gsenviro.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.	Yes	X	No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the prior 12 months (or for such shorter period that the registrant was required to submit and post such files).	Yes	X	No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer[ ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).	Yes		No	X

As of October 10, 2014, there were 370,722,572 shares of common stock outstanding.

Part I	Financial Information	Page No

Item 1	Financial Statements	2

	Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013	2

	Condensed Statements of Operations for the Three and Six Months Ended June 30, 2014 (unaudited) and 2013 (unaudited)	3

	Statements of Cash Flows for the Six Months Ended June 30, 2014 (unaudited) and 2013 (unaudited)	5

	Notes to Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3	Quantitative and Qualitative Disclosures about Market Risk	14

Item 4	Controls and Procedures	14

Part II	Other Information

Item 1	Legal Proceedings	14

Item 1A	Risk Factors	14

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	14

Item 3	Defaults upon Senior Securities	14

Item 4	Mine Safety Disclosures	14

Item 5	Other Information	15

Item 6	Exhibits	15

	Signatures	15

		6/30/2014			12/31/2013
ASSETS

Current Assets:
Cash	$	-		$	-
Deferred finance costs (OID), current portion		157,197			-
Total current assets		157,197			-

Other Assets:
Deferred finance costs (OID)		79,245
Total other assets		79,245			-

TOTAL ASSETS		236,442			-

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:
Cash overdraft		488			488
Convertible debenture-affiliate		0			189,000
Accounts payable		87,987			82,511
Accrued expenses		425,586			367,967
Convertible note		36,750			36,750
Liabilities to be settled in stock		10,000			10,000
Liability for derivative conversion feature – convertible debenture-affiliate		0			1,256,706
Liability for derivative conversion feature – convertible note		50,832			28,664
Due to affiliates		35,722			25,792
Total current liabilities		647,365			1,997,878

Long Term Liabilities:
Convertible debentures – long term, net of debt discount of $189,648 and $0		307,721			-
Convertible debentures-affiliates – long term		222,554
Liability for derivative conversion feature – convertible debentures – long term		1,894,709			-
Total long term liabilities		2,424,984			-

Total Liabilities		3,072,349			1,997,878

Stockholders’ Equity (Deficit):
Common stock, $0.0001 par value, 10,000,000,000 shares authorized: 370,722,572 shares issued and outstanding as of June 30, 2014 and December 31, 2013		46,166			46,166
Treasury stock, 99,394,946 shares, at cost		(578,008)			(578,008)
Common stock subscribed		18,950			18,950
Additional paid in capital		7,123,652			7,123,652
Note receivable – shareholder		-			-
Accumulated deficit		(9,446,667	)		(8,608,638	)
Total stockholders’ equity (deficit)		(2,835,907	)		(1,997,878	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	236,442		$	-

		6/30/2014			6/30/2013

Revenue	$	-		$	-
Cost of revenues		-			-
Gross profit		-			-

Operating expenses:
Professional fees		139,250			48,283
Officers’ salaries		-			26,829
General and administrative-other		-			38,976
Research and development		25,000			27,345
Total operating expenses		(164,250)			(141,433)

Loss from operations		(164,250	)		(141,433)

Other Income (Expense):
Gain on extinguishment of debt		-			18,000
(Loss) income from change in value of conversion feature – convertible debentures		(113,776)			47,633
(Loss) from change in value of conversion feature – convertible note		(2,957)			16,530
Cost of conversion feature – convertible note		(287,581)			(16,625)
Amortization of debt discount		(5,757)			(81,044)
Interest income - affiliate		-			1,935
Interest expense		(32,649)			(8,389)
Total other income (expense), net		(442,720)			(21,960)

Loss before provision for income taxes		(606,970)			(163,393)

(Provision for)/benefit from income taxes		-			-
Net loss		(606,970)			(163,393)

Weighted average common shares outstanding, basic and diluted		370,722,572			73,017,142

Earnings (Loss) per Share:
Net income (loss) per share – basic and diluted	$	(0.00)		$	(0.00)

		6/30/2014			6/30/2013

Revenue	$	-		$	-
Cost of revenues		-			-
Gross profit		-			-

Operating expenses:
Professional fees		274,250			63,338
Officers’ salaries		-			71,829
General and administrative-other		580			37,158
Research and development		50,000			53,895
Total operating expenses		(324,830)			(226,220)

