ITEM 1. BUSINESS
Overview
Green Technology Solutions, Inc. (“GTSO”, “we”, “us”, “our” or the “Company”) was incorporated as XCL Sunrise, Inc. in Delaware on June 12, 2010. We changed our name to Sunrise Energy Resources, Inc. on November 1, 2004. On October 26, 2010, we changed our name to Green Technology Solutions, Inc. On July 28, 2014, the Company reincorporated from Delaware to Nevada. Our principal executive offices are at 2880 Zanker Road, Suite 203, San Jose, California. Our year-end is December 31.
GTSO is in the business of trying to keep the world a greener place to live. Having a greener environment is what we strive to provide so that we may live healthier lives. The corporate mission is to support the health and wellness sub-market of medical cannabis.
Plan of Operations
GTSO will be focusing directly on health and wellness. One of the fastest growing emerging markets in health and wellness is the medical cannabis market. It has experienced exponential growth and is expected to be a $6 billion market this year.
With the medical cannabis market, our product focus within the subsidiary can be categorized into three parts:
·
Business and Support services
o
Payment processing
o
Security
o
Transport
·
Developing more efficient ways to utilize hemp delivery systems
o
Edibles
o
Topical treatments
o
Drinks
·
Products, methods, or services supporting the actual producers of the product in this industry.
o
Specialty organic soils and fertilizers
o
Lighting systems
o
Methods to produce other cannabinoid products
On November 3, 2014, we closed the acquisition of Mother Parker’s Soil, LLC, a California limited liability company, (“Mother Parker”) for $125,000 to be paid in monthly increments. Mother Parker is a cultivator of organic soils. Through December 31, 2014, we have made payments of $60,000 toward this acquisition. The acquisition of Mother Parker has solidified the Company’s mission to support the horticultural side of the medical cannabis industry.
In order to more fully support the horticultural market and medical cannabis markets, we plan to expand our operations by researching opportunities in the following areas:
·
Develop more efficient lighting systems and growing mediums. This will require extensive testing with experienced horticulture groups.
·
Assist the newly opened market for hemp products by bringing new delivery technologies to this industry. This would include oral, topical, drinks and vapor inhalants.
·
Provide business support services to the medical cannabis industry, specifically providing secure payment processing services to make retail transactions quicker and safer.
·
Explore the options to enhance security for medical cannabis suppliers in the areas of standard building security and mobile security units, among others. In addition, we plan to explore methods for providing secure transport of product and funds.
Employees and Employment Agreements
We have one employee, our CEO. We do not have a written contract with him, nor is he subject to collective bargaining agreements.
ITEM 1A.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 2.
ITEM 2. PROPERTIES
We maintain our corporate offices at 2880 Zanker Road, Suite 203, San Jose, California 95134. Our telephone number is (408) 432-7285.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock began trading on the “Over the Counter” Bulletin Board (“OTC”) under the symbol “GTSO” in May 2005. The following table sets forth, for the period indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by OTC Markets Group, Inc. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. There is an absence of an established trading market for the Company’s common stock, as the market is limited, sporadic and highly volatile, which may affect the prices listed below.
Holders
As of the date of this filing, there were one thousand two hundred seventy-two holders of record of our common stock.
Dividends
To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.
Common Stock
We are authorized to issue 480,000,000 shares of common stock, with a par value of $0.001. The closing price of our common stock on April 11, 2016, as quoted by OTC Markets Group, Inc., was $0.0752. There were 14,069,575 shares of common stock issued and outstanding as of April 11, 2016. All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of the Company’s assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.
Our Articles of Incorporation, our Bylaws, and the applicable statutes of the state of Nevada contain a more complete description of the rights and liabilities of holders of our securities.
During the year ended December 31, 2015, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
Non-cumulative voting
Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
Securities Authorized for Issuance under Equity Compensation Plans
The following table shows the number of shares of common stock that could be issued upon exercise of outstanding options and warrants, the weighted average exercise price of the outstanding options and warrants, and the remaining shares available for future issuance as of December 31, 2015.
Preferred Stock
Out authorized preferred stock consists of 20,000,000 shares of $0.001 par value preferred stock. As of the date of this report, there are 1,000,000 shares of preferred stock outstanding. The Company’s preferred stock ranks senior to all other equity securities, including common stock. Dividends, when, as and if declared by the Board of Directors, shall be paid out of funds at the time legally available for such purposes.
