SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 2011
COMMISSION FILE NO.: 0-33513
| GS ENVIROSERVICES, INC. | ||
| Exact name of registrant as specified in its charter) | ||
| Delaware | 20-8563731 | |
| (State of other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) | |
| 5950 Shiloh Road East, Suite N, Alpharetta, GA | 30005 | |
| (Address of principal executive offices) | (Zip Code) | |
| (212) 994-5374 | ||
(Registrant’s telephone number including area code) | ||
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | Yes | X | No | ||
| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the prior 12 months (or for such shorter period that the registrant was required to submit and post such files). | Yes | No | X | ||
| 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 [X] | |||||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | No | X | ||
| As of August 11, 2011, there were 7,605,054 shares of common stock outstanding. |
GS ENVIROSERVICES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED JUNE 30, 2011
TABLE OF CONTENTS
| Page No. | ||
| Part I | Financial Information | |
| Item 1. | Financial Statements (unaudited) | 3 |
| Balance Sheets – June 30, 2011 (unaudited) and December 31, 2010 | 4 | |
| Condensed Statements of Operations for the Three and Six Months Ended June 30, 2011 (unaudited) and 2010 (unaudited) | 5 | |
| Condensed Statements of Cash Flows for the Six Months Ended June 30, 2011 (unaudited) and 2010 (unaudited) | 6 | |
| Notes to Condensed Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis | 9 |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| Part II | Other Information | |
| Item 1. | Legal Proceedings | 12 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
| Item 3. | Defaults Upon Senior Securities | 12 |
| Item 4. | Reserved | 12 |
| Item 5. | Other Information | 12 |
| Item 6. | Exhibits | 13 |
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) FOR JUNE 30, 2011
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GS ENVIROSERVICES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010
| ASSETS: | 6/30/2011 | 12/31/2010 | ||||||
| Current assets: | ||||||||
| Cash | $ | -- | $ | -- | ||||
| Prepaid expenses | -- | -- | ||||||
| Total current assets | -- | -- | ||||||
| TOTAL ASSETS | -- | -- | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | 42,104 | 36,976 | ||||||
| Accrued expenses | 374,878 | 271,010 | ||||||
| Due to an affiliate | 12,051 | -- | ||||||
| Convertible debenture | 223,387 | 223,387 | ||||||
| Total current liabilities | 652,420 | 531,373 | ||||||
| Total liabilities: | 652,420 | 531,373 | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Common stock, $.0001 par value, 100,000,000 shares authorized | ||||||||
| 15,573,594 shares issued and 7,605,054 outstanding | 761 | 761 | ||||||
| Treasury stock, 7,968,540 shares at cost | (240,000 | ) | (240,000 | ) | ||||
| Additional paid-in capital | 5,367,885 | 5,367,885 | ||||||
| Retained deficit | (5,781,066 | ) | (5,660,019 | ) | ||||
| Total stockholders’ equity (deficit) | (652,420 | ) | (531,373 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | -- | $ | -- | ||||
The notes to the Condensed Financial Statements are an integral part of these statements.
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GS ENVIROSERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||
| 6/30/2011 | 6/30/2010 | 6/30/2011 | 6/30/2010 | |||||||||||||
| Revenues | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| Cost of revenues | -- | -- | -- | -- | ||||||||||||
| Gross profit | -- | -- | -- | -- | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | 61,617 | 89,123 | 109,179 | 119,516 | ||||||||||||
| Total operating expenses | 61,617 | 89,123 | 109,179 | 119,516 | ||||||||||||
| Operating loss | (61,617 | ) | (89,123 | ) | (109,179 | ) | (119,516 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Cost of conversion feature | -- | -- | -- | (552 | ) | |||||||||||
| Interest expense | (5,967 | ) | (6,552 | ) | (11,869 | ) | (11,869 | ) | ||||||||
| Total other income (expense), net | (5,967 | ) | (6,552 | ) | (11,869 | ) | (12,421 | ) | ||||||||
| Loss before provision for income taxes | (67,584 | ) | (95,675 | ) | (121,048 | ) | (131,937 | ) | ||||||||
| Provision for income taxes | -- | -- | -- | -- | ||||||||||||
| Net loss | $ | (67,584 | ) | $ | (95,675 | ) | $ | (121,048 | ) | $ | (131,937 | ) | ||||
| Loss per share | ||||||||||||||||
| Basic loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
| Diluted loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
| Weighted average shares of common stock outstanding | ||||||||||||||||
| Basic | 7,605,054 | 15,573,594 | 7,605,054 | 15,573,594 | ||||||||||||
| Diluted | 7,605,054 | 15,573,594 | 7,605,054 | 15,573,594 | ||||||||||||
The notes to the Condensed Financial Statements are an integral part of these statements.
