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GREEN TECHNOLOGY SOLUTIONS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 22, 2014

Overview

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.

On September 20, 2012, GTSO formed two subsidiaries, which may be used to hold GTSO's urban and traditional mining operations. The new subsidiaries are GTSO Urban Mining LLC and GTSO Resources LLC.

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 worldwide mining technologies, with an emphasis on rare earth and precious metals mining applications, (2) the development of additional markets for environmentally friendly methods of recovering minerals from electronic waste and (3) smart grid technology. Our mission is to focus our resources on discovering the best available new innovative technologies and processes 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.

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, joint venture partnerships 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 June 8, 2012, we signed a joint venture agreement with Diamond V Associates, Inc. to fund the research, planning, and development of tungsten and other rare earths and precious metals in North America and Africa. According to the agreement, all profits, losses and other allocations to the joint venture shall be allocated as follows at the conclusion of each fiscal year on a 50:50 basis between GTSO and Diamond V Associates. We will contribute $2,000 per month to the joint venture for working capital for the joint venture's operations. GTSO reserves the right to reduce or increase this contribution based on performance by Diamond V Associates. If we determine that additional funding is required after projects are identified, we will negotiate the amount of any contribution that we would make with Diamond V Associates. GTSO paid $10,000 during the year as working capital. As of December 31, 2012, Management determined that it was necessary to write off the intangible asset related to this joint venture agreement due to the fact the joint venture will need to raise significant additional capital in order to fully realize the value of our claims in the joint venture.

On July 10, 2012, we signed a letter of intent regarding the potential acquisition of Global Cell Buyers, LLC. The letter of intent provides us with 90 days to perform due diligence and negotiate a final purchase price. Global Cell Buyers, LLC is a development stage business that plans to buy, sell, and recycle cell phones.

On July 24, 2012, we entered into letter of intent CCI Capital SPA with offices in Santiago, Chile to explore acquisition opportunities in Latin America with a focus on urban mining and waste to energy projects. On September 5, 2012, this was expanded into a one year consulting agreement to explore acquisition opportunities in Latin America and Canada where CCI Capital SPA has active offices in Chile and Canada. GTSO pays CCI Capital$2,000 per month as a retainer for nominal consulting, negotiation and market research studies in the pursuit of an acquisition focused on urban mining and waste to energy projects.

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On October 30 2012, we entered into a purchase agreement with Global Cell Buyers, LLC regarding the acquisition of existing methods, brand name, and current operating plans. Global Cell Buyers was acquired by GTSO for the purchase price of $10,000 payable in cash and common stock. The purpose of this acquisition is to expand recycling and urban mining operations from cell phones to other electronic waste for the purpose of mineral and other reusable metal and plastic recovery. GTSO also plans to expand the brand name of Global Cell Buyers leveraging its parent operations Green Technology Solutions, Inc. On November 14, 2012, GTSO rebranded Global Cell Buyers under the name "Global Urban Mining" to build and expand its e-recycling platform within the United States and eventual global expansion plans.

The purchase price was allocated entirely to intangible assets related to the Global Cell Buyers' infrastructure plans related to mineral recovery from cell phone waste. Global Cell Buyers had no other tangible assets or liabilities. As of December 31, 2012, Management determined that it was necessary to write off the intangible asset related to this acquisition because Global Cell Buyers was in the early development stages and did not have adequate operating history to support retaining the intangible asset on the consolidated balance sheet.

On March 4, 2013, we entered into a letter of intent with Sociedad de Reciclaje de Materiales Metalicos, Electrico, Electronicos y Plasticas Limitada ("Chilerecicla") to explore opportunities with Latin America electronic waste recyclers for the purpose of recovering precious metals, minerals, and waste to energy possibilities. Chilerecicla is based near Santiago, Chile with significant operations across the country and surrounding regions.

On June 6, 2013 GTSO and Chilerecicla signed a joint venture agreement to evaluate, explore and determine the feasibility of a waste management collection, processing and sales operation wherein GTSO will contribute funding and the initial development of a project to acquire electronics and plastic waste for the purpose of selling metals and plastics reuse while Chilerecicla manages the Latin America operations. Under the terms of the agreement, GTSO commits to fund a minimum of $2,500 of the cash flow requirements of the start-up phase of the operations. Chilerecicla agrees to reserve 30% of the gross proceeds of the business for repayment of the initial contribution. At the end of the start-up phase, Chilerecicla will provide GTSO with a detailed timeline, budget, and operational plan for further development. Both parties will have 60 days to agree on an appropriate funding strategy for the next phase. GTSO will have no obligation to continue funding the business.