Recent Sales of Unregistered Securities
During the quarter ended December 31, 2015, the Company issued shares of common stock as a result of the conversion of Convertible Promissory Notes, as detailed in the following table:
Each issuance of securities was issued without registration in reliance of the exemption from registration Section 3(a)9 of the Securities Act of 1933.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives, and performance that involve risk, uncertainties, and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
Background of our Company
Green Technology Solutions, Inc. (“GTSO”, “we”, “us”, “our” or the “Company”) was incorporated as XCL Sunrise, Inc. in Delaware on June 12, 2010. We changed our name to Sunrise Energy Resources, Inc. on November 1, 2004. On October 26, 2010, we changed our name to Green Technology Solutions, Inc. On July 28, 2014, the Company reincorporated from Delaware to Nevada. Our principal executive offices are at 2880 Zanker Road, Suite 203, San Jose, California. Our year-end is December 31.
GTSO is in the business of trying to keep the world a greener place to live. Having a greener environment is what we strive to provide so that we may live healthier lives. The corporate mission is to support the health and wellness sub-market of medical cannabis.
Plan of Operations
We believe we do not have adequate funds to fully execute our business plan for the next twelve months unless we obtain additional funding. However, should we not raise this capital, we will allocate our funding to first assure that all State, Federal and SEC requirements are met.
As of December 31, 2015, we had cash on hand of $844.
We intend to pursue capital through public or private financing, as well as borrowing and other sources in order to finance our business activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.
Results of Operations
We incurred a net loss of $6,654,512 for the year ended December 31, 2015. We had a working capital deficit of $1,105,754 as of December 31, 2015. We do not anticipate having positive net income in the immediate future. Net cash used by operations for the year ended December 31, 2015 was $474,844.
We continue to rely on advances to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will continue to have such advances available. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.
Fiscal year ended December 31, 2015 compared to the fiscal year ended December 31, 2014.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $505,685 and $3,719,176 for the year ended December 31, 2015 and ended 2014, respectively. In the year ended December 31, 2014, we had recognized approximately $3.3 million in stock compensation expense related to the issuance of 1,000,000 Series E Preferred shares. In addition, professional fees increased by approximately $94,000.
Interest Expense
Interest expense increased from $233,969 for the year ended December 31, 2014 to $478,827 for the year ended December 31, 2015. Interest expense for the year ended December 31, 2015 included amortization of discount on convertible notes payable in the amount of $371,964, compared to $170,580 for the comparable period of 2014.
We incurred an additional increase of $44,000 in interest expense due to accrued interest on our convertible notes payable, as we carried higher average balances on convertible notes.
Impairment of Joint Ventures
We had impairment on joint ventures of $20,000 during the year ended December 31, 2015, as compared to $150,000 in the prior year. The decline in expense is due to our entering into fewer joint ventures in the current year.
Impairment of Intangible Asset
We recognized impairment of intangible asset of $5,650,000 for the year ended December 31, 2015 as a result of writing off the deposit for the purchase of the clean room. It is unlikely that the Company will be able to consummate the purchase of the clean room as it does not have the funds available to make the required cash payments.
Net Loss
We incurred a net loss of $6,654,512 for the year ended December 31, 2015 as compared to $4,103,145 for the comparable period of 2014. In the year ended December 31, 2014, we had recognized approximately $3.3 million in stock compensation expense related to the issuance of 1,000,000 Series E Preferred shares.
Liquidity and Capital Resources
As of the date of this filing, we had yet to generate any revenues from our business operations.
We anticipate needing additional financing to fund our operations and to effectively execute our business plan over the next eighteen months. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
We raised the cash amounts to be used in these activities from the sale of common stock and from advances. We currently have negative working capital of $1,105,754.
As of December 31, 2015, we had $844 of cash on hand. This amount of cash will be adequate to fund our operations for approximately less than one month.
We have no known demands or commitments and are not aware of any events or uncertainties as of December 31, 2015 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
Capital Resources
We had no material commitments for capital expenditures as of December 31, 2015 and 2014. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financing in addition to what is required to fund our present operation.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
Off-Balance Sheet Arrangements
We do not have any 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 investors.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the financial statements are prepared; actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies, which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.