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GS ENVIROSERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 (UNAUDITED)
AND JUNE 30, 2010 (UNAUDITED)
| 6/30/2011 | 6/30/2010 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (121,048 | ) | $ | (131,937 | ) | ||
| Adjustment to reconcile net loss to net cash used in (provided by) operating activities: | ||||||||
| Cost of conversion feature | -- | 552 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts Payable and Accrued expenses | 108,997 | 129,146 | ||||||
| Due to Affiliate | 12,051 | -- | ||||||
| Prepaid expenses | -- | 2,239 | ||||||
| Net cash flows used in continuing operations | -- | -- | ||||||
| Increase (decrease) in cash | -- | -- | ||||||
| Cash at beginning of period | -- | -- | ||||||
| Cash at end of period | $ | -- | $ | -- | ||||
The notes to the Condensed Financial Statements are an integral part of these statements.
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GS ENVIROSERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| NOTE 1 | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
The Company’s operations during the second quarter of 2011 have consisted of research and evaluation of a number of technologies designed to refine industrial and municipal wastewaters into hydrocarbon feedstocks for carbon-neutral production of renewable fuels, plastics and other value-added products.
During 2010, the Company located and conducted due diligence into a site in Raynham, Massachusetts (“Raynham”) with the potential to host a wastewater recycling facility and to provide a platform for pilot testing and commercialization of the Company’s technologies. These efforts culminated in the execution of a series of agreements in October 2010 to finance, build and operate a wastewater recycling facility at the Raynham site. The Company additionally agreed to purchase certain equipment from the owners of the Raynham site for $200,000, which amount is payable in the form of a convertible debenture upon closing of financing with respect to the construction of the planned wastewater recycling facility. The Company is currently seeking financing for this facility and plans to initially raise about $1 million to complete initial construction.
In October 10, 2009, the Company and GS CleanTech Corporation (“CleanTech”) entered into an Early Adopter License Agreement (the “EALA”) involving use of CleanTech’s patent-pending lipid production technologies in industrial and municipal wastewater applications. Under the terms of the EALA, the Company also has the right to purchase equipment based on CleanTech’s feedstock conditioning technologies at cost. In return, the Company has agreed to pay CleanTech a license fee equal to 20% of the issued and outstanding capital stock of the Company upon the Company’s successful execution of a third party agreement by the Company for a demonstration-scale pilot facility based on the licensed technologies. In addition, CleanTech retains the right to purchase any lipids or other co-products produced by the Company or its licensees at a rate equal to 80% of the then-current market price of any such products. CleanTech is a wholly-owned subsidiary of GreenShift Corporation, which company is majority owned by the Company’s chairman, who is also the beneficial owner of the majority of our capital stock.
The Company utilizes the services of consultants to conserve costs and defray risk as it executes on its project and technology development plans.
The Company’s goals for 2011 are to complete the financing required for the facility described above and to complete construction; commence operations at the Raynham site; and, initiate pilot testing with the Company’s technologies at the Raynham site. The Company also plans to continue to seek possible acquisition targets that bring strategic assets, cash flows or management to the Company in ways that also defray the Company’s financial and technology risk.
GOING CONCERN
The accompanying financial statements referred to above have been prepared assuming that the company will continue as a going concern. The Company has no established source of revenue and is dependent on its ability to raise capital from shareholders or other sources to sustain operations. These factors raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to raise capital will depend on our success in obtaining financing and our success in developing revenue sources.
BASIC AND DILUTED EARNINGS PER SHARE (“EPS”)
Basic (loss) earnings per share is computed by dividing net income by the weighted average common shares outstanding during a period. Diluted (loss) earnings per share is based on the treasury stock method and includes the effect from potential issuance of common stock assuming the exercise of all stock options. Common share equivalents have been excluded where their inclusion would be anti-dilutive. Potentially future dilutive shares at June 30, 2011 are 705,600 shares from the conversions of 705,600 outstanding options and warrants and 36,429,630 shares from the potential conversion of the $196,720 convertible debenture (see Note 2 – Convertible Debenture).
