ITEM 1. BUSINESS
Company History
Green Technology Solutions, Inc. (“GTSO”, “we”, “us”, “our” or the “Company”) was incorporated as XCL Sunrise, Inc. in the State of Delaware on April 1, 1991. 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.
GTSO is in the business of identifying and acquiring rights in early stage, breakthrough green technologies, with the plan to develop these technologies into marketable products. To date, we have identified the following market segments: (1) the advancement of cleaner world-wide mining technologies, with an emphasis on rare earth and precious metals mining applications, (2) the development of additional markets for existing environmentally friendly paint products that are currently being marketed in the United States and (3) smart grid technology. Our mission is to focus our resources on discovering the best available new innovative technologies in this industry space and we intend to work with young companies and inventors to deliver innovation in the real world.
In addition to the foregoing, we plan to focus our resources on successfully identifying new green technologies that have greatest potential to produce near term profits. Due to our limited management and employees, we expect to continue to form strategic joint venture relationships with early stage development technology companies whose goals and objectives are similar to ours. Moreover, we anticipate continued use of and reliance upon industry consultants who have the knowledge and expertise in the areas of our existing and future business ventures. We have located our new offices in the Silicon Valley city of Palo Alto, California, which management believes may increase access to cutting edge technologies. As of March 30, 2012, the Company has one employee.
On June 12, 2010, five purchasers acquired control of 82,519 shares (16,503,817 pre-split shares) of our issued and outstanding common stock representing approximately 69.67% of the total number of issued and outstanding shares from Burisma Holdings Limited. The aggregate purchase price for the shares was $270,000. Cambridge Securities of Panama, a Panama corporation, acquired 60,411 shares of common stock, and four other unrelated corporations each acquired control of 5,527 shares of common stock. As a result of this transaction, there was a change in control of the Company, and Cambridge Securities of Panama became the Company’s majority shareholder.
On October 13, 2011, the Company’s majority shareholder approved a one-for-300 reverse stock split and an increase in the authorized capital to 100 million post-split shares. These changes became effective upon approval by FINRA on January 10, 2012.
On November 2, 2011, John Shearer, Director and Chief Executive Officer (“CEO”) of the Company, resigned from all positions held with the Company, including resigning from Board service. There was no disagreement between the Company and Mr. Shearer at the time of his resignation from the Company.
Also on November 2, 2011, the Company appointed Paul Watson as Director, CEO and President to replace Mr. Shearer. A seasoned executive, Mr. Watson, age 36, brings a wealth of experience in finance, corporate strategy and management to GTSO. From 2005 through 2009, Mr. Watson served as a mergers and acquisitions advisor and private equity group manager for KPMG Financial Advisory Services in Shanghai, China. From 2009 until 2011, he was Managing Director of Hermes Investment Group, a merchant bank focused on clean technology and environmental science established in Shanghai China, and headquartered in the United States. Mr. Watson also currently serves as a Director and CEO of Obscene Jeans Corporation. He is a graduate of the University of Houston, Bauer College of Business with a bachelor’s degree in finance. He speaks English, Chinese and Spanish.
Current Plan of Operations
We are currently identifying possible early stage companies and technology across a range of green technologies and environmentally friendly practices for the purpose of acquiring rights to them and developing them into marketable products. We have already identified several potential new technology endeavors and management is studying these endeavors for their potential inclusion into our development process.
On January 29, 2011, we entered into a Profit Participation Agreement with Integrated Smart Solutions, Inc. (“ISS”), a California corporation that develops smart grid technologies. Smart grid technology is an electric network which uses two-way digital communication to control appliances at consumers' homes to achieve energy savings, reduced costs and increased reliability. Pursuant to the agreement, we will receive up to five percent of the net profits realized by ISS, if any, in exchange for six monthly payments of $10,000. We have no guarantee that ISS will achieve profitable operations.
On January 30, 2011, we entered into a Joint Venture Agreement with Rare Earth Exporters of Mongolia Pte. Ltd. (“REEM”), whose mission is to supply worldwide industrial and manufacturing economies with necessary rare earth minerals. Under the terms of our agreement, we will have a 50% interest in REEM’s profits in exchange for our agreement to provide operating capital. REEM is contributing its knowledge and product development skills in the market. Our initial task is to determine whether certain properties we have identified have mining claims with commercial viability. We will need to raise significant additional capital in order to fully realize the value of our claims in the joint venture if our claims reveal that they contain the rare earth minerals we are seeking to mine. We currently do not have any plan or efforts underway to raise such a significant amount of capital and are not sure when, if ever, we will be able to do so to pursue the exploitation of these mining claims if they prove to exist.
On April 12, 2011, we entered into a letter of intent to acquire REEM. Since February, we have worked together with REEM to procure and develop rare earth mining claims and operations inside the nation of Mongolia. According to the letter of intent, the final purchase price for REEM was to be agreed upon pending independent evaluations of these sites’ mineral deposits currently underway. The independent evaluation of the mineral deposits was not been completed and the final purchase price has not been determined. As a result of performing additional due diligence, the Company has determined that it will not finalize the acquisition of REEM.
On June 8, 2011, the Company signed a profit participation agreement with AR Ehkes, a Mongolian company. The purpose of the profit participation agreement is to facilitate the mining of rare earths at three sites in Mongolia. Under the terms of the agreement, the Company will receive 15% of the net profits generated by AR Ehkes from production at the three defined sites in Mongolia. In exchange for this, the Company will be required to pay AR Ehkes $10,000 per month for a period of six months. In addition, the Company will pay the costs of excavating, moving and exporting a 20 ton rail car of ore from the site. The Company made the required monthly payments of $10,000 each in June, July and August. The Company can cancel this agreement at any time by not making additional payments. There would be no continuing obligation of the Company. The next payment of $10,000 would have been due in September. As of September 30, 2011, the Company canceled this contract by not making the required payment. No additional payments will be made after September 30, 2011.
On June 27, 2011, the Company (through its joint venture with Beijing Bullion Transfer Group) signed a profit participation agreement with AR Ehkes to facilitate the mining of rare earth at a fourth site in Mongolia. Under the terms of the agreement, the Company will receive 15% of the net profits generated by AR Ehkes from production at this site. In exchange, the Company will be required to pay AR Ehkes $10,000 per month for a period of six months. In addition, the Company will pay the costs of excavating and evaluating 20 core samples from the site to determine the content of precious metals. The Company made the required monthly payments of $10,000 each in June, July and August. The Company can cancel this agreement at any time by not making additional payments. There would be no continuing obligation of the Company. The next payment of $10,000 would have been due in September. As of September 30, 2011, the Company canceled this contract by not making the required payment. No additional payments will be made after September 30, 2011.
On October 20, 2011, we signed an option agreement regarding the potential acquisition of Chery Minerals, LLC. The option agreement provides us with 45 days to perform due diligence and negotiate a final purchase price. We paid $5,000 for this option. Chery Minerals, LLC is in the business of rare earth metals exploration and mineral development with a focus on gold in Africa. We have not completed our due diligence as of the filing of this report. As a result, we expensed the payment as the option period has ended.