On September 1, 2013, GTSO and Chilerecicla signed a second joint venture agreement (the "Chilerecicla JV") to execute an initial spot and single operation as a way to test in practice the planning they have designed so far. Under the terms of this second agreement, GTSO will contribute $50,000 which is payable in two installments within 30 days. These funds will be used to purchase electronic and plastic waste in Chile and to export and sell minerals, metals, and plastics for reuse. Chilerecicla will manage the process of purchasing and selling the e-waste materials. Under the terms of the agreement, GTSO will receive a minimum of 50% of the net profits of the Chilerecicla JV.

The Chilerecicla JV represents an investment in an unproven start-up operation and an emerging market. Therefore, the likelihood of the Chilerecicla JV to be able to realize profitable operations and positive cash flow is unknown at this time. As a result, GTSO has expensed all investments in this joint venture, although the Company still believes that it represents a positive business opportunity.

Through GTSO's newest initiatives in traditional and urban mining, rare earth and precious metals sector, the Company plans to create the necessary processes, logistics, and distribution channels to mine, recover, distribute, and sell precious and other metals to the global marketplace. The Company intends to be a driving force behind a more competitive minerals and metals mining and recovery market. The Company's alliances in South America, Asia, and Africa provide a strategic advantage and access to one of the most plentiful rare earth and minerals deposits in the world. GTSO has also identified additional joint venture and acquisition targets in China, Africa, and South America. The mission is to meet the growing demand for gold, silver, tungsten and other precious and rare metals, while introducing sustainable and environmentally friendly practices that also create new products and reduce greenhouse gas pollutants using biomass and organic carbon sequestration.

GTSO will continue traditional mining operations through joint ventures such as Diamond V Associates, but the current acquisition and joint venture focus for 2013 will be building sustainable recovery methods of precious, rare, and other metals and minerals through utilizing existing electronic waste. The first two quarters of 2013 will be building its US operations through the purchase of Global Cell Buyers and branding strategy under the name "Green Urban Mining". In addition, GTSO has identified several target companies in emerging market such as Latin America to leverage current collection and distribution of e-waste for the use of valuable metals they contain. GTSO plans to continue support of traditional mining operations such as placer mining through Diamond V Associates and other innovative prospectors and operators on a case-by-case scenario.

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Critical Accounting Policies

We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the condensed financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

For a full description of our critical accounting policies, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report for the year ended December 31, 2013 on Form 10-K.

Results of Operations

Three months ended March 31, 2014 compared to the three months ended March 31, 2013.

General and Administrative Expenses We recognized general and administrative expenses in the amount of $405,834 and $76,517 for the three months ended March 31, 2014 and ended 2013, respectively. General and administrative expense for the three months ended March 31, 2014 includes stock compensation expense of $300,000 related to a stock purchase agreement from a significant shareholder of the Company. The remaining increase in general and administrative expense is primarily the result of increased professional fees.

Interest Expense Interest expense decreased from $119,310 for the three months ended March 31, 2013 to $76,236 for the three months ended March 31, 2014. Interest expense for the three months ended March 31, 2014 included amortization of discount on convertible notes payable in the amount of $62,682, compared to $103,102 for the comparable period of 2013. The decrease is due to fewer conversions of convertible notes in the current quarter.

Net Loss We incurred a net loss of $482,070 for the three months ended March 31, 2014 as compared to $195,827 for the comparable period of 2013. The increase in the net loss was primarily the result of the increase in general and administrative expense partially offset by the decrease in interest expense.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2014, the Company has generated net losses since it reentered the development period of $4,688,521. As shows in the financial statements, the Company incurred a net loss of $482,070 during the three months ended March 31, 2014. The company had negative working capital of $262,045 as of March 31, 2014.

In view of the matter 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.

Liquidity and Capital Resources

At March 31, 2014, we had cash on hand of $26,286. The company has negative working capital of $262,045 . Net cash used in operating activities for the three months ended March 31, 2014 was $78,548. Cash on hand is adequate to fund our operations for less than six months months. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to fully implement our business plan. There is no guarantee that we will be able to attain fund when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of March 31, 2014.

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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.


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Source: Edgar Glimpses


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