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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
GOING CONCERN - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended December 31, 2015, the Company had a net loss of $6,654,512 and generated negative cash flow from operations in the amount of $474,844. In view of these matters, the Company’s ability to continue as a going concern is dependent upon its ability to achieve a level of profitability or to obtain additional capital to finance its operations. The Company intends on financing its future activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
New Accounting Pronouncements
For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Significant Accounting Polices: Recently Issued Accounting Pronouncements” in Part II, Item 8 of this Form 10-K.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Green Technology Solutions, Inc.
Consolidated Financial Statements
December 31, 2015
Contents
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Change in Shareholders’ Equity (Deficit)
Consolidated Statement of Cash Flows
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Green Technology Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Green Technology Solutions, Inc. as of December 31, 2015 and 2014 and the related consolidated statement of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 audit 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Green Technology Solutions, Inc. as of December 31, 2015 and 2014, and the results of its operations, changes in stockholders’ equity (deficit) and cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has insufficient working capital, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
April 14, 2016
GREEN TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
The accompany notes are an integral part of these consolidated financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompany notes are an integral part of these consolidated financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS’ EQUITY (DEFICIT)
The accompany notes are an integral part of these consolidated financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
The accompany notes are an integral part of these consolidated financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
Note 1. Background Information
Green Technology Solutions, Inc. (“GTSO”, “we”, “us”, “our” or the “Company”) was incorporated as XCL Sunrise, Inc. in Delaware on June 12, 2010. We changed our name to Sunrise Energy Resources, Inc. on November 1, 2004. On October 26, 2010, we changed our name to Green Technology Solutions, Inc. On July 28, 2014, the Company reincorporated from Delaware to Nevada. Our principal executive offices are at 2880 Zanker Road, Suite 203, San Jose, California. Our year-end is December 31.
GTSO is in the business of trying to keep the world a greener place to live. Having a greener environment is what we strive to provide so that we may live healthier lives. The corporate mission is to support the health and wellness sub-market of medical cannabis.
Note 2. Going Concern
For the fiscal year ended December 31, 2015, the Company had a net loss of $6,654,512 and negative cash flow from operations of $474,844. As of December 31, 2015, the Company has negative working capital of $1,105,754.
These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.
Note 3. Significant Accounting Policies
The significant accounting policies that the Company follows are:
Basis of Presentation
The consolidated financial statements and related disclosures have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Consolidated Financial Statements
The consolidated financial statements include the accounts and operations of Green Technology Solutions, Inc., and its wholly-owned subsidiaries, GTSO Urban Mining, LLC; GTSO Resources, LLC; Mother Parker’s Soil, LLC; and Global Cell Buyers, LLC (collectively referred to as the “Company”). All material intercompany accounts and transactions are eliminated in consolidation.
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 and disclosure of contingent 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.
Cash and Cash Equivalents
For the purpose of the financial statements, cash equivalents include all highly liquid investments with maturity of three months or less. Cash and cash equivalents were $844 and $15,173 at December 31, 2015 and December 31, 2014, respectively.
Revenue Recognition
The Company follows ASC 605, Revenue Recognition recognizing revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
Common Stock
The Company records common stock issuances when all of the legal requirements for the issuance of such common stock have been satisfied.
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of December 31, 2015 or December 31, 2014.
Earnings (Loss) per Common Share
The Company computes basic and diluted earnings per common share amounts in accordance with ASC Topic 260, Earnings per Share. The basic earnings (loss) per common share are calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares outstanding during the year. The diluted earnings (loss) per common share are calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There are no dilutive shares outstanding for any periods reported.
In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The Company’s convertible debt is considered anti-dilutive due to the Company’s net loss for the year ended December 31, 2015 and 2014. As a result, the Company did not have any potentially dilutive common shares for those periods. For the three months ended October 31, 2014 and 2013, potentially issuable shares as a result of conversions of convertible notes payable have been excluded from the calculation. At December 31, 2015, the Company had 80,879,114 potentially issuable shares upon the conversion of convertible notes payable and interest.
Financial Instruments
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period between the origination of these instruments and their expected realization.
FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms that is not significantly different from its stated value.