On November 2, 2011, we entered into an agreement with New World Energy Ltd. to form a joint venture (“NEWCO”) for the purpose of exploring potential mineral claims in Indonesia. Each party will own 50% of the joint venture. NEWCO will acquire the mineral rights, make any and all necessary disbursements on behalf of NEWCO, and collect and distribute profits in accordance with the ownership percentages of the joint venture. We have committed to fund the portions of the cash flow requirements of NEWCO. New World Energy Ltd. will manage and operate NEWCO as its contribution to the joint venture.
Through GTSO’s newest initiative in the mining and rare earth metals sector, the Company plans to create the necessary logistics and distribution channels to mine, ship, and deliver precious metals to the global marketplace. The Company intends to be a driving force behind a more competitive rare earth metals market. The Company’s alliances in Asia and Africa provide a strategic advantage and access to one of the most plentiful rare earth deposits in the world. GTSO has also identified additional joint venture and acquisition targets in China and South America. The mission is to meet the growing demand for gold, silver, and other precious metals, while introducing sustainable and environmentally friendly practices that also create new products and reduce greenhouse gas pollutants through the use of biomass and organic carbon sequestration.
ITEM 1A.
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this Annual Report on Form 10-K, before investing in our common stock. If any of the events anticipated by the risks described below occur, our results of operations and financial condition could be adversely affected which could result in a decline in the market price of our common stock, causing you to lose all or part of your investment.
Risks Associated with the Company.
The Company's auditors have expressed doubt about our ability to continue as a going concern:
The independent auditor's report on our financial statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern. The report states that we depend on raising additional equity to continue our operations. If we are unable to obtain sufficient financing in the near term, then we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect the value of our common shares. For the year ended December 31, 2011, the Company’s net loss was $1,193,838 and our accumulated deficit was $9,008,610.
Management may not run the company in a profitable manner and if it does not you may lose your entire investment:
Our management has limited experience in our areas of operation. Thus, the day-to-day operations of the businesses in which we are involved depend upon the abilities of management of our joint venture partners
We may not be able to locate and acquire joint venture partners and any failure to identify suitable joint venture partners may result in losses to us and our investors:
With the exception of Bio Pulp Works, LLC, ISS, and REEM, the Company has not yet identified any joint venturers. While we plan on pursuing "green" technology companies or projects similar in size, scope and focus to Bio Pulp Works, LLC, ISS, and REEM, we may not be able to joint venture with companies that are similarly situated as we currently intend. Intense competition can be expected from existing, better financed and more established competitors, who are also seeking to create or purchase profitable businesses. Numerous other firms have substantially greater resources in locating and/or acquiring potential project or joint venture partners. Management has limited previous experience in identifying suitable joint venture partners. In addition, in each instance our contracts with the above-described companies are limited in scope and may not be profitable even if those companies are otherwise profitable.
Our joint venture with Rare Earth Exporters of Mongolia may require a significant cash investment and may not generate positive net income:
Rare Earth Exporters of Mongolia Pte. Ltd., a Singapore company (“REEM”), is required to contribute its knowledge and product development skills to our joint venture, while we are required to contribute the operating capital. The joint venture has not developed a business plan and our joint venture agreement does not define the amount of capital nor the degree of knowledge and skills each party must contribute. Moreover, significant cash may be required to cause the joint venture to become a viable business. Currently, we have no cash to fund the joint venture, nor do we have any plan as to how we are going to obtain such funds. Accordingly, there is no assurance that the funds or expertise necessary to cause the joint venture to become an operating entity will ever be provided.
Neither our joint venture with BioPulp Works, LLC nor our Profit Participation Agreement with Integrated Smart Solutions, Inc. has yet produced any revenue or viable business opportunities:
We have nearly completed our required investment in our joint venture with BioPulp Works, LLC and it has not yet produced any new products, markets or other business opportunities. Accordingly, there is no assurance that the joint venture will ever achieve results that permit the Company to recoup its investment or otherwise obtain any revenue. While our Profit Participation Agreement with Integrated Smart Solutions, Inc. (“ISS”) provides the Company with perpetual participation in the net profits of ISS’s smart grid technology products, to date ISS has no products and the Company has no assurances that ISS will ever generate any net profits.
We may not have access to sufficient capital to pursue our acquisition strategies and therefore would be unable to achieve our planned future growth:
We intend to pursue a growth strategy that includes acquiring or investing in new companies or creating joint ventures with third parties. There is a risk that we will not have access to sufficient capital to pursue our acquisition strategies. We may take an extended period of time to locate and investigate specific target companies, and if one or more target companies are located, the negotiation and execution of the relevant agreements may require substantial time, effort and expense. Our ability to continue to make acquisitions will depend primarily on our ability to obtain additional private or public equity or debt financing. Such financing may not be available to make future investments.
During the year ended December 31, 2011 and during the period from December 31, 2011 through the date of this report, we have financed our operations through working capital advances. There is no guarantee that funds will continue to be available to us or that we will continue to borrow funds on terms that are acceptable to the Company. We currently do not have any arrangements for financing and we may not be able to obtain financing when required. If we are unable to obtain the funds needed to operate our business, we would not be able to continue as a going concern.
A portion our debt is payable on demand. If the lender demanded payment, we do not have adequate funds on hand to repay the debt.
Our lack of diversification subjects investors to a greater risk of losses:
In the event we are successful in identifying and evaluating one or more suitable merger or acquisition candidates, which may not occur, we may be required to issue shares of our common stock in an acquisition or merger transaction. Inasmuch as our capitalization is limited, it is unlikely that we will be capable of completing more than a limited number of mergers or acquisitions. Consequently, our potential lack of diversification may subject us to economic fluctuation within the single industry or limited number of industries in which we may acquire an interest.
Control of the Company may change and any new management may not successfully run our business:
As of March 28, 2012, we have outstanding convertible debt in the amount of $298,421 which could be converted into 11,364,978 shares of common stock. If the debt were fully converted it would result in a significant ownership dilution to existing shareholders. In addition, if the interest on such debt is not paid, it is added to principal and thereafter can be converted into additional shares at the same rate. Accordingly, failure to pay interest when due could result in further dilution.
One shareholder controls a material percentage of common shares outstanding potentially adversely affecting investor’s influence over corporate affairs:
One shareholder beneficially owns 71% of the Company’s issued and outstanding Common Shares, on an undiluted basis, based on 31,202,694 common shares issued and outstanding as of March 28, 2012. As a result, it has the ability to influence matters affecting the Company’s shareholders, including the election of directors, the acquisition or disposition of assets, and the future issuance of shares. Due to this shareholder’s control over such shares, investors may find it difficult to replace the management if they disagree with the way the Company’s business is being operated.
The Company’s limited financial resources will require the Company to seek additional funding, potentially diluting existing shareholders or increasing financial risk thorough debt issuance:
The Company has limited financial resources. There is no assurance that the Company will be able to generate funds from operations or to obtain sufficient financing in the future on terms acceptable to it or at all. The ability of the Company to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions as well as the business performance of the Company. Failure to obtain additional financing on a timely basis or at all may cause the Company to postpone, abandon, reduce or terminate its operations and could have a material adverse effect on the Company’s business, results of operations and financial condition. Any sale of common shares will result in dilution of equity ownership to existing shareholders. This means that if the Company sells common shares, more shares will be outstanding and each existing shareholder will own a smaller percentage of the shares then outstanding. Alternatively, the Company may rely on debt financing and assume debt obligations that require it to make substantial interest and capital payments. Also, the Company may issue or grant warrants or options in the future pursuant to which additional common shares may be issued. Exercise of such warrants or options will result in dilution of equity ownership to the Company’s existing shareholders.