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| NOTE 2 | CONVERTIBLE DEBENTURE |
Effective on June 3, 2009, James Green resigned from his position as Chief Executive Officer and sole member of GS EnviroServices Board of Directors. Pursuant to an Exchange Agreement dated June 3, 2009 James Green delivered to GS EnviroServices 7,968,540 shares of GS EnviroServices common stock (the "Exchange Shares"). In exchange for the Exchange Shares, GS EnviroServices issued to Mr. Green a Convertible Debenture and agreed to issue one million shares of Series A preferred Stock, when authorized.
The Convertible Debenture is in the principal amount of $240,000, although payment of $24,000 against that principal obligation was made by GS EnviroServices immediately. The remaining principal is payable with 12% per annum interest in monthly payments of $38,562 commencing in October 2009, with the final payment due on February 26, 2010. Interest is payable in cash or in shares of GS EnviroServices common stock, at GS EnviroServices’ option. The holder may convert the principal amount and accrued interest into common stock of GS EnviroServices at a conversion price equal to 90% of the lowest closing market price during the 20 trading days preceding conversion, but may not convert into shares that would cause it to own more than 4.99% of the outstanding shares of GS EnviroServices. The Company determined that the conversion feature of the convertible debenture met the criteria of ASC 480-10-25-14 to be recorded as a liability as it could result in the note being converted into a variable number of shares. At the commitment date, the Company determined the value of the Green Convertible Debentures to be an aggregate $264,827, which represented the face values of $240,000 plus the present values of the liability for the conversion features of $24,827. The Company recorded the $24,827 to interest expense at the commitment dates of the debentures. The difference between the fair value of the conversion feature and the present value is being accreted through interest expense. As of March 31, 2010, an expense of $552 was recorded as interest expense for the accretion of the discount from the liability of the conversion feature. In October 2009, the Company issued a partial monthly payment of $19,280 reducing the principal to $196,720. As of June 30, 2011, the Company is in default of this debenture. Accrued interest on this note as of June 30, 2011 and December 31, 2010 of $50,923 and $39,054 is included in accrued expenses in the accompanying balance sheets.
In the Exchange Agreement, GS EnviroServices undertook to amend its Certificate of Incorporation to authorize the Series A Preferred Stock. The Series A Preferred Stock, when authorized and issued, will provide the holder with the right to cast votes at meetings of the shareholders or by written consent equal to 51% of the voting power of the outstanding shares.
GS EnviroServices is holding the Exchange Shares in escrow. The Exchange Shares will not be cancelled until the Series A Preferred Stock is issued.
On June 3, 2009 James Green transferred to Viridis Capital, LLC his beneficial interest in the Exchange Shares, including his right to receive the Series A Preferred Stock in exchange for the Exchange Shares. Kevin Kreisler, the newly appointed CEO of GS EnviroServices, is the sole member of Viridis Capital, LLC.
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| ITEM 2 | MANAGEMENT'S DISCUSSION AND ANALYSIS |
FORWARD LOOKING STATEMENTS
In addition to historical information, this Report contains forward-looking statements, which are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans to," "estimates," "projects," or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in other documents GS EnviroServices, Inc. files from time to time with the Securities and Exchange Commission (the "SEC").
The Company’s operations during the second quarter of 2011 have consisted of research and evaluation of a number of technologies designed to refine industrial and municipal wastewaters into hydrocarbon feedstocks for carbon-neutral production of renewable fuels, plastics and other value-added products.
During 2010, the Company located and conducted due diligence into a site in Raynham, Massachusetts (“Raynham”) with the potential to host a wastewater recycling facility and to provide a platform for pilot testing and commercialization of the Company’s technologies. These efforts culminated in the execution of a series of agreements in October 2010 to finance, build and operate a wastewater recycling facility at the Raynham site. The Company additionally agreed to purchase certain equipment from the owners of the Raynham site for $200,000, which amount is payable in the form of a convertible debenture upon closing of financing with respect to the construction of the planned wastewater recycling facility. The Company is currently seeking financing for this facility and plans to initially raise about $1 million to complete initial construction.