Beneficial Conversion Feature
Beneficial conversion feature is a non-detachable conversion feature that is in the money at the commitment date. The Company follows the guidance of ASC Subtopic 470-20 Debt with Conversion and Other Options to evaluate as to whether beneficial conversion feature exists. Pursuant to Section 470-20-30 an embedded beneficial conversion feature recognized separately under paragraph 470-20-25-5 shall be measured initially at its intrinsic value at the commitment date (see paragraphs 470-20-30-9 through 30-12) as the difference between the conversion price (see paragraph 470-20-30-5) and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. When the Company issues a debt or equity security that is convertible into common stock at a discount from the fair value of the common stock at the date the debt or equity security counterparty is legally committed to purchase such a security (Commitment Date), a beneficial conversion charge is measured and recorded on the Commitment Date for the difference between the fair value of the Company’s common stock and the effective conversion price of the debt or equity security. If the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the debt or equity security, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the debt or equity security.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. There are no known commitments or contingencies as of December 31, 2015 and December 31, 2014.
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Note 4. Investments
On November 3, 2014, we closed the acquisition of Mother Parker’s Soil, LLC, a California limited liability company (“Mother Parker”) for $125,000. The purchase price was to be paid $25,000 upon signing the purchase agreement on September 5, 2014, $25,000 ten days after signing the agreement, $25,000 30 days after the second payment, and five monthly payments of $10,000. Mother Parker is a cultivator of organic soils. During the years ended December 31, 2015 and 2014, we paid $0 and $60,000, respectively, toward this acquisition. The seller of Mother Parker has verbally agreed to accept the remaining payment as funds become available to the Company.
Mother Parker did not have any tangible assets or liabilities on the date of acquisition. The intangible asset that it has is a soil recipe to be used for the cultivation of medical cannabis. The Company has valued the intangible asset at $0 for accounting purposes. In order to realize the value from the soil recipe, the Company would have to have access to the capital needed to manufacture, market and distribute the soil. As a result, we have recorded a loss on acquisition of Mather Parker in the amount of $125,000 for the year ended December 31, 2014.
On December 15, 2014, we signed in a profit participation agreement with Elevated Industries Inc. (“Elevated”), a Canadian corporation. The agreement calls for the Company to contribute up to US$75,000, at its sole discretion. During the years ended December 31, 2015 and 2014, we contributed $20,000 and $25,000, respectively, toward this joint venture. We recorded these contributions as impairment expense due to the lack of current revenue and no indications of future revenue.
During the years ended December 31, 2015 and 2014, we recognized impairment of intangible assets of $20,000 and $150,000, respectively.
Note 5. Advances
During the year ended December 31, 2015, Vista View Ventures, Inc. advanced $603,015 to the Company for working capital. These advances are non-interest bearing and payable on demand. During the same period, the Company refinanced $599,780 of the advances into convertible notes payable with Vista View Ventures, Inc. As of December 31, 2015 and December 31, 2014, advances in the amount of $3,235 and $0, respectively, are included in current liabilities on the consolidated balance sheets.
During the year ended December 31, 2015, we recognized imputed interest expense of $6,581 on these advances.
Note 6. Income Taxes
There is no current or deferred income tax expense or benefit for the period ended December 31, 2015.
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference for the periods ended December 31, 2015 and 2014 are as follows.
We have net operating loss carryforwards of approximately $4,709,190.
Note 7. Deposit for Clean Room
On March 4, 2015, the Company signed an asset purchase agreement with SRN Properties Corporation (“SRN Properties”) to acquire an approximately 1,300 square foot Class 5 clean room. The Company expects to install the clean room in Colorado, where it will serve as a center for hygienic testing and quality control services to cannabis growers and retailers. The agreement calls for GTSO to pay 3,000,000 shares of common stock of the Company and $250,000 to be paid in cash installments. As of December 31, 2015, we have made cash payments of $122,500 and issued 3,000,000 shares of our common stock in satisfaction of this requirement. As of December 31, 2015, the remaining cash owed to SRN Properties of $127,500 has been recorded as accounts payable to related party on the balance sheet. SRN Properties was not a related party prior to the acquisition; however, it is a significant shareholder after the acquisition. For accounting purposes, the shares issued for the purchase of the clean room were valued at $5,400,000 based on the fair market value of the stock on the date the agreement was signed.