Our common stock is subject to penny stock regulation:
Our shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on the NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the registrant's net tangible assets; or exempted from the definition by the Commission. Since our shares are deemed to be "penny stock", trading in the shares will be subject to additional sales practice requirements on broker/dealers who sell penny stock to persons other than established customers and accredited investors.
We do not intend to pay cash dividends:
We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are declared, there is no assurance with respect to the amount of any such dividend.
Because our stock is quoted on the over-the-counter market, our shareholders may have difficulty selling their stock or experience increased negative volatility on the market price of our stock:
Our common stock is quoted on the OTCQB over-the-counter quotation system. The OTCQB is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities that trade on the OTCQB as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Our shareholders may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, our shareholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.
Continued failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results:
We have failed to maintain effective internal control over financial reporting. It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. To maintain these controls, we will need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures. If we are unable to comply with these requirements of the Sarbanes-Oxley Act, we may not be able to achieve effective internal controls, and will have to disclose this in our Exchange Act reports.
If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.
In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we have and may in the future discover "material weaknesses" in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines "significant deficiency" as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.
In the event that a material weakness is identified, we will attempt to adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future. We may not have the financial or other resources to maintain effective internal control.
Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual management’s reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
We have limited operating history and lack of profits which could lead to wide fluctuations in our share price, and the market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float:
The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or "risky" investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential acquisitions and their products and services. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
Risks Associated with the Company’s Planned Mining Operations
We do not have experience in placing mining properties into production:
We have no experience in placing mineral properties into production and our ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreement with other major resource companies that can provide such expertise. There can be no assurance that we will have available to us the necessary expertise to take a mineral deposit into production.
We rely on joint venture partners, consultants, geologists and engineers to perform our exploration activities:
Any potential development and production of exploration properties depend upon the results of exploration programs and/or feasibility studies and the recommendations of duly qualified engineers and geologists. We do not have the personnel to perform these tasks internally and therefore rely exclusively on our joint venture partners and experts in these capacities. Failure of these third parties could adversely affect our business.
We require substantial funds merely to determine whether commercial mineral deposits exist on our properties:
Programs to determine mineral deposits require substantial additional funds, which the Company needs to first acquire or finance. Substantial expenditures are required to develop the exploration infrastructure at any site chosen for exploration, to establish rare earth reserves, to carry out environmental and social impact assessments, and to develop metallurgical processes to extract the metal from the ore. We may not be able to discover minerals in sufficient quantities to justify commercial operation, and we may not be able to obtain funds required for exploration on a timely basis. We currently have no plan to acquire or finance these activities. Accordingly, you could lose your entire investment.
Our joint venture partners may have other business interests or may be unsuccessful, which could be adverse to our interests:
We are pursuing business projects that are heavily dependent upon joint venture partners. Our joint venture partners in Mongolia, Indonesia, and the United States may have interests in projects in which we do not have an interest. Any such projects may occupy more of their resources and capital. In addition, such projects may compete in the marketplace with the activities of our joint ventures. As a result, there is no assurance that any of our joint venture partners will be as committed to or dependent upon any joint venture as we are. In addition, failure of our joint venture partners to perform as required or expected could have a material adverse impact on our business.
We are attempting to operate in the resource industry, which is highly speculative, and has certain inherent exploration risks which could have a negative effect on our operations:
Resource exploration is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond its control and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, and such other factors such as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environment protection. Any one or a combination of these factors may result in the Company not receiving an adequate return on its investment capital.
We are pursuing projects in Mongolia, a developing country with has historically experienced periods of civil unrest and political and economic instability:
Although management believes the political and economic climate of Mongolia is currently stable, any negative changes in governmental laws, regulations, economic conditions, or political attitudes in Mongolia are beyond the control of the Company and may adversely affect our business.
The mining industry is highly competitive:
We will be competing with numerous companies, substantially all with far greater resources available to them. We therefore will be at a significant disadvantage in the course of acquiring mining properties and obtaining materials, supplies, labor, and equipment. Additionally, even if we begin production, we are and will continue to be an insignificant participant in the business of mining properties. A large number of established and well-financed companies are active in the mining industry and will have an advantage over us if they are competing for the same properties. Nearly all such entities have greater financial resources, technical expertise and managerial capabilities than ourselves and, consequently, we will be at a competitive disadvantage in identifying possible mining properties and procuring the same.
We have no known reserves, no economic reserves may exist on properties we are pursuing, and we may not be able to obtain rights to deposits we are investigating, all of which could have a negative effect on our operations and valuation:
Despite commencing due diligence exploration work on certain properties, no known bodies of commercial ore or economic deposits have been established on any of its mineral properties. In addition, the Company is at the exploration stage on all of properties it has identified and substantial additional work will be required in order to determine if any economic deposits exist on any such properties. The Company may expend substantial funds in exploring these properties only to abandon them and lose its entire expenditure on the properties if no commercial or economic quantities of minerals are found or if we are unable to secure rights to exploit the same. Even if commercial quantities of minerals are discovered and we obtain the necessary rights to them, the exploration properties might not be brought into a state of commercial production. Finding mineral deposits is dependent on a number of factors, including the technical skill of exploration personnel involved. The commercial viability of a mineral deposit once discovered is also dependent on a number of factors, some of which are the particular attributes of the deposit, such as content of the deposit including harmful substances, size, grade and proximity to infrastructure, as well as element prices and the availability of power and water in sufficient supply to permit development. Most of these factors are beyond the control of the entity conducting such mineral exploration. The Company is an exploration stage company with no history of pre-tax profit and no income from its operations. There can be no assurance that its operations will be profitable in the future. There is no certainty that the expenditures to be made by the Company in the exploration of properties will result in discoveries of mineralized material in commercial quantities. Most exploration projects do not result in the discovery of commercially mineable deposits and no assurance can be given that any particular level of recovery of mineral reserves will in fact be realized or that any identified mineral deposit will ever qualify as a commercially mineable (or viable) mineral deposit which can be legally and economically exploited. There can be no assurance that minerals recovered in small scale tests will be duplicated in large scale tests under on-site conditions or in production. If the Company is unsuccessful in its exploration efforts, it may be forced to acquire additional projects or cease operations.
Our intended operations contain significant uninsured risks which could negatively impact future profitability:
The Company’s exploration of its mineral properties contains certain risks, including unexpected or unusual operating conditions including rock bursts, cave-ins, flooding, fire and earthquakes. It is not always possible to insure against these risks. Should events such as these arise, they could reduce or eliminate the Company’s assets and shareholder equity as well as result in increased costs and a decline in the value of the Company’s securities. The Company currently has no insurance and expects to maintain only general liability and director and officer insurance but no insurance against its properties or operations. We may decide to take out this insurance in the future if it is available at economically viable rates.
Mineral operations are subject to market forces outside of our control which could negatively impact our operations:
The marketability of minerals is affected by numerous factors beyond the Company’s control including market fluctuations, government regulations relating to prices, taxes, royalties, allowable production, imports, exports and supply and demand. One or more of these risk elements could have an impact on the costs of the Company’s operations and if significant enough, reduce the profitability of its operations and threaten its continuation.