Loss from operations		(324,830	)		(226,220)

Other Income (Expense):
Gain on extinguishment of debt		-			18,000
(Loss) income from change in value of conversion feature – convertible debentures		(114,524)			102,141
(Loss) from change in value of conversion feature – convertible note		(22,168)			16,530
Cost of conversion feature – convertible note		(328,073)			(16,625)
Amortization of debt discount		(5,757)			(143,758)
Interest income - affiliate		-			7,783
Interest expense		(42,677)			(16,143)
Total other income (expense), net		(513,199)			(32,072)

Loss before provision for income taxes		(838,029)			(258,292)

(Provision for)/benefit from income taxes		-			-
Net loss		(838,029)			(258,292)

Weighted average common shares outstanding, basic and diluted		370,722,572			72,812,236

Earnings (Loss) per Share:
Net income (loss) per share – basic and diluted	$	(0.00)		$	(0.00)

		Six Months Ended
		6/30/2014			6/30/2013
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss)	$	(838,029)		$	(258,292)
Adjustments to net (loss) to net cash provided by (used in) operating activities:
Change in fair value - conversion features		136,692			(118,671)
Cost of conversion feature		328,073			16,625
Amortization expense		17,999			144,257
Direct payment of operating expenses by affiliates		-			19,391
Changes in operating assets and liabilities:
Interest receivable		-			(7,783)
Accounts payable & accrued expenses		96,650			149,144
Net cash flows used in operating activities	$	(258,615	)	$	(55,329	)

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from convertible debentures		248,685			32,500
Proceeds from common stock subscriptions / subscribed		-			19,990
Advances from affiliates		9,930			7,500
Net cash provided by financing activities		258,615			59,990

Net increase (decrease) in cash		-			4,661
Cash at beginning of period		-			2,048
Cash at end of period	$	-		$	6,709

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING & FINANCING ACTIVITIES	:
Original Issue Discount – convertible debt	$	248,685		$	-
Roll up of accrued interest to debenture principal	$	33,554		$	-
Debt discounts recognized for embedded derivative underlying debentures	$	195,405		$	-

GS EnviroServices, Inc. (“we,” “our,” “us,” “GSEN,” or the “Company”) is a clean energy technology and sustainable project development company. Our operations consist of research and development activities involving proprietary technology that we have licensed. Our technology development model involves the early-stage development and intellectual property protection of our technologies with a view towards generating revenue through technology licensing of successfully developed clean energy technologies.

The balance sheet at December 31, 2013 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying financial statements referred to above have been prepared assuming that the company will continue as a going concern. The Company has no established source of revenue and is dependent on its ability to raise capital from shareholders or other sources to sustain operations. These factors raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to raise capital will depend on our success in obtaining financing and our success in developing revenue sources.

Long-lived assets are assessed for recoverability on an ongoing basis. In evaluating the fair value and future benefits of long-lived assets, their carrying value would be reduced by the excess, if any, of the long-lived asset over management’s estimate of the anticipated undiscounted future net cash flows of the related long-lived asset. Acquired intangible assets with finite lives are amortized over the life of the underlying asset.

The Company provides for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The carrying amounts reported in the balance sheets as of June 30, 2014 and December 31, 2013 for cash equivalents and accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of notes payable, notes receivable, and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions.

The Company adopted ASC 820, Fair Value Measurements and Disclosures. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In January 2010, the FASB issued an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 rollforward disclosure. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1	quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives

Level 2	inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges

Level 3	unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models

Balance of embedded conversion liability at December 31, 2012	$	497,111
Present value of beneficial conversion feature of new debentures		56,259
Adjustments to fair value of conversion feature		746,425
Reduction in fair value due to principal conversions		(14,425	)
Balance of embedded conversion liability at December 31, 2013		1,285,370
Present value of beneficial conversion feature of new debentures		523,479
Adjustments to fair value of conversion feature		136,692
Reduction in fair value due to principal conversions		-
Balance at June 30, 2014	$	1,945,541

The fair value of the conversion features are calculated at the time of issuance and the Company records a conversion liability for the calculated value. The Company recognizes interest expense for the conversion liability which is added to the principal of the debenture. The Company also recognizes interest expense for accretion of the conversion liability to fair value over the term of the note. The Company has adopted ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture could result in the note principal being converted to a variable number of the Company’s common shares.