As of December 31, 2015, the Company determined that the asset related to the deposit for the purchase of the clean room was impaired and should be written off. The Company has been unable to make the remaining cash payments required under the purchase agreement and does not expect to be able to make those payments in the near future. As a result, the Company has recorded a loss on impairment of fixed assets of $5,650,000 during the year ended December 31, 2015.
Note 8. Convertible Notes Payable
Convertible notes payable consisted of the following at December 31, 2015 and December 31, 2014:
Accrued interest payable associated with convertible notes payable was $152,482 and $76,839 as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, we recognized statutory interest expense of $100,282 and $56,005, respectively.
The convertible note payable dated April 1, 2013 had an original beneficial conversion discount of $96,463 and a remaining beneficial conversion discount of $0 as of December 31, 2015 and 2014. During the years ended December 31, 2015 and 2014, we recognized interest expense related to the amortization of the beneficial conversion discount of $0 and $14,530, respectively.
The convertible note payable dated June 30, 2013 had an original beneficial conversion discount of $167,185 and a remaining beneficial conversion discount of $0 and $29,904 as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, we recognized interest expense related to the amortization of the beneficial conversion discount of $29,904 and $95,141, respectively.
The convertible note payable dated September 30, 2013 had an original beneficial conversion discount of $312,310 and a remaining beneficial conversion discount of $0 and $250,980 as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, we recognized interest expense related to the amortization of the beneficial conversion discount of $250,980 and $95,141, respectively.
The convertible note payable dated June 30, 2014 had an original beneficial conversion discount of $162,946 and a remaining beneficial conversion discount of $108,369 and $153,601 as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, we recognized interest expense related to the amortization of the beneficial conversion discount of $45,232 and $9,345, respectively.
The convertible note payable dated December 31, 2014 had an original beneficial conversion discount of $202,160 and a remaining beneficial conversion discount of $202,160 and $177,898 as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, we recognized interest expense related to the amortization of the beneficial conversion discount of $24,262 and $0, respectively.
The convertible note payable dated March 31, 2015 had an original beneficial conversion discount of $87,970 and a remaining beneficial conversion discount of $81,085 as of December 31, 2015. During the year ended December 31, 2015, we recognized interest expense related to the amortization of the beneficial conversion discount of $6,885.
The convertible note payable dated June 30, 2015 had an original beneficial conversion discount of $81,813 and a remaining beneficial conversion discount of $76,980 as of December 31, 2015. During the year ended December 31, 2015, we recognized interest expense related to the amortization of the beneficial conversion discount of $4,833.
The convertible note payable dated September 30, 2015 had an original beneficial conversion discount of $326,402 and a remaining beneficial conversion discount of $316,533 as of December 31, 2015. During the year ended December 31, 2015, we recognized interest expense related to the amortization of the beneficial conversion discount of $9,869.
The convertible note payable dated December 31, 2015 had an original beneficial conversion discount of $103,595 and a remaining beneficial conversion discount of $103,595 as of December 31, 2015. During the year ended December 31, 2015, we recognized interest expense related to the amortization of the beneficial conversion discount of $0.
All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company.
Advances Refinanced into Convertible Promissory Notes
During the year ended December 31, 2015, the Company has signed Convertible Promissory Notes that refinance non-interest bearing advances into convertible notes payable. The Convertible Promissory Notes bear interest at 10% per annum and are payable along with accrued interest. The Convertible Promissory Note and unpaid accrued interest are convertible into common stock at the option of the holder.
During the year ended December 31, 2014, the Company signed convertible promissory notes, which refinanced non-interest bearing advances in the amount of $365,107 into convertible notes payable. These notes are payable along with interest at maturity and bear interest at 10% per annum. The holder of the notes may not convert the convertible promissory note into common stock if that conversion would result in the holder owing more than 4.99% of the number of shares of common stock outstanding on the conversion date. The convertible promissory notes are convertible into common stock at the option of the holder.
Conversions to Common Stock
Year Ended December 31, 2015
During year ended December 31, 2015, the holders of the Convertible Note Payable dated April 1, 2013 elected to convert principal and accrued interest in the amounts show below into share of common stock at a rate of $0.01 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
During year ended December 31, 2015, the holders of the Convertible Note Payable dated June 30, 2013 elected to convert principal and accrued interest in the amounts show below into share of common stock at a rate of $0.01 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
On December 22, 2015, the holder of the Convertible Note Payable dated June 30, 2013 elected to convert principal and accrued interest of $4,100 into 410,000 shares of common stock at a rate of $0.01 per share. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion. The shares were issued on January 7, 2016. As a result, the amount of $4,100 is included in common stock payable on the balance sheet as of December 31, 2015.