Permitting, licensing and approval processes are required for the Company’s operations and obtaining and maintaining these permits and licenses is subject to conditions which the Company may be unable to achieve:
Many of the operations of the Company require licenses and permits from various governmental authorities. The Company believes it holds or is in the process of obtaining all necessary licenses and permits to carry on the activities which it is currently conducting or proposes to conduct under applicable laws and regulations. Such licenses and permits are subject to changes in regulations and changes in various operating circumstances. There can be no guarantee that the Company will be able to obtain all necessary licenses and permits that may be required to maintain its exploration and mining activities including constructing mines or milling facilities and commencing operations of any of its exploration properties. In addition, if the Company proceeds to production on any exploration property, it must obtain and comply with permits and licenses which may contain specific operating conditions. There can be no assurance that the Company will be able to obtain such permits and licenses or that it will be able to comply with any such conditions.
The Company’s operations are subject to environmental risks and compliance with environmental regulations which are increasing and costly:
Environmental legislation and regulation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Compliance with environmental quality requirements and reclamation laws imposed by federal, state, provincial, and local governmental authorities may require significant capital outlays, materially affect the economics of a given property, cause material changes or delays in intended activities, and potentially expose the Company to litigation. The Company cannot accurately predict or estimate the impact of any such future laws or regulations, or future interpretations of existing laws and regulations, on the Company’s operations.
We may be adversely affected by fluctuations in demand for, and prices of, rare earth products:
We are seeking to derive revenues, if any, from the sale of rare earth and related minerals. Changes in demand for, and the market price of, these minerals could significantly affect our profitability. The value and price of our common stock and our financial results may be significantly adversely affected by declines in the prices of rare earth minerals and products. Rare earth minerals and product prices may fluctuate and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the relative value of the U.S. dollar against foreign currencies on the world market, global and regional supply and demand for rare earth minerals and products, and the political and economic conditions of countries that produce rare earth minerals and products. A prolonged or significant economic contraction in the United States or worldwide could put further downward pressure on market prices of rare earth minerals and products. Protracted periods of low prices for rare earth minerals and products could significantly reduce revenues and the availability of required development funds in the future. Even if we commence production, this could cause substantial reductions to, or a suspension of, production operations, impair asset values and reduce our proven and probable rare earth ore reserves. In contrast, extended periods of high commodity prices may create economic dislocations that may be destabilizing to rare earth minerals supply and demand and ultimately to the broader markets. Periods of high rare earth mineral market prices generally are beneficial to our financial performance. However, strong rare earth mineral prices also create economic pressure to identify or create alternate technologies that ultimately could depress future long-term demand for rare earth minerals and products, and at the same time may incentivize development of otherwise marginal mining properties.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES.
Executive Offices
Our executive offices are located at 2880 Zanker Road, Suite 203, San Jose, California. We rent office space on a month-to-month basis for $300 per month. The aforesaid property is in good condition and we believe it will be suitable for our purposes for the next 12 months. There is no affiliation between us and any of our principals or agents and our landlord or any of its principals or agents.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURE.
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 December 2010. 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 the OTC. 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.
The above prices have been adjusted to reflect the one-for-200 reverse stock split effected on November 19, 2010 and the one-for-300 reverse stock split effected on January 21, 2012.
Common Stock
We are authorized to issue 75,000,000 shares of common stock, with a par value of $0.001. The closing price of our common stock on March 28, 2012, as quoted by the OTC, was $2.43. There were 31,202,694 shares of common stock issued and outstanding as of March 28, 2012. 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 common stock of the Company 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.
Record Holders
As of March 28, 2012, there were approximately 1,267 holders of record of our common stock.
Dividends on Common Stock
Since inception, no dividends have been paid on our common stock. We have incurred losses since inception. However, should we become profitable, we intend to retain any earnings for use in our business activities. Therefore, it is not expected that any dividends on our common stock will be declared and paid in the foreseeable future.
Any future dividends will be at the discretion of the Board of Directors, after taking into account various factors, including among others, operations, current and anticipated cash needs and expansion plans, the income tax laws then in effect, the requirements of Delaware law, and any restrictions that may be imposed by our future credit arrangements.
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, 2011.
Changes in Securities
On October 13, 2011, the Company’s majority shareholders approved a one-for-300 reverse stock split and an increase in the authorized capital to 100 million post-split shares. These changes became effective upon approval by FINRA on January 10, 2012. All share and per share numbers in this Annual Report on Form 10-K have been restated to reflect the reverse split.
Recent Sales of Unregistered Securities
On February 18, 2011, we issued 5,000,000 shares of common stock in a partial conversion and satisfaction of $50,000 of debt in accordance with the terms of the debt.
On June 29, 2011, we issued 9,000,000 shares of common stock in a partial conversion and satisfaction of $90,000 of debt in accordance with the terms of the debt.
On September 12, 2011, we issued 7,000,000 shares of common stock in a partial conversion and satisfaction of $70,000 of debt in accordance with the terms of the debt.
The Company claims an exemption pursuant to Section 4(2) of the Securities Act for the above issuances due to the non-public nature of the transactions.
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 OPERATION.
FORWARD LOOKING STATEMENTS
Caution Regarding Forward-Looking Information
All statements contained in this Form 10-K, other than statements of historical facts, that address future activities, events or developments are forward-looking statements, including, but not limited to, statements containing the words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project," and similar expressions . All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new acquisitions, products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties described under “Risk Factors” under Item 1A above that may cause actual results to differ materially.
Consequently, all of the forward-looking statements made in this Form 10-K are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company's views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The following discussion and analysis should be read in connection with the Company’s financial statements and related notes thereto, as included in this report.
The following is management's discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of our current management.
Results of Operations and Going Concern
We incurred a net loss of $1,193,838 for the year ended December 31, 2011, and had a working capital deficit of $279,974 as of December 31, 2011. We do not anticipate having positive net income in the immediate future. Net cash used by operations for the year ended December 31, 2011 was $770,775. These conditions create an uncertainty as to our ability to continue as a going concern.
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.
Results of Operations for the year ended December 31, 2011 compared to the year ended December 31, 2010
General and Administrative Expenses
General and administrative expenses increased in the year ended December 31, 2011 as compared to the year ended December 31, 2010 from $401,528 to $995,440 due to stock based compensation of $210,000 and increased expenses related to mining operations and joint ventures.
Loss from Operations
The increase in our operating loss for the year ended December 31, 2011 as compared to the comparable period of 2010 from $401,528 to $995,440 is due to the increase in general and administrative expenses described above.
Other Income (Expense)
During the year ended December 31, 2010, we recognized a loss related to the creation of an allowance for the impairment of our investment in joint venture in the amount of $260,000. Interest expense increased during the year ended December 31, 2011 compared to the same period of 2010 from $54,343 to $198,398, primarily related to the amortization of discounts on notes payable.
Net Income (Loss)
We recognized a net loss of $1,193,838 for the year ended December 31, 2011 as compared to a net loss of $715,871 for the same period of 2010. Changes in net income (loss) are primarily attributable to changes in operating income and impairment, each of which is described above.
Liquidity and Capital Resources
Net cash used by operating activities was $770,775 and $414,984 for the years ended December 31, 2011 and 2010, respectively. The increase is mainly attributable to the increased level of operations requiring more cash.
Cash used by investing activities was $0 and $260,000 for the years ended December 31, 2011 and 2010, respectively. During the year ended December 31, 2010, we made an investment in a joint venture.