The Company’s valuation measurements as noted above are Level 3 measurements. The unobservable inputs used by the Company included inputs to a Black-Scholes pricing model (estimated volatility, expected lives of conversion features), and an estimated valuation of the fully-diluted common stock per share (see Note 5, Convertible Debentures). These estimates of the common stock value are based on numerous factors, including the average closing price and the standard deviation of the closing price. Changes in the unobservable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimated valuation of a fully-diluted common share (see Note 5, Convertible Debentures). A significant increase (decrease) in the Company’s estimated valuation of the common stock would result in a higher (lower) fair value measurement.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Basic (loss) earnings per share is computed by dividing net income by the weighted average common shares outstanding during a period. Diluted (loss) earnings per share is based on the treasury stock method and includes the effect from potential issuance of common stock assuming the exercise of all stock options. Common share equivalents have been excluded where their inclusion would be anti-dilutive. Potentially future dilutive shares at June 30, 2014 are 28,142,518 shares from the conversions of outstanding common stock warrants, 2,356,355,365 shares (based on conversion price at June 30, 2014) from conversion of the convertible debentures (see Note 5, Convertible Debentures, below), and 2,900,000 shares (based on conversion price at June 30, 2014) from conversions of the convertible promissory note issued on April 29, 2013 (see Note 6, Convertible Promissory Note, below).

The Company accounts for stock based compensation in accordance with Financial Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation.” Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. The Company accounts for stock issued for services to non-employees by reference to the fair market value of the Company's stock on the date of issuance as it is the more readily determinable value.

Deferred finance costs represent costs which may include direct costs incurred to third parties in order to obtain long-term financing and have been reflected as other assets. Costs incurred with parties who are providing the actual long-term financing, which generally include the value of warrants, or the intrinsic value of beneficial conversion features associated with the underlying debt, are reflected as a debt discount. These costs and discounts are generally amortized over the life of the related debt. During the six months ended June 30, 2014 and 2013, the Company recorded amortization of the note discounts in the amount of $5,757 and $143,758, respectively.

		6/30/2014		12/31/2013

Current portion of convertible debenture:
Current portion of convertible debenture to 11235 Factor Fund	$	-	$	189,000
Total current portion of convertible debenture		-		189,000

Current portion of convertible promissory note:
Convertible promissory note to Asher Enterprises		36,750		36,750
Total current portion of convertible promissory note	$	36,750	$	36,750


Long term portion of convertible debenture:
Convertible debentures to Flux Carbon Starter Fund		497,369		-
Less: debt discount		(189,648)
Total long term portion of convertible debenture	$	307,721	$	-

Long term portion of convertible debenture:
Convertible debentures to Forge Capital/11235 Factor Fund		222,554		-
Total long term portion of convertible debenture	$	222,554	$	-

NOTE 5

CONVERTIBLE DEBENTURES

The total balance of the Convertible Debenture at March 31, 2014 was $222,554, including principal and interest, and the Convertible Debenture was in default. On April 1, 2014, 11235 Factor Fund LLC assigned a portion of its Convertible Debenture to Forge Capital LLC, an entity owned by a relative of Kevin Kreisler, who is a control person with respect to 11235 Factor Fund LLC, the majority shareholder of the Company. The Company issued an amended and restated debenture to Forge Capital on April 1, 2014 with a principal balance of $172,554 and issued an amended and restated debenture to 11235 Factor Fund LLC with a principal balance of $50,000. Both amended and restated debentures have the same terms as the prior 11235 Factor Fund LLC convertible debenture, except that the maturity date on both has been extended to December 31, 2015.

The value of the above debentures at June 30, 2014 was $1,876,221, which represented the face value of $222,554 plus the fair value of the liability for the conversion features of $1,653,667. The Company recognized additional costs of conversion features of $287,581 and $328,073 during the three and six months ended June 30, 2014, respectively. The Company recognized a loss of $113,776 and $114,524 for the three and six months ended June 30, 2014, respectively, from the change in fair value of the underlying conversion features for the period.