Year Ended December 31, 2014
The holders of the $251,468 convertible note payable signed on October 31, 2012 elected to convert principal and interest at a rate of $0.02 per share as follows:
There was no discount balance on this note on the dates of the conversions. There was no gain or loss on the conversion, as it was effected in accordance with the terms of the convertible note payable.
The holders of the $96,463 convertible note payable signed on April 1, 2013 elected to convert principal and interest at a rate of $0.01 per share as follows:
The unamortized discount related to this principal was $10,450. We amortized this amount to interest expense. We recognized the $20,500 of converted principal and interest as in increase in stockholders’ equity. There was no gain or loss on the conversion, as it was effected in accordance with the terms of the convertible note payable.
The holders of the $167,185 convertible note payable signed on June 30, 2013 elected to convert principal and interest at a rate of $0.01 per share as follows:
The unamortized discount related to this principal was $21,399. We amortized this amount to interest expense. We recognized the $41,310 of converted principal and interest as in increase in stockholders’ equity. There was no gain or loss on the conversion, as it was effected in accordance with the terms of the convertible note payable.
Note 9. Debt Repayment Commitments
The following debt repayments are due within the next five years:
Note 10. Stockholders’ Equity
Conversion of shares
During year ended December 31, 2015, the holders of our convertible notes elected to convert principal and interest into shares of common stock as detailed below:
The shares issuable for the conversion on December 22, 2015 were issued on January 7, 2016. They are included in common stock payable on the balance sheet as of December 31, 2015.
During year ended December 31, 2014, the holders of our convertible notes elected to convert principal and interest into shares of common stock as detailed below:
Discount on Beneficial Conversion Feature of Convertible Notes Payable
During the year ended December 31, 2015 the Company issued convertible notes payable. At the time of the conversion, we recorded a discount to convertible notes payable to reflect the beneficial conversion feature of the note.
During the year ended December 31, 2014, the Company signed convertible promissory notes, which refinanced non-interest bearing advances in the amount of $365,107 into convertible notes payable. These notes are payable along with interest at maturity and bear interest at 10% per annum. The holder of the notes may not convert the convertible promissory note into common stock if that conversion would result in the holder owing more than 4.99% of the number of shares of common stock outstanding on the conversion date. The convertible promissory notes are convertible into common stock at the option of the holder.
The Company evaluated the application of ASC 470-50-40/55, Debtor’s Accounting for a Modification or Exchange of Debt Instrument as it applies to the note listed above and concluded that the revised terms constituted a debt modification rather than a debt extinguishment because the present value of the cash flow under the terms of the new instrument was less than 10% from the present value of the remaining cash flows under the terms of the original note. No gain or loss on the modifications was required to be recognized.
The Company evaluated the terms of the new note in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized beneficial conversion features as show in the table above. The beneficial conversion features were recorded as an increase in additional paid-in capital and a discount to the Convertible Notes Payable. Discounts to the Convertible Notes Payable are amortized to interest expense over the life of the note.
Imputed Interest
During years ended December 31, 2015 and 2014, we recognized imputed interest of $6,581 and $7,384, respectively, as an increase to shareholders’ equity.
Shares Issued to Purchase Fixed Assets
On March 13, 2015, we issued 3,000,000 shares of common stock, pursuant to the terms to acquire a class 5 clean room (See footnote 6). These shares are valued at $5,400,000. We are required to prepare and file a registration statement with the Securities and Exchange Commission to register the shares underlying this agreement within 30 days after the Closing Date and to use its best efforts to cause that registration statement to be declared effective within 270 days. The underlying asset was determined to be impaired as of December 31, 2015. See Note 7.
Reincorporation and reverse split
On July 28, 2014, the Company reincorporated from Delaware to Nevada. The reincorporation was approved by our board of directors and by the owners of a majority of our outstanding voting stock. Each of our shareholders as of the record date received one share of the Nevada company’s common stock for each 300 shares of our common stock they owned in the Delaware company, with fractional shares be rounded up to the next whole share, and number of additional whole shares such that each shareholder will own at least five shares. This effectively resulted in a one-for-300 reverse split. All share and per share amounts have been restated to reflect the reverse split.