Cash provided by financing activities was $769,141 and $677,559 for the years ended December 31, 2011 and 2010, respectively. The increase is mainly attributable to advances received which were required to fund the Company’s operations.
We had negative working capital of $279,974 as of December 31, 2011 compared to $673,890 as of December 31, 2010. Our cash position decreased to $979 at December 31, 2011 compared to $2,613 at December 31, 2010.
Our monthly cash requirement amount is approximately $50,000, and as of December 31, 2011, cash on hand would fund operations for less than one month.
The Company anticipates it will require around $600,000 to sustain operations and effectively evaluate new business opportunities over the next twelve months. However, if our mining claims show significant deposits then we may require several million dollars of additional financing. The Company intends to seek to raise these funds through equity and debt financing; however, there is no guarantee that funds will be raised and the Company has no agreements in place as of the date of this filing for any financing.
We do not have any material commitments for capital expenditures. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financings in addition to what is required to fund our present operations.
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
None
Critical Accounting Policies and Recent Accounting Pronouncements
We have identified the policies below as critical to our business operations and the understanding of our financial statements. A complete discussion of our accounting policies is included in Notes 2 and 3 of the Notes to Financial Statements.
Use of Estimates
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 materially differ from these estimates.
Going Concern
The accompanying financial statements have been prepared on a going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.
As shown in the financial statements, the Company incurred a net loss of $1,193,838 for the year ended December 31, 2011, while the Company’s current liabilities exceeded its current assets by $279,974 as of December 31, 2011.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis by raising additional funds through debt or equity financing. The Company expects to satisfy its cash requirements by obtaining additional loans; however, there is no assurance that additional capital will be available to the Company when needed and on acceptable terms. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Accordingly, our independent auditors included an explanatory paragraph in their report on the December 31, 2011 financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional notes and disclosures describing the circumstances that lead to this disclosure by our independent auditors.
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.
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Green Technology Solutions, Inc.
(formerly Sunrise Energy Resources, Inc.)
(a development stage company)
We have audited the accompanying balance sheet of Green Technology Solutions, Inc. (the “Company”) (a development stage company) as of December 31, 2011 and 2010 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and for the period the Company re-entered the development stage (June 12, 2010) through December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Green Technology Solutions, Inc. as of December 31, 2011 and 2010 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company suffered a net loss from operations and has a net working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The 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
March 30, 2012
GREEN TECHNOLOGY SOLUTIONS, INC.
(formerly Sunrise Energy Resources, Inc.)
(a development stage company)
BALANCE SHEETS
(Expressed in US Dollars)
The accompanying notes are an integral part of these financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
(formerly Sunrise Energy Resources, Inc.)
(a development stage company)
STATEMENTS OF OPERATIONS
(Expressed in US Dollars except share amounts)
The accompanying notes are an integral part of these financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
(formerly Sunrise Energy Resources, Inc.)
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in US Dollars except share amounts)
On November 19, 2010, the Company effected a one-for-200 reverse stock split. All share and per share numbers have been restated to reflect the reverse split.
On January 21, 2012, the Company effected a one-for-300 reverse stock split. All share and per share numbers have been restated to reflect the reverse split.
The accompanying notes are an integral part of these financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
(formerly Sunrise Energy Resources, Inc.)
(a development stage company)
STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)
The accompanying notes are an integral part of these financial statements.
GREEN TECHNOLOGY SOLUTIONS, INC.
(formerly Sunrise Energy Resources, Inc.)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Company History
Green Technology Solutions, Inc. (“Green Technology”, “we”, “us”, “our” or the “Company”) was incorporated as XCL Sunrise, Inc. in the State of Delaware on April 1 1991. 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.
Green Technology Solutions Inc. is in the business of identifying and acquiring rights in early stage, breakthrough green technologies, with the plan to develop these technologies into marketable products. To date, we have identified the following market segments: (1) the advancement of cleaner world-wide mining technologies, with an emphasis on rare earth and precious metals mining applications, (2) the development of additional markets for existing environmentally friendly paint products that are currently being marketed in the United States and (3) smart grid technology. Our mission is to focus our resources on discovering the best available new innovative technologies in this industry space and we intend to work with young companies and inventors to deliver innovation in the real world.
In addition to the foregoing, we plan to focus our resources on successfully identifying new green technologies that have greatest potential to produce near term profits. Due to our limited management and employees, we expect to continue to form strategic joint venture relationships with early stage development technology companies whose goals and objectives are similar to ours. Moreover, we anticipate continued use of and reliance upon industry consultants who have the knowledge and expertise in the areas of our existing and future business ventures. We have located our new offices in the Silicon Valley city of Palo Alto, California, which management believes may increase access to cutting-edge technologies. As of March 30, 2012, the Company has one employee.
In accordance with ASC 915, the Company is considered to have re-entered into the development stage on June 12, 2010 as it discontinued its previous operations and did not have revenues for the period from June 12, 2010 through December 31, 2011.
The Company currently has its headquarters at 2880 Zanker Road, Suite 203, San Jose, California 95134. As of December 31, 2011, the Company had one employee.
2. PRESENTATION OF FINANCIAL STATEMENTS
Basis of Presentation- The accompanying condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Going Concern - The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company incurred a net loss of $1,193,838 for the year ended December 31, 2011, while the Company’s current liabilities exceeded its current assets by $279,974 as of December 31, 2011.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis by raising additional funds through debt or equity financing. The Company expects to satisfy its cash requirements by obtaining additional loans; however, there is no assurance that additional capital will be available to the Company when needed and on acceptable terms. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Use of Estimates and Assumptions- The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 materially differ from these estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - Cash includes petty cash and cash held on current bank accounts. Cash equivalents include short-term investments with an original maturity of three months or less that are readily convertible to known amounts of cash which are subject to insignificant risk of changes in value. Cash and cash equivalents as of December 31, 2011 and 2010 consisted mainly of USD denominated current accounts held at major banks.
Accounts Receivable - Accounts receivable are stated at their net realizable value after deducting provisions for uncollectible amounts.
Trade and Other Payables- Liabilities for trade and other amounts payable are stated at their nominal value.
Loans and Other Borrowings- All loans and borrowings are recorded at the proceeds received, net of direct issue costs.
Borrowing Costs- Borrowing costs are recognized as an expense in the period in which they are incurred.
Income Taxes- Income tax has been computed based on the results for the year as adjusted for items that are non-assessable or non-tax deductible.
The Company has adopted accounting rules under which the deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its tax assets and liabilities on a net basis.
Deferred tax is calculated at rates that are expected to apply to the period when the asset is realized or the liability is settled. It is charged or credited to the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Fair Value of Financial Instruments - The Company follows the FASB standard related to fair value measurement. The standard defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values, as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows.
·Level 1. Observable inputs such as quoted prices in active markets;
·Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
·Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments are cash, accounts payable and long-term debt. The recorded values of cash and accounts payable approximate their fair values based on their short-term nature.
The following table presents assets that were measured and recognized at fair value as of December 31, 2011 and 2010 and the years then ended on a recurring and nonrecurring basis:
Revenue Recognition - The Company is not currently generating revenue; however, revenue generated in the future will be recognized in accordance with SEC rules. The four criteria that must be met in order to recognize revenue are: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.