On January 15, 2014, the Company entered into a securities purchase agreement (the “SPA”) with Flux Carbon Starter Fund, LLC (“Flux”). Flux is owned by a business associate of Kevin Kreisler, who is a control person with respect to the majority shareholder of the Company. The SPA provides that Flux shall purchase certain debentures (the “Debenture(s)”) from the Company on a quarterly basis in exchange for cash paid to the Company, or on behalf of the Company, to Core Strategic Services, LLC (“CSS”), in connection with the Company’s payment obligations under that certain Master Professional Services Agreement dated January 1, 2014 by and among the Company and CSS. The balance of the Debentures shall be calculated in each case equal to two (2) times the cash paid by Flux, with the remainder treated as original issue discount. Jeffrey Hickman, who is the CEO and sole director of the Company, is an employee of CSS.

On March 31, 2014, the Company issued a Debenture to Flux in the amount of $172,200 (the “March 2014 Debenture”) with a maturity date of December 31, 2015. The March 2014 Debenture accrues interest at a rate of 20% per annum through the maturity date. The holder of the March 2014 Debenture shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock of the Company at a conversion price defined as the lowest volume weighted average closing market price for the Common Stock for the 90 trading days preceding conversion as posted on the OTCQB or on such US National Exchange upon which the Company may be listed. In connection with the March 2014 Debenture, the Company recognized an original issuance discount of $86,100, which will be amortized over the life of the March 2014 Debenture.

The value of the March 2014 Debenture at March 31, 2014 was $212,692, which represented the face value of $172,200 plus the fair value of the liability for the conversion features of $40,492. The fair value of the derivative liability was determined utilizing a Black-Scholes valuation model and the following range of assumptions during 2014: expected life - three to fourth months; volatility (231.93%); risk-free rate (0.07%); dividends (none).

On June 30, 2014, the Company issued a Debenture to Flux in the amount of $325,169 (the “June 2014 Debenture”) with a maturity date of December 31, 2015. The June 2014 Debenture accrues interest at a rate of 20% per annum through the maturity date. The holder of the June 2014 Debenture shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock of the Company at a conversion price defined as the lowest volume weighted average closing market price for the Common Stock for the 90 trading days preceding conversion as posted on the OTCQB or on such US National Exchange upon which the Company may be listed. In connection with the June 2014 Debenture, the Company recognized an original issuance discount of $162,585, which will be amortized over the life of the June 2014 Debenture.

The value of the June 2014 Debenture at June 30, 2014 was $325,169, which represented the face value of $170,256 plus the fair value of the liability for the conversion features of $154,913. The fair value of the derivative liability was determined utilizing a Black-Scholes valuation model and the following range of assumptions during 2014: expected life - three to fourth months; volatility (231.93%); risk-free rate (0.07%); dividends (none).

On April 29, 2013, the Company entered into a convertible promissory note (the “Note”) with Asher Enterprises (“Holder”) for $32,500 due on January 31, 2014 (“maturity date”). The Note accrues interest of 8% per annum through the maturity date. If the Note is not paid in full by the maturity date, the interest rate will increase to 22% per annum from the maturity date. The Holder of the Note shall have the right, at any time during the period beginning on the date which is one hundred eighty days from the date of the Note, to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock at a conversion price defined as 50% of the average of the lowest three trading prices for the Common Stock during the fifteen trading day period ending on the trading day prior to the conversion date. In the event the Company (a) makes a public announcement that it intends to consolidate or merge with any other corporation or sell or transfer all or substantially all of the assets of the Company or (b) any person, group or entity publicly announces a tender offer to purchase 50% or more of the Company’s Common Stock, then the conversion price shall be equal to the lower of the conversion price which would have been applicable for a conversion occurring on the announcement date and the conversion price that would otherwise be in effect. The conversion feature has been accounted for at fair value as a derivative in accordance with ASC 815 which requires it to be accounted for a liability.

The value of the Note at June 30, 2014 was $50,832, which represented the face value of $36,750 plus the fair value of the liability for the conversion features of $14,082. The fair value of the derivative liability was determined utilizing a Black-Scholes valuation model and the following range of assumptions during 2014: expected life – three to four months; volatility (265.48%); risk-free rate (0.07%); dividends (none). The Company recognized a loss of $19,211 and $22,168 for the three and six months ended June 30, 2014, respectively, from the change in fair value of the underlying conversion feature for the period.