Issuance of Common Stock for Cash
On February 6, 2014, the Company received a stock purchase agreement from Eastern Rim Funds Inc., a significant shareholder of the Company, to purchase 100,000 shares of common stock of the Company for $30,000 in cash. The Company also received a cash payment of $30,000. The par value of the common stock was included in stock payable on the balance sheet as of March 31, 2014.
The Company recorded stock compensation expense in the amount of $300,000, which represented the difference in the fair market value of the common stock as of February 6, 2014 and the price paid by Eastern Rim Funds Inc.
On May 27, 2014, our board of directors approved the issuance of these shares. Accordingly, the par value of the common stock was removed from common stock payable on our balance sheet and added to our common stock.
The issuance of these shares resulted in Eastern Rim Funds Inc. holding a total of 173,521 shares of the Company’s common stock. Eastern Rim Funds Inc. held approximately 53% of the outstanding stock of the Company after the issuance.
Note 11. Related Party Transactions
Issuance of Preferred Stock for Services
On September 16, 2014, the board of directors designated 1,000,000 shares of Series E preferred stock. The Series E preferred stock has a par value of $0.001 and ranks subordinate to the Company’s common stock as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. The outstanding shares of Series E preferred stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of common stock.
On the same date, the Company issued 1,000,000 shares of Series E preferred stock to Eastern Rim Funds, a Panama corporation, (“Eastern Rim”) for services valued at $20,000. For accounting purposes, the Series E preferred stock was valued at $3,010,644, which was the estimated market value of the shares. The estimated market value was calculated to be twice the market value of the outstanding common stock on the date of issuance since the Series E preferred stockholders have the right to vote based on twice the number of all outstanding shares of common stock. Eastern Rim owned 173,521 shares of common stock, or approximately 53% of the outstanding stock, of the Company prior to this transaction. This transaction did not result in a change in control of the Company.
Note 12. Subsequent Events
The Company evaluated material events occurring between the end of our fiscal year, December 31, 2015, and through the date when the consolidated financial statements were available to be issued for disclosure consideration.
On January 7, 2016, the Company issued 410,000 shares of common stock which were included in common stock payable as of December 31, 2015.
On January 7, 2016, the holder of our convertible note dated June 30, 2013 converted $2,460 of principal and accrued interest into 246,000 shares of common stock.
On January 8, 2016, the holder of our convertible note dated June 30, 2013 converted $6,687 of principal and accrued interest into 668,700 shares of common stock.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in Accounts
None.
Disagreements with Accountants
There were no disagreements with accountants on accounting and financial disclosures for the years ended December 31, 2015 and 2014.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Limitations on Systems of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses identified in our evaluation, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: lack of a functioning audit committee; lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; inadequate segregation of duties consistent with control objectives; and, management is dominated by a single individual. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2015.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our sole officer and director will serve until a successor is elected and qualified. Our officers are elected by the board of directors to a term of one (1) year and serve until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.
The name, address, age and position of our president, secretary/treasurer, and director and vice president is set forth below:
Mr. Browne was appointed as CEO and a member of the board of directors on May 13, 2014.
Biographies
Mr. Browne brings to GTSO extensive experience in multiple environmental disciplines, most recently for the last nine years as the owner/vice president of Gulf Environmental Services, Inc., which specializes in asbestos abatement services. Mr. Browne also boasts experience as an environmental compliance manager and as a wastewater operator at a petrochemicals company where he oversaw the commissioning, start-up and operation of a two billion pound per year Ethylene plant.
From 2005 through 2010, Mr. Browne was an owner and vice president of Gulf Environmental Services, Inc., a Louisiana asbestos abatement service, where he was responsible for employee safety training and health compliance. From 2010 to the present, Mr. Browne served as a quality control laboratory coordinator for Omega Protein, Inc., which develops, produces and delivers essential nutrients to leading supplement and food manufacturers. He is a graduate of McNeese State University with a bachelor of science degree in environment science and a minor in chemistry.
Family Relationships
There are no family relationships among our directors, executive officers or persons nominated to become executive officers or directors.