Earnings (Loss) per Share - Earnings (loss) per share are computed in accordance with current accounting literature. Basic earnings (loss) per share are calculated by dividing the net income (loss) available to common stockholders by the weighted average number of shares outstanding during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In a loss year, dilutive common equivalent shares are excluded from the loss per share calculation as the effect would be anti-dilutive.
Comprehensive Income (Loss) - Current accounting literature establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances. Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, current accounting literature requires that all items that are required to be recognized under current accounting standards as components of comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other financial statements. Foreign exchange translation gains and losses of the Company are reflected in comprehensive gains and losses.
4. INVESTMENT IN JOINT VENTURE
On November 8, 2010, the Company paid $250,000 to acquire the rights to a joint venture agreement with Bio Pulp Works, LLC, a manufacturer of products made from recycled paper products. Under the terms of agreement, the Company will receive a 49% interest in the joint venture. The purpose of the joint venture is to expand the sales of Bio Pulp Works into new sales areas or to develop new recycled products which will be manufactured by Bio Pulp Works. The Company has agreed to contribute $10,000 per month for a term of six months to fund the operations of the joint venture. The Company has agreed to contribute its expertise in identifying new markets to the joint venture. BioPulp will contribute its manufacturing expertise toward developing new products.
As of December 31, 2010, BioPulp and the Company had not identified new sales areas or new products to be sold by the joint venture. However, both companies continue to work together diligently toward that end. As of the December 31, 2010, the Company evaluated its investment in the joint venture to determine whether it was impaired in accordance with GAAP. Because the development of markets and products for the joint venture is in the very early stages, it is not possible to reasonably estimate the expected future cash flows which could be generated from the joint venture. As a result, the Company created an allowance for the impairment of the joint venture and recognized a corresponding impairment loss in the amount of $260,000 for the year ended December 31, 2010.
5. PROFIT PARTICIPATION AGREEMENTS
On January 29, 2011, we signed a Profit Participation Agreement (the “ISS PPA”) with Integrated Smart Solutions, Inc. (“ISS”). ISS develops smart grid technologies. Under the terms of the ISS PPA we have paid ISS $10,000 per month for a period of six months. In exchange, we will receive 5% of the net profits of ISS. We have no guarantee that ISS will achieve profitable operations.
On January 30, 2011, we signed a Joint Venture Agreement with Rare Earth Exporters of Mongolia Pte. Ltd. (“REEM”). The purpose of the joint venture is to procure rare earth mining claims and operations and to further our plans to acquire, develop and implement the newest clean mining technology to enable our partner clients to expand operations throughout. We will participate equally with REEM in the profits and losses of the joint venture. Under the terms of our agreement, we will have a 50% interest in REEM’s profits in exchange for our agreement to provide operating capital. REEM is contributing its knowledge and product development skills in the market. Our initial task is to determine whether certain properties we have identified have mining claims with commercial viability. We will need to raise significant additional capital in order to fully realize the value of our claims in the joint venture if our claims reveal that they contain the rare earth minerals we are seeking to mine. We currently do not have any plan or efforts underway to raise such a significant amount of capital and are not sure when, if ever, we will be able to do so to pursue the exploitation of these mining claims if they prove to exist.
On June 8, 2011, the Company signed a profit participation agreement with AR Ehkes, a Mongolian company. The purpose of the profit participation agreement is to facilitate the mining of rare earths at three sites in Mongolia. Under the terms of the agreement, the Company will receive 15% of the net profits generated by AR Ehkes from production at the three defined sites in Mongolia. In exchange for this, the Company will be required to pay AR Ehkes $10,000 per month for a period of six months. In addition, the Company will pay the costs of excavating, moving and exporting a 20 ton rail car of ore from the site. The Company made the required monthly payments of $10,000 each in June, July and August. The Company can cancel this agreement at any time by not making additional payments. There would be no continuing obligation of the Company. The next payment of $10,000 would have been due in September. As of September 30, 2011, the Company canceled this contract by not making the required payment. No additional payments will be made after September 30, 2011.
On June 27, 2011, the Company (through its joint venture with Beijing Bullion Transfer Group) signed a profit participation agreement with AR Ehkes to facilitate the mining of rare earth at a fourth site in Mongolia. Under the terms of the agreement, the Company will receive 15% of the net profits generated by AR Ehkes from production at this site. In exchange, the Company will be required to pay AR Ehkes $10,000 per month for a period of six months. In addition, the Company will pay the costs of excavating and evaluating 20 core samples from the site to determine the content of precious metals. The Company made the required monthly payments of $10,000 each in June, July and August. The Company can cancel this agreement at any time by not making additional payments. There would be no continuing obligation of the Company. The next payment of $10,000 would have been due in September. As of September 30, 2011, the Company canceled this contract by not making the required payment. No additional payments will be made after September 30, 2011.
On October 20, 2011, we signed an option agreement regarding the potential acquisition of Chery Minerals, LLC. The option agreement provides us with 45 days to perform due diligence and negotiate a final purchase price. We paid $5,000 for this option. Chery Minerals, LLC is in the business of rare earth metals exploration and mineral development with a focus on gold in Africa. We have not completed our due diligence as of the filing of this report. As a result, we expensed the payment as the option period has ended.
On November 2, 2011, we entered into an agreement with New World Energy Ltd. to form a joint venture (“NEWCO”) for the purpose of exploring potential mineral claims in Indonesia. Each party will own 50% of the joint venture. NEWCO will acquire the mineral rights, make any and all necessary disbursements on behalf of NEWCO, and collect and distribute profits in accordance with the ownership percentages of the joint venture. We have committed to fund the portions of the cash flow requirements of NEWCO. New World Energy Ltd. will manage and operate NEWCO as its contribution to the joint venture.
6. CONVERTIBLE NOTE PAYABLE
On April 1, 2010, the lenders on the Company’s outstanding related party demand notes instructed the Company to repay those notes along with accrued interest at the earliest possible date. The Company was unable to obtain replacement financing to repay those notes. As a result, the Company and the lenders agreed to refinance the debt as described below.
On May 23, 2010, the Company entered into a 10% Subordinated Convertible Note payable with Infox Ltd. (a related party) in the amount of $297,567 in repayment of demand notes in the amount of $275,091 and accrued interest of $22,476. The note bears interest at 10% per annum, matures on March 31, 2013 and is convertible into shares of common stock at $0.01 per share. The note requires quarterly payments of interest or, upon agreement of both parties, the interest may be capitalized to principal each quarter. There have been no payments of interest on the note. All interest accrued during the year ended December 31, 2011 was capitalized to principal.
On May 23, 2010, the Company entered into a 10% Subordinated Convertible Note payable with Zaccam Trading Ltd. (a related party) in the amount of $109,441 in repayment of demand notes in the same amount. The note bears interest at 10% per annum, matures on March 31, 2013 and is convertible into shares of common stock at $0.01 per share. The note requires quarterly payments of interest or, upon agreement of both parties, the interest may be capitalized to principal each quarter. There have been no payments of interest on the note. All interest accrued during the year ended December 31, 2011 was capitalized to principal.