Effective September 30, 2012, the Company entered into a license agreement with FLUX Photon Corporation (“Licensor”), pursuant to which Licensor granted the Company a non-exclusive license to use and practice the Licensor’s technologies in residential and commercial roof-top applications in North America. The license agreement requires the Company to build a commercial prototype based on the licensed technologies on or before June 30, 2014, and to commence commercial sales with the licensed technologies on or before December 31, 2015. The license agreement further provides for a royalty fee of 10% of the Company’s gross sales involving the licensed technologies, and requires the Company to pay Licensor a minimum of $25,000 in cash per calendar quarter commencing January 1, 2013 for research and development services conducted by Licensor’s staff (which amount is payable to Licensor, at its sole option, in the form of Company common stock or other securities). The Company accrued $25,000 and $50,000 in research costs due to the Licensor for the three and six month periods ended June 30, 2014 and 2013, respectively. The Company and Licensor have entered into discussions regarding execution of an amended license agreement to provide for exclusivity and an expansion of the licensed rights.

On January 1, 2014, the Company entered into a Master Professional Services Agreement (the “CSS Agreement”) with Core Strategic Services, LLC (“CSS”). Pursuant to the CSS Agreement, CSS shall provide the Company with administrative services, business planning and consulting, and corporate services. The CSS Agreement requires the Company to pay to CSS a fee of $45,000 per month in advance of each month. The CSS Agreement has a term of one (1) year and is automatically renewed unless cancelled prior. Jeffrey Hickman, who is the CEO and sole director of the Company, is an employee of CSS.

On September 30, 2014, the Company issued a Debenture to Flux Carbon Starter Fund LLC (“Flux”) in the amount of $232,200 (the “September 2014 Debenture”) with a maturity date of December 31, 2015. The September 2014 Debenture accrues interest at a rate of 20% per annum through the maturity date. The holder of the September 2014 Debenture shall have the right to convert all or any part of the outstanding and unpaid principal amount into fully paid and non-assessable shares of Common Stock of the Company at a conversion price defined as the lowest volume weighted average closing market price for the Common Stock for the 90 trading days preceding conversion as posted on the OTCQB or on such US National Exchange upon which the Company may be listed.

In addition to historical information, this Report contains forward-looking statements, which are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans to," "estimates," "projects," or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in other documents GS EnviroServices, Inc. files from time to time with the Securities and Exchange Commission (the "SEC").

GS EnviroServices, Inc. (“we”, “our”, “us”, “GSEN”, or the “Company”) is a clean energy technology development company. Our operations consist of research and development activities involving proprietary technology that we have licensed from FLUX Photon Corporation (“FPC”). Our technology development model involves the development and protection of our technologies with a view towards generating revenue through licensing of successful technologies.

Our research and development activities primarily involve novel nanomaterials for use in renewable energy production applications, including catalytic reduction of carbon dioxide and the conversion of light into electricity. In the former application, our technologies is intended to emulate photosynthesis to convert the energy in sunlight along with water and carbon dioxide into stored energy in the form of methane or synthesis gas. In the latter application, our technologies are intended to convert the energy in sunlight into electricity.

Early-stage prototype devices based on our technologies have successfully demonstrated low conversion efficiencies in prior bench testing. We are focused on the further development of our nanomaterials to increase conversion efficiencies, and achieved a targeted milestone of 3% light-to-electricity conversion efficiency during 2013. Our development activities are conducted under our license with FPC, which allows us to use FPC’s laboratory and research staff on a cost-sharing basis.

We intend to commence fabrication of a commercial prototype based on our technologies after demonstrating a bench-scale light-to-electricity conversion efficiency of 5%. We believe that a device operating at this efficiency will be commercially viable. In addition to our research and development activities, we are focused on protecting and expanding our intellectual properties. We intend to do so through patent filings and the licensing or acquisition of strategically-compatible technologies that we believe complement our existing and anticipated development efforts

During 2014, the Company plans to seek capital, management and other resources for further development of its technologies, with a primary goal of completing pilot-scale trials involving the Company’s technologies, either alone or with a suitable early-adopter technology partner. The Company also plans to continue to seek possible acquisition targets that bring strategic assets, cash flows or management to the Company in ways that defray the Company’s financial and technology risk.