In October 2009, the Company and GS CleanTech Corporation (“CleanTech”) entered into an Early Adopter License Agreement (the “EALA”) involving use of CleanTech’s patent-pending lipid production technologies in industrial and municipal wastewater applications. Under the terms of the EALA, the Company also has the right to purchase equipment based on CleanTech’s feedstock conditioning technologies at cost. In return, the Company has agreed to pay CleanTech a license fee equal to 20% of the issued and outstanding capital stock of the Company upon the Company’s successful execution of a third party agreement by the Company for a demonstration-scale pilot facility based on the licensed technologies. In addition, CleanTech retains the right to purchase any lipids or other co-products produced by the Company or its licensees at a rate equal to 80% of the then-current market price of any such products. CleanTech is a wholly-owned subsidiary of GreenShift Corporation, which company is majority owned by our chairman, who is also the beneficial owner of the majority of our capital stock.
The Company utilizes the services of consultants to conserve costs and defray risk as it executes on its project and technology development plans.
The Company’s goals for 2011 are to complete the financing required for the facility described above and to complete construction; commence operations at the Raynham site; and, initiate pilot testing with the Company’s technologies at the Raynham site. The Company also plans to continue to seek possible acquisition targets that bring strategic assets, cash flows or management to the Company in ways that also defray the Company’s financial and technology risk.
RESULTS OF OPERATIONS
General and administrative (“G&A”) expenses for the six months ended June 30, 2011 were $109,179 as compared to $119,516 for the corresponding period in 2010. Interest expense was $11,869 for the six months ended June 30, 2011 and 2010. Our net loss for the six months ended June 30, 2011 and 2010 was $121,048 and $131,937 respectively.
9
The factors determining our expenses during the three month periods ended June 30, 2011 and 2010 were not different in any significant way from the factors discussed with reference to the six month periods then ended. Our net loss for the three months ended June 30, 2011 was $67,584, compared to a net loss of $95,675 during the three months ended June 30, 2010.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s activities from operations used $0 in cash in 2011 and 2010, as we accrued all expenses. Non-cash adjustments for operations recorded for the six months ended June 30, 2010 consisted of an adjustment to cost of conversion feature totaling $552. Accounts payable and accrued expenses totaled $416,982 and $307,986, respectively at June 30, 2011 and December 31, 2010. The Company had a negative working capital position of $652,420 as of June 30, 2011 as compared to a negative working capital position of $531,373 as of December 31, 2010. The Company will not be able to implement its business plan unless it obtains capital. At this time the Company has no commitments for financing from any source.
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| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4 | CONTROLS AND PROCEDURES |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer participated in and supervised the evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive officer or officers and principal financial officer, to allow timely decisions regarding required disclosure.
In the course of making our assessment of the effectiveness of our disclosure controls and procedures, we identified a material weakness. This material weakness consisted of inadequate staffing and supervision within the bookkeeping and accounting operations of our company. The lack of employees prevents us from segregating disclosure duties. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. Based on the results of this assessment, our management concluded that because of the above condition, our disclosure controls and procedures were not effective as of the end of the period covered by this report.
There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
| ITEM 1 | LEGAL PROCEEDINGS |
None.
| ITEM 1A | RISK FACTORS |
There has been no material change in the risk factors affecting the Company that were set forth in Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2010.
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4 | RESERVED |
| ITEM 5 | OTHER INFORMATION |
None.
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| ITEM 6 | EXHIBITS |
The following are exhibits filed as part of the Company’s Form 10-Q for the quarter ended June 30, 2011:
INDEX TO EXHIBITS
| Exhibit Number | Description |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as incorporated herein by reference |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as incorporated herein by reference |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002 as incorporated herein by reference |
| 101.INS | XBRL Instance |
| 101.SCH | XBRL Schema |
| 101.CAL | XBRL Calculation |
| 101.DEF | XBRL Definition |
| 101.LAB | XBRL Label |
| 101.PRE | XBRL Presentation |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the date indicated.
GS ENVIROSERVICES, INC.
| By: | /s/ | KEVIN KREISLER | ||
| KEVIN KREISLER | ||||
| Chief Executive Officer | ||||
| Date: | August 15, 2011 |