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EX-32.1 - EXHIBIT 32.1 - GS ENVIROSERVICES, INC.gsenq311ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - GS ENVIROSERVICES, INC.gsenq311ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - GS ENVIROSERVICES, INC.Financial_Report.xls


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 SEPTEMBER 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
X
No
 
           
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
         
           
Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer[  ] Smaller reporting company [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  November 14, 2011, there were 15,573,578 shares of common stock outstanding.
         


 

 
 

 

 
GS ENVIROSERVICES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2011
 
TABLE OF CONTENTS

 
   
Page No.
Part I
Financial Information
 
Item 1.
Financial Statements (unaudited)
3
 
Condensed Balance Sheets – September 30, 2011 (unaudited) and December 31, 2010
4
 
Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2011 (unaudited) and 2010 (unaudited)
5
 
Condensed Statements of Cash Flows for the Nine Months Ended September 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


 
2

 


PART I – FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS (UNAUDITED) FOR SEPTEMBER 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
3

 

 
 
GS ENVIROSERVICES, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010

ASSETS:
 
9/30/2011
   
12/31/2010
 
Current assets:
           
Cash
  $ --     $ --  
Prepaid expenses
    --       --  
Total current assets
    --       --  
                 
TOTAL ASSETS
    --       --  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
               
Current liabilities:
               
Accounts payable
    39,637       36,976  
Accrued expenses
    432,960       271,010  
Due to an affiliate
    12,051       --  
Convertible debenture
    223,387       223,387  
Total current liabilities
    708,035       531,373  
                 
Total liabilities:
    708,035       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
    (5,836,681 )     (5,660,019 )
Total stockholders’ equity (deficit)
    (708,035 )     (531,373 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ --     $ --  

The notes to the Condensed Financial Statements are an integral part of these statements.

 
4

 

GS ENVIROSERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

 
   
Three Months Ended
   
Nine Months Ended
 
   
9/30/2011
   
9/30/2010
   
9/30/2011
   
9/30/2010
 
Revenues
  $ --     $ --     $ --     $ --  
Cost of revenues
    --       --       --       --  
Gross profit
    --       --       --       --  
                                 
Operating expenses:
                               
General and administrative expenses
    49,581       81,884       158,760       194,400  
Total operating expenses
    49,581       81,884       158,760       194,400  
Operating loss
    (49,581 )     (81,884 )     (158,760 )     (194,400 )
                                 
Other income (expense):
                               
Gain on extinguishment of debt
    --       --       --       --  
Cost of conversion feature
    --       --       --       (552 )
Interest expense
    (6,033 )     (6,033 )     (17,902 )     (17,902 )
Total other income (expense), net
    (6,033 )     (6,033 )     (17,902 )     (18,454 )
Loss before provision for income taxes
    (55,614 )     (87,917 )     (176,662 )     (212,854 )
                                 
Provision for income taxes
    --       --       --       --  
Net loss
  $ (55,614 )   $ (87,917 )   $ (176,662 )   $ (212,854 )
                                 
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.
 

 

 
5

 

GS ENVIROSERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED)
AND SEPTEMBER 30, 2010 (UNAUDITED)

   
9/30/2011
   
9/30/2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
             
Net loss
  $ (176,662 )   $ (212,854 )
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
    164,611       210,063  
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.
 

 
6

 
GS ENVIROSERVICES, INC.
 
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
The Company’s operations during the third 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 of 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 September 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).
 
 
7

 
NOTE 2
CONVERTIBLE DEBENTURE
 
Effective on September 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 September 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 September 30, 2011, the Company is in default of this debenture. Accrued interest on this note as of September 30, 2011 and December 31, 2010 of $56,956 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 September 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.

 

 
8

 
 
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 third 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 of 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 nine months ended September 30, 2011 were $158,760 as compared to $194,400 for the corresponding period in 2010. Other income (expense) was ($17,902) and ($18,454) for the nine months ended September 30, 2011 and 2010, respectively. Our net loss for the nine months ended September 30, 2011 and 2010 was $176,662 and $212,854 respectively.

General and administrative (“G&A”) expenses for the three months ended September 30, 2011 were $49,581 as compared to $81,884 for the corresponding period in 2010. Other income (expense) was

 
9

 
($6,033) and ($6,033) for the three months ended September 30, 2011 and 2010, respectively. Our net loss for the three months ended September 30, 2011 was $55,614, compared to a net loss of $87,917 during the three months ended September 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 nine months ended September 30, 2010 consisted of an adjustment to cost of conversion feature totaling $552. Accounts payable and accrued expenses totaled $472,597 and $307,986, respectively at September 30, 2011 and December 31, 2010. The Company had a negative working capital position of $708,035 as of September 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.

 
10

 

 
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.
 
 
11

 

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.

 
12

 
ITEM 6
EXHIBITS

The following are exhibits filed as part of the Company’s Form 10-Q for the quarter ended September 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
   
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



 
13

 


 
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:
 
November 14, 2011