Involvement in Certain Legal Proceedings
During the past ten (10) years, none of our directors, persons nominated to become directors, executive officers, promoters or control persons was involved in any of the legal proceedings listen in Item 401 (f) of Regulation S-K.
Arrangements
There are no arrangements or understandings between an executive officer, director or nominee and any other person pursuant to which he was or is to be selected as an executive officer or director.
Committees of the Board of Directors
Our sole director has not established any committees, including an Audit Committee, a Compensation Committee, or a Nominating Committee, any committee performing a similar function. The functions of those committees are being undertaken by our sole director. Because we do not have any independent directors, our sole director believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.
We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future.
While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.
Our sole director is not an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:
·
understands generally accepted accounting principles and financial statements,
·
is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
·
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
·
understands internal controls over financial reporting, and
·
understands audit committee functions
Our Board of Directors is comprised of solely of Mr. Browne who is involved in our day-to-day operations. We would prefer to have an audit committee financial expert on our board of directors. As with most small, early stage companies until such time our company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors’ and officers’ insurance, the Company does not have any immediate prospects to attract independent directors. When the Company is able to expand our Board of Directors to include one or more independent directors, the Company intends to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
WE DO NOT HAVE ANY INDEPENDENT DIRECTORS AND THE COMPANY HAS NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST, AND SIMILAR MATTERS.
Code of Business Conduct and Ethics
We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Mr. Browne is paid $60,000 per year for his services to the company. He does not have a written employment agreement with the company.
The table below summarizes all compensation awards to, earned by, or paid to our named executive officer for all service rendered in all capacities to us for the fiscal years ended December 31, 2015 and 2014.
SUMMARY COMPENSATION TABLE
OUTSTANDING EQUITY AWARDS AT DECEMBER, 31, 2015
Employment Agreements & Retirement Benefits
None of our executive officers is subject to employment agreements, but we may enter into such agreements with them in the future. We have no plans providing for the payment of any retirement benefits.
Director Compensation
Directors receive no compensation for serving on the Board. We have no non-employee directors.
Our Board of Directors is comprised of Wallace Browne. Mr. Browne also serves as the CEO of the Company. None of our directors has or had a compensation arrangement with the Company for director services, nor have any of them been compensated for director services since the Company’s inception.
We reimburse our directors for all reasonable ordinary and necessary business related expenses, but we did not pay director's fees or other cash compensation for services rendered as a director in the year ended December 31, 2015 to any of the individuals serving on our Board during that period. We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. We may pay fees for services rendered as a director when and if additional directors are appointed to the Board of Directors.
Director Independence
We do not currently have any independent directors and we do not anticipate appointing additional directors in the foreseeable future. If we engage further directors and officers, however, we plan to develop a definition of independence.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
We do not currently have a stock option plan in favor of any director, officer, consultant, or employee of our company. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to our sole director and officer since our inception; accordingly, no stock options have been granted or exercised by our sole director and officer since we were founded.
The following table sets forth certain information as of April 11, 2016, with respect to the beneficial ownership of our common stock by each beneficial owner of more than 5% of the outstanding shares of common stock of the Company, each director, each executive officer named in the “Summary Compensation Table” and all executive officers and directors of the Company as a group, and sets forth the number of shares of common stock owned by each such person and group. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table summarize the fees billed to the Company by its independent accountants, M&K CPAs PLLC, for the years ended December 31, 2015 and 2014:
Notes to the Accountants Fees Table:
(1)
Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.”
(2)
Consists of fees for professional services rendered by our principal accountants for tax related services.
(3)
Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above.
As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the services provided by M&K CPAs PLLC described above were approved by our Board.
The Company’s principal accountant did not engage any other persons or firms other than the principal accountant’s full-time, permanent employees.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
3.1
Articles of Incorporation 1
3.2
Bylaws 1
Subsidiaries of the Registrant 2
31.1
Rule 13a-14(a) Certification of Chief Executive Officer 2
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer and Chief Financial Officer 2
XBRL Interactive Data 2,3
______________
(1)
Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on April 27, 2015.
(2)
Filed or furnished herewith.
(3)
In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Annual Report on Form 10-K shall be deemed “furnished” and not “filed.”
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Green Technology Solutions, Inc.
Date: April 14, 2016
BY: /s/ Wallace Browne
Wallace Browne
President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and Director