On June 2, 2010, the Company entered into a 10% Subordinated Convertible Note payable with Zaccam Trading Ltd. (a related party) in the amount of $13,709 in repayment of demand notes in the same amount. The note bears interest at 10% per annum, matures on March 31, 2013 and is convertible into shares of common stock at $0.01 per share. The note requires quarterly payments of interest or, upon agreement of both parties, the interest may be capitalized to principal each quarter. There have been no payments of interest on the note. All interest accrued during the year ended December 31, 2011 was capitalized to principal.
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 three notes listed above and concluded that the revised terms constituted a debt modification rather than a debt extinguishment because the present value of the cash flows under the terms of each of the new instruments was less than 10% from the present value of the remaining cash flows under the terms of the original notes. No gain or loss on the modifications was required to be recognized.
The Company evaluated the terms of the three notes 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 feature 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 notes and was deemed to be greater than the market value of underlying common stock at the inception of the note. Therefore, no beneficial conversion feature was recognized.
On June 4, 2010, Infox Ltd. and Zaccam Trading Ltd. each assigned their outstanding 10% Subordinated Convertible Notes to two unrelated third parties. No other terms of the notes were modified.
On July 20, 2010, holders of the 10% Subordinated Convertible Note Payable originally issued to Infox Ltd. elected to convert principal in the amount of $30,000 into 50 shares of common stock.
On November 23, 2010, holders of the 10% Subordinated Convertible Note Payable originally issued to Infox Ltd. elected to convert principal in the amount of $150,000 into 50,000 shares of common stock.
On December 6, 2010, holders of the 10% Subordinated Convertible Note Payable originally issued to Infox Ltd. elected to convert principal in the amount of $40,000 into 13,334 shares of common stock.
On December 6, 2010, holders of the 10% Subordinated Convertible Note Payable originally issued to Zaccam Trading Ltd. elected to convert principal in the amount of $10,000 into 3,333 shares of common stock.
On February 18, 2011, holders of the 10% Subordinated Convertible Note Payable originally issued to Zaccam Trading Ltd. elected to convert principal in the amount of $20,000 into 6,667 shares of common stock in accordance with the terms of the note.
On February 18, 2011, holders of the 10% Subordinated Convertible Note Payable originally issued to Infox, Ltd. elected to convert principal in the amount of $30,000 into 10,000 shares of common stock in accordance with the terms of the note.
On June 29, 2011, holders of the 10% Subordinated Convertible Note Payable originally issued to Zaccam Trading Ltd. elected to convert principal in the amount of $45,000 into 15,000 shares of common stock in accordance with the terms of the note.
On June 29, 2011, holders of the 10% Subordinated Convertible Note Payable originally issued to Infox, Ltd. elected to convert principal in the amount of $45,000 into 15,000 shares of common stock in accordance with the terms of the note.
On September 12, 2011, holders of the 10% Subordinated Convertible Note Payable originally issued to Zaccam Trading Ltd. elected to convert principal in the amount of $50,000 into 16,666 shares of common stock in accordance with the terms of the note.
On September 12, 2011, holders of the 10% Subordinated Convertible Note Payable originally issued to Infox, Ltd. elected to convert principal in the amount of $20,000 into 6,667 shares of common stock in accordance with the terms of the note.
On October 7, 2011, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $661,683 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on December 31, 2012. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.03 per share.
Additionally, on October 7, 2011, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $517,673 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on June 30, 2013. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.03 per share.
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 two notes 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 each of the new instruments was less than 10% from the present value of the remaining cash flows under the terms of the original notes. No gain or loss on the modifications was required to be recognized.
The Company evaluated the terms of these notes 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 features and account for them as a separate derivative liabilities. The Company evaluated the conversion features for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes 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 in the amounts of $661,683 and $517,673 on October 7, 2011. The beneficial conversion features were recorded as an increase in additional paid-in capital and a discount to the Convertible Notes Payable. The discounts to the Convertible Notes Payable will be amortized to interest expense over the life of the respective notes.
7. ADVANCES PAYABLE
During the years ended December 31, 2011 and 2010, the Company received working capital advances in the amount of $769,141 and $677,559, respectively. These advances are non-interest bearing and payable upon demand. The Company has imputed interest on these advances in the amounts of $84,126 and $25,808 for the years ended December 31, 2011 and 2010, respectively. The imputed interest was recorded as an increase in Additional paid-in capital.
8. SHAREHOLDERS’ EQUITY (DEFICIT)
No dividends were declared or paid by the Company during the year ended December 31, 2011 and 2010.
On November 19, 2010, the Company effected a one-for-200 reverse stock split. All share and per share amounts in this report have been retroactively restated for the effect of this reverse split.
On January 21, 2012, the Company effected a one-for-300 reverse stock split. All share and per share amounts in this report have been retroactively restated for the effect of this reverse split.
On July 20, 2010, the Company issued 50 shares of common stock for the conversion of $30,000 of principal of a 10% Subordinated Convertible Note Payable.
On November 23, 2010, the Company issued 50,000 shares of common stock for the conversion of $150,000 of principal of a 10% Subordinated Convertible Note Payable.
On December 6, 2010, the Company issued 13,334 shares of common stock for the conversion of $40,000 of principal of a 10% Subordinated Convertible Note Payable.
On December 6, 2010, the Company issued 3,333 shares of common stock for the conversion of $10,000 of principal of a 10% Subordinated Convertible Note Payable.
On March 2, 2011, the Company issued 16,667 shares of common stock for the conversion of $50,000 of principal of the 10% Subordinated Convertible Notes Payable.
On July 6, 2011, the Company issued 30,000 shares of common stock for the conversion of $90,000 of principal of the 10% Subordinated Convertible Notes Payable.
On September 20, 2011, the Company issued 23,333 shares of common stock for the conversion of $70,000 of principal of the 10% Subordinated Convertible Notes Payable.
On September 14, 2011, the Company issued 5,000 shares of common stock for consulting services. The stock was valued at $42 per share based on the market price of the stock on the date the agreement was made to issue the stock. The Company recognized stock-based compensation expense of $210,000 as a result of this issuance.
The Company has imputed interest on advances in the amount of $84,126 for the year ended December 31, 2011. The imputed interest was recorded as an increase in additional paid-in capital.
9. SUBSEQUENT EVENTS
On January 9, 2012, the holder of the $661,683 Convertible Note Payable elected to convert the entire principal in the amount of $661,683 into 22,056,100 shares of common stock. On that date, the unamortized discount related to this principal was $618,583. The net amount of $43,100 was recognized as an increase in stockholders’ equity as a result of this conversion.
On January 9, 2012, the Company issued 22,056,100 shares of common stock upon conversion of the $661,683 Convertible Note Payable. This issuance of common stock resulted in a change in control of the Company.
On January 12, 2012, the holder of the $517,673 Convertible Note Payable assigned principal in the amount of $270,000 to six entities ($45,000 each). The new holders of the $517,673 Convertible Note Payable elected to convert principal in the amount of $270,000 into 9,000,000 shares of common stock. On that date, the unamortized discount related to this principal was $253,872. The net amount of $16,128 was recognized as an increase in stockholders’ equity as a result of this conversion.
