September 12, 2013. Each of these warrants entitled the
holder to purchase one (1) share of Earth Gen Common Stock at $0.03 per share starting on January 1, 2014 and ending on December
15, 2016.
The Company issued warrants to purchase 202,000
shares of Earth Gen Common Stock on March 20, 2014. Each warrant entitled the holder to purchase one (1) share of Earth Gen at
$0.50 per share starting on July 15, 2014 and ending on September 30, 2016. These warrants have standard anti-dilution language
to allow for recapitalizations and distributions.
The warrants are equity classified and amounts
attributable to the warrants are classified within additional paid-in capital.
A summary of the status of the Company’s
warrants as of March 31, 2014 is presented below:
| | |
Number of
Shares | |
| | |
| |
| Outstanding at December 31, 2013 | |
| 8,000,000 | |
| | |
| | |
| Warrants granted | |
| 202,000 | |
| Exercised | |
| - | |
| Forfeited | |
| - | |
| Expired | |
| - | |
| Outstanding at March 31, 2014 | |
| 8,202,000 | |
| Exercisable at March 31, 2014 | |
| 8,202,000 | |
The following table summarizes information
about the warrants as of March 31, 2014:
| | | |
Options and Warrants
Outstanding | | |
Options and Warrants
Exercisable | |
Exercise
Prices | | |
Number
Outstanding | | |
Weighted
Average
Remaining
Contractual
Life (in
years) | | |
Weighted
Average
Exercise
Price | | |
Number
Exercisable | | |
Weighted
Average
Exercise Price | |
| | | |
| | |
| | |
| | |
| | |
| |
| $ | 0.03 | | |
| 8,000,000 | | |
| 2.71 | | |
$ | 0.03 | | |
| 8,000,000 | | |
$ | 0.03 | |
| $ | 0.50 | | |
| 202,000 | | |
| 2.50 | | |
$ | 0.50 | | |
| 202,000 | | |
$ | 0.50 | |
| | | | |
| 8,202,000 | | |
| 2.71 | | |
$ | 0.04 | | |
| 8,202,000 | | |
$ | 0.04 | |
Note 8—Commitments and Contingencies
Farm Agreements
On March 10, 2014, Earth Gen entered into a
lease agreement for 136 hectares of farm land located at Phoengam Neua Village, Pek Districk, Xiengkhuang Province in the People’s
Republic of Lao. The term of the lease is for twelve years with an option for Earth Gen to renew for an additional twelve years.
Earth Gen is obligated to pay taxes on the land of up to $1,000 per year any taxes in excess of that amount are the obligation
of the landowner. In addition, Earth Gen is obligated to provide all elements required to grow castor beans on the land and start
using the land partial or in full for castor bean farming operations before the end of 2014. The compensation to the landowner
is contingent of the size of the harvest produced on the land. The contingent payment of $50.00 per metric ton is due ninety days
after the harvest to the landowner for all castor beans harvested on the land that is the subject of this Lease and Farm Cooperative
Agreement.
In addition to this agreement, Earth Gen has
entered into two additional agreements under the same terms for 103 hectares in Xiengkhuang Province in close proximity to the
Phoengram Neua Village farm. The terms of these additional agreements are substantially the same.
Note 9 — Subsequent Events
All reference
to numbers of shares issued and per share price below is based on a post-stock-dividend and post-reverse-split amount.
April 2014 Private Placement
of Common Stock
On April 7, 2014, a private placement of the
Common stock of Earth Gen was approved by the Board of Directors. Earth Gen placed 1,440,400 shares of its Common stock for an
aggregate amount of $168,307. All shares were placed by the officers and employees of Earth Gen and there were no commissions
paid. There was no agreement to register shares offered in this private placement. This offering was terminated on June 6, 2014
to evaluate the Company’s additional needs for funding based on planting and harvesting operations in Laos.