The financial statements included herein have been prepared by the Company, in accordance with accounting principles generally accepted in the United States of America. This requires the Company’s management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. These estimates and assumptions will also affect the reported amounts of certain revenues and expenses during the reporting period.. Actual results could differ materially based on any changes in the estimates and assumptions that the Company uses in the preparation of its financial statements and any changes in the Company’s future operational plans.

In our preparation of the accompanying consolidated financial statements for the quarter ended June 30, 2014, there were two estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results. These were: our determination to record a 100% allowance for our deferred tax assets (the determination to record the allowance with respect to our deferred tax assets was based on the uncertainty that we would realize income taxable in the U.S. in future years); and, our determination of the fair value of the derivatives embedded in our outstanding convertible debenture and convertible note (the determination was primarily based on our estimate of the volatility of our common stock, which is highly variable, and the per share value of our common stock on a fully-diluted basis).

General and administrative expenses for continuing operations for the three and six months ended June 30, 2014 were $139,250 and $274,830 as compared to $114,088 and $172,325 for the same periods in the prior year. The increase in general and administrative expense was due in large part to the addition in consulting and other corporate expenses as the Company entered an agreement with CSS (See Note 5, Convertible Debenture, above). In addition, research and development expenses related to the Company’s ongoing technology development efforts totaled approximately $25,000 and $50,000, respectively, for both of the three and six months ended June 30, 2014 and 2013, primarily related to development activities under the license agreement with FLUX Photon Corporation.

Total other expense for the three and six months ended June 30, 2014 and 2013 was $442,720 and $513,199, respectively. Included in the three months ended June 30, 2014 was $32,649 of interest expense from the convertible debentures and $410,071 in non-cash expenses associated with conversion features embedded in the convertible debentures issued by the Company. During the three months ended June 30, 2013, interest expense from the convertible debentures was $8,389 and the non-cash expenses associated with the conversion features embedded in the convertible debentures issued by the Company were $15,506. Included in the six months ended June 30, 2014 was $42,677 of interest expense from the convertible debentures and $470,522 in non-cash expenses associated with conversion features embedded in the convertible debentures issued by the Company. During the six months ended June 30, 2013, interest expense from the convertible debentures was $16,143 and the non-cash expenses associated with the conversion features embedded in the convertible debentures issued by the Company were $41,712.

The Company accounts for convertible debt in accordance with FASB Accounting Standards Codification, Topic 815, as the conversion feature embedded in the convertible debenture could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares. We calculate the fair value of the conversion feature at the time of issuance and record a conversion liability for the calculated value, which is added to the carrying value of the debenture. We also recognize changes in value based on estimated fair value over the term of the note.

During the six months ended June 30, 2014, financing activities provided the Company $258,615 in net cash, and the Company used net cash of $258,615 in its operating activities. The Company’s operating activities have been primarily subsidized by equity-based compensation commitments as well as convertible debt and equity financing. The Company currently has no commitment for financing and will not be able to implement its business plan unless it obtains capital.

Our principal executive officer and principal financial officer participated in and supervised the evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive officer or officers and principal financial officer, to allow timely decisions regarding required disclosure.

In the course of making our assessment of the effectiveness of our disclosure controls and procedures, we identified a material weakness. This material weakness consisted of inadequate staffing and supervision within the bookkeeping and accounting operations of our company. The lack of employees prevents us from segregating disclosure duties. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. Based on the results of this assessment, our management concluded that because of the above condition, our disclosure controls and procedures were not effective as of the end of the period covered by this report.

Exhibit Number	Description

31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as incorporated herein by reference

32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002 as incorporated herein by reference

Delaware		20-8563731
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

898 N. Sepulveda Blvd., Suite 400, El Segundo, CA		90245
(Address of principal executive offices)		(Zip Code)
	(424) 341-2522
	(Registrant’s telephone number)

101.INS	XBRL Instance

101.SCH	XBRL Schema

101.CAL	XBRL Calculation

101.DEF	XBRL Definition

101.LAB	XBRL Label

101.PRE	XBRL Presentation

By:	/s/	JEFFREY R. HICKMAN
		Jeffrey R. Hickman
		Chief Executive Officer, Chief Financial and Accounting Officer
Date:		October 10, 2014

Embedded conversion liabilities as of June 30, 2014:
Level 1	$	-
Level 2		-
Level 3		1,945,541
Total	$	1,945,541