XOTC:GSEN GS EnviroServices Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 MARCH 31, 2012
 
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  May 9, 2012 there were 107,000,000 shares of common stock outstanding.
         


 

 
 
 
 

 
GS ENVIROSERVICES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 31, 2012
 
TABLE OF CONTENTS

 
   
Page No.
Part I
Financial Information
 
Item 1.
Financial Statements (unaudited)
3
 
Condensed Balance Sheets – March 31, 2012 (unaudited) and December 31, 2011
4
 
Condensed Statements of Operations for the Three Months Ended March 31, 2012 (unaudited) and 2011 (unaudited)
5
 
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2012 (unaudited) and 2011 (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.
Mine Safety Disclosures
12
Item 5.
Other Information
12
Item 6.
Exhibits
13


 
2
 
 


PART I – FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS (UNAUDITED) FOR MARCH 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
3
 
 

 
 
GS ENVIROSERVICES, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011

ASSETS:
 
3/31/2012
   
12/31/2011
 
Current assets:
           
Cash
  $ --     $ --  
Total current assets
    --       --  
                 
TOTAL ASSETS
    --       --  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
               
Current liabilities:
               
Accounts payable
    34,398       34,331  
Accrued expenses
    464,460       424,993  
Due to an affiliate
    12,751       12,051  
Convertible debenture
    223,387       223,387  
Total current liabilities
    734,996       694,762  
                 
Total liabilities
    734,996       694,762  
                 
Stockholders’ equity (deficit):
               
Common stock, $.0001 par value, 10,000,000,000 shares authorized,
               
7,605,054 shares issued and 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
    (5,863,642 )     (5,823,408 )
Total stockholders’ equity (deficit)
    (734,996 )     (694,762 )
                 
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 MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 
   
Three Months Ended
 
   
3/31/2012
   
3/31/2011
 
Revenues
  $ --     $ --  
Cost of revenues
    --       --  
Gross profit
    --       --  
                 
Operating expenses:
               
General and administrative expenses
    34,267       47,562  
Total operating expenses
    34,267       47,562  
Operating loss
    (34,267 )     (47,562 )
                 
Other income (expense):
               
Interest expense
    (5,967 )     (5,902 )
Total other income (expense), net
    (5,967 )     (5,902 )
Loss before provision for income taxes
    (40,234 )     (53,464 )
                 
Provision for income taxes
    --       --  
Net loss
  $ (40,234 )     (53,464 )
                 
Loss per share
               
Basic loss per share
  $ (0.01 )   $ (0.01 )
Diluted loss per share
  $ (0.01 )   $ (0.01 )
                 
Weighted average shares of common stock outstanding
               
Basic
    7,605,054       7,605,054  
Diluted
    7,605,054       7,605,054  
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 THREE MONTHS ENDED MARCH 31, 2012 (UNAUDITED)
AND MARCH 31, 2011 (UNAUDITED)

   
3/31/2012
   
3/31/2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
             
Net loss
  $ (40,234 )   $ (53,464 )
Adjustment to reconcile net loss to net cash used in (provided by) operating activities:
               
Changes in assets and liabilities:
               
Accounts Payable and Accrued expenses
    39,534       53,464  
Due to affiliate
    700       --  
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 consist of research and evaluation of a number of technologies designed to refine industrial and municipal solid waste and wastewaters into carbon-neutral products. During 2011, these efforts culminated in the development of a proprietary aqueous conversion technology that relies in part on a process known as hydrothermal carbonization to convert qualified organic wastes and other byproducts into coal. A key feature of this process is that the conversion can be completed without carbon dioxide emissions, thereby sequestering the carbon in the converted wastes for reuse in lieu of new fossil fuel resources. The Company’s business model is limited to the early-stage development and intellectual property protection of its technologies, with a view towards ultimately generating revenue through technology licensing.
 
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 (loss) 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 March 31, 2012 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).
 
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 March 31, 2012, the Company is in default of this debenture. Accrued interest on this note as of March 31, 2012 and December 31, 2011 of $68,956 and $62,988, respectively, is included in accrued expenses in the accompanying balance sheets.

 
7
 
 
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.

NOTE 3
SUBSEQUENT EVENTS

On April 13, 2012, the Company’s chief executive officer, Kevin Kreisler, provided $26,000 in cash to the Company for working capital purposes. Effective April 16, 2012, the Company and Mr. Kreisler entered into an agreement pursuant to which Mr. Kreisler agreed to eliminate and waive his right to receive 194,118 shares of the Company’s Series A Preferred Stock (“Series A Shares”); to waive $112,500 in  accrued compensation payable for services rendered as of April 16, 2012; and, to contribute 1,000,000 Series A Shares beneficially owned by Mr. Kreisler and the $26,000 provided to the Company by Mr. Kreisler on April 13, 2012 in exchange for 83,457,866 restricted Company common shares.

Effective April 14, 2012, the Company and Jim Green entered into an agreement pursuant to which Mr. Green agreed to accept 7,968,540 restricted shares of Company common stock in full satisfaction of any and all amounts due from the Company to Mr. Green. On the same date, the Company’s chief executive officer entered into an agreement to purchase 7,968,540 Company common shares from Mr. Green.