On January 12, 2012, the Company issued 9,000,000 shares of common stock upon conversion of a portion of the $517,673 Convertible Note Payable in the amount of $270,000.\\
10. INCOME TAXES
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The Company currently has net operating loss carry forwards aggregating approximately $8,660,426, which expires through 2031. The Company’s deferred income tax assets have been fully reserved, as follows as of December 31, 2010 and 2011:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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, as such term is defined in Exchange Act Rules 13a-15(f). Management is required to base its assessment of the effectiveness of our internal control over financial reporting on a suitable, recognized control framework, such as the framework developed by the Committee of Sponsoring Organizations (COSO). The COSO framework, published in Internal Control-Integrated Framework , is known as the COSO Report. Our principal executive officer and our principal financial officer, have has chosen the COSO framework on which to base its assessment. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2011.
This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report on Form 10-K. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:
1. As of December 31, 2011, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
2. As of December 31, 2011, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2011, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
Changes In Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANACE.
The Directors and Executive Officers of the Company and certain information concerning them are set forth below as of December 31, 2011:
Name
Position
Age
Paul Watson
Chief Executive Officer and Director
Paul Watson. Mr. Watson, age 36, brings a wealth of experience in finance, corporate strategy and management to GTSO. From 2005 through 2009, Mr. Watson served as a mergers and acquisitions advisor and private equity group manager for KPMG Financial Advisory Services in Shanghai, China. From 2009 until 2011, he was Managing Director of Hermes Investment Group, a merchant bank focused on clean technology and environmental science established in Shanghai China, and headquartered in the United States. From 2005 through 2009, Mr. Watson served as a mergers and acquisitions advisor and private equity group manager for KPMG Financial Advisory Services in Shanghai, China. Mr. Watson also currently serves as a director and CEO of Obscene Jeans Corporation. He is a graduate of the University of Houston, Bauer College of Business with a bachelor’s degree in Finance. He speaks English, Chinese and Spanish.
Composition of the Board of Directors
The Board of Directors has responsibility for establishing broad corporate policies and reviewing our overall performance rather than day-to-day operations. The primary responsibility of our board of directors is to oversee the general direction and management of our Company and, in doing so, serve the best interests of the Company and our shareholders. The Board of Directors selects, evaluates and provides for the succession of executive officers and, subject to shareholder election, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. Our Board of Directors also participates in decisions that have a potential major economic impact on our Company. Management is responsible for day-to-day operations of the Company.
Our Board of Directors currently consists of one member: Mr. Paul Watson. Each of our directors is elected annually at our annual meeting. All Board action requires the approval of a majority of the directors in attendance at a meeting at which a quorum is present. We plan to increase the size of our Board of Directors as we deem necessary to accommodate the growth of our business.
Independence
As of the date hereof, the Company has not adopted a standard of independence nor does it have a policy with respect to independence requirements for its Board members or that a majority of its Board be comprised of “independent directors.” As of the date hereof, none of our directors would qualify as “independent” under any recognized standards of independence.
Board Committees
We do not currently have a standing audit, nominating or compensation committee of the board of directors, or any committee performing similar functions. Our Board of Directors performs the functions of audit, nominating and compensation committees. As of the date of this filing, no member of our Board of Directors qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act and our Board does not believe such an expert is necessary at this time due to the relatively simple nature of the Company’s operations. Since the Board of Directors currently consists of only one member, it does not believe that establishing separate audit, nominating or compensation committees are necessary for effective governance.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent of our common stock, to file reports of their stock ownership and changes of their stock ownership with the Securities and Exchange Commission. Based solely on our review of Forms 3,4 and 5 furnished to us and on written representations from certain reporting persons, we believe that the directors, executive officers, and our greater than ten percent beneficial owners have complied in a timely manner with all applicable filing requirements for the fiscal year ended December 31, 2011, except as follows: Eastern Rim Funds (one Form 3 not Filed) and Paul Watson (one Form 3 filed late).
Code of Ethics
Our Board of Directors has discussed the adoption of a code of business conduct and ethics for directors, officers and employees but has not yet adopted a Code of Ethics due to the extremely small size of our management team. It is anticipated that the Board of Directors will adopt a Code of Ethics meeting the requirements of Item 406 of Regulation S-K in the near future.
Procedure for Nominating Directors
In 2011, we have not made any material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Mr. Watson received cash compensation of $10,000 during the year ended December 31, 2011. He received no other form of compensation. We do not have a written employment agreement with Mr. Watson.
Summary Compensation Table
(1) Mr. Watson was appointed as sole director and CEO in November 2011 and received two months of salary during the year ended December 31, 2011.
(2) Mr. Shearer was appointed as sole director and CEO in August 2010 and received five months of salary during the year ended December 31, 2010.
(3) Mr. Shearer resigned as sole director and CEO in November 2011 and received ten months of salary during the year ended December 31, 2011.
Employment Agreements & Retirement Benefits
None of our executive officers are 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
Our Board of Directors is comprised of Paul Watson. Mr. Watson also serves as the CEO of the Company. None of our directors has or had a compensation arrangement with the Company and 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, 2011 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.
Compensation Committee Interlocks and Insider Participation
As a smaller reporting company, the Company is not required to provide this disclosure.
Compensation Committee Report
As a smaller reporting company, the Company is not required to provide this disclosure.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information as of March 28, 2012, with respect to the beneficial ownership of shares of the Company’s common stock by (i) each person known to us who owns beneficially more than 5% of the outstanding shares of the Company’s common stock, (ii) each of our Directors, (iii) each of our Executive Officers, and (iv) all of our Executive Officers and Directors as a group. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to the shares shown. As of March 28, 2012, there were 31,202,694 shares of the Company’s common stock issued and outstanding.
(1) Under Rule 13d-3 promulgated under the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on March 28, 2012.
As of December 31, 2011, there were convertible notes outstanding in the amount of $298,421, including accrued interest. These notes are convertible into 11,364,978 shares of common stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Related Transactions
None.
Director Independence
Using the standards of the NYSE Amex (which the Company is not subject to), the Company's Board has determined that Mr. Watson does not qualify under such standards as an independent director. The Company did not consider any relationship or transaction between itself and its sole director not already disclosed in this report in making this determination.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The following is a summary of the fees billed to the Company by its independent accountants, M&K CPAS PLLC and John A. Braden & Co. P.C., for the years ended December 31, 2011 and 2010:
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.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No.
Description of Exhibit
3.1
Amended and Restated Certificate of Incorporation of the Company (1)
3.2
Bylaws of the Company (1)
10.1
Joint Venture Agreement (3)
10.2
Sale and Assignment of Rights Under Joint Venture Agreement (3)
10.3
Profit Participation Agreement dated January 29, 2011 with Integrated Smart Solutions, Inc. (4)
10.4
Joint Venture Agreement dated January 30, 2011 with Rare Earth Exporters of Mongolia Pte. Ltd. (4)
10.5
Sale and Assignment of Rights Under Joint Venture Agreement dated November 8, 2010 (4)
Code of Ethics (2)
31.1
Section 302 Certification (5)
32.1
Section 906 Certification (5)
XBRL Interactive Data (5)
(1)Incorporated by reference from the Form SB-2 filed on September 15, 2006.
(2)Incorporated by reference from the 10-QSB for the Quarterly Period Ended September 30, 2004.
(3)Incorporated by reference from the 8-K filed on December 13, 2010.
(4)Incorporated by reference from the 10-K for the Annual Period Ended December 31, 2010.
(5)Filed or furnished herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Green Technology Solutions, Inc.
By: /s/ Paul Watson
Paul Watson
Sole Director and CEO
(Principal Executive Financial Officer and
Accounting Officer)
Date: April 4, 2012