Effective April 16, 2012, the Company and its controller, Jacqueline Flynn, entered into an agreement pursuant to which Ms. Flynn agreed to waive all accrued compensation due from the Company in excess of $12,500, which amount shall remain due and payable by the Company.

The foregoing transactions resulted in the elimination and contribution to capital of a total of $660,891 consisting of $292,343 in outstanding principal and interest and $368,549 in accrued expenses

 
 
 
 

 

 
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, 2011. 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 consist of research and evaluation of a number of technologies designed to refine industrial and municipal solid waste and wastewaters into carbon-neutral products. During 2011, these efforts culminated in the development of a proprietary aqueous conversion technology that relies in part on a process known as hydrothermal carbonization to convert qualified organic wastes and other byproducts into coal. A key feature of this process is that the conversion can be completed without carbon dioxide emissions, thereby sequestering the carbon in the converted wastes for reuse in lieu of new fossil fuel resources. The Company’s business model is limited to the early-stage development and intellectual property protection of its technologies, with a view towards ultimately generating revenue through technology licensing.

Hydrothermal carbonization (“HTC”) combines water and a carbon source such as biomass at elevated temperatures and pressures.  Products include a solid consisting primarily of carbon with a similar energy content to lignite to sub-bituminous coal at approximately 30MJ/kg. Intermediate chemicals are formed during the process which may additionally be recovered and utilized. The process is mostly thermoneutral, meaning that heat may be recovered and reused once the process is initiated. The process is also highly autogenic, meaning that the process itself provides pressure that can be used for additional work. Advantageously, and in contrast to most conventional pyrolytic, gasification and other like processes, the Company’s HTC process is based on the processing of wet biomass into an energy dense solid fuel and does not require a dry feedstock. Wet feedstock, such as municipal wastewater sludges, are attractive from a resource utilization standpoint in part because constituent fractionation processes, which are needed to remove contaminants prior to thermal processing, are typically more practically accomplished in an aqueous environment.

Potential markets for the Company’s HTC technology include municipal and industrial generators of large quantities of carbonaceous wastes. The municipal solid waste market, for example, has a need for reduction of landfilled material to extend landfill life and reduce costs. As of 1996, there were approximately 3,500 permitted municipal landfills in the United States.  According to the US-EPA, in 2008, approximately 250 million tons of municipal solid waste (residential, commercial and institutional sources) was produced.  Potential waste that qualifies for HTC processing includes paper, food scraps, yard trimmings and wood. Before recycling, these materials collectively amounted to approximately 63% of all municipal waste.  According to the EPA, approximately 33% of this waste stream was recovered, re-used or recycled, corresponding to about 89 million metric tons of recyclable municipal solid waste that consumes landfill space and eventually causes significant methane emissions – a greenhouse gas 23 times more potent than carbon dioxide. The primary product in the HTC process is a solid carbonaceous material containing a complex network of cyclic hydrocarbon polymers and with an energy value comparable to lignite to sub-bituminous coal. Coal accounts for about 52% of the electricity production in the U.S.

During 2012, the Company plans to seek capital, management and other resources for further development of this technology, with a primary goal of completing pilot-scale trials involving the Company’s technology, either alone or with a suitable early-adopter technology partner. 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.
 
 
9
 
 
RESULTS OF OPERATIONS
 
General and administrative (“G&A”) expenses for the three months ended March 31, 2012 were $34,267 as compared to $47,562 for the corresponding period in 2011. The amount incurred for 2012 included $19,267 in general and administrative expenses and $15,000 in consulting fees. The amount incurred for 2011 included $32,562 in general and administrative expenses and $15,000 in consulting fees.  These costs were incurred in connection with the Company’s ongoing technology development efforts.

Total other expense consisting solely of interest expense for the three months ended March 31, 2012 and 2011 was $5,967 and $5,902, respectively.  Our net loss for the three months ended March 31, 2012 and 2011 was $40,234 and $53,464 respectively.

LIQUIDITY AND CAPITAL RESOURCES
 
 
The Company’s operating activities have been primarily subsidized by equity-based compensation commitments as well as working capital advances received from related parties from time to time. These amounts are included in the Company’s accrued expenses and amounts due to affiliate of $477,211 at March 31, 2012.  Accounts payable and accrued expenses totaled $498,858 and $459,324 at March 31, 2012 and December 31, 2011.  The Company had a negative working capital position of $734,996 as of March 31, 2012 as compared to a negative working capital position of $694,762 as of December 31, 2011.  The Company currently has no commitment for financing and will not be able to implement its business plan unless it obtains capital. 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.

 
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.



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, 2011.

ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.
 
ITEM 3
DEFAULTS UPON SENIOR SECURITIES

None.
 
ITEM 4
MINE SAFETY DISCLOSURES
 
Not Applicable.

 
11
 
 
ITEM 5
OTHER INFORMATION

None.

ITEM 6
EXHIBITS

The following are exhibits filed as part of the Company’s Form 10-Q for the quarter ended March 31, 2012:

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



 
12
 
 


 
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, Chief Financial and Accounting Officer
   
Date:
 
May 9, 2012
   





 

 
13
 
 


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XOTC:GSEN GS EnviroServices Inc Quarterly Report 10-Q Filing - 3/31/2012
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