Edgar Filing: Eco-Shift Power Corp.

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission File Number 000-54507

ECO-SHIFT POWER CORP.

(Exact name of registrant as specified in its charter)

Delaware	000-21134	04-2893483
(State or other jurisdiction of	(Commission	(I.R.S. Employer
incorporation or organization)	File Number)	Identification Number)

1090 Fountain Street North

Cambridge, Ontario N3H 4R7, Canada

(Address of principal executive offices, including zip code)

(519) 650-9506

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 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 preceding 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 definition 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 August 19, 2014, the registrant has 56,889,618 shares of common stock issued and outstanding.

ECO-SHIFT POWER CORP.

FORM 10-Q

INDEX

PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements - Unaudited	F-1 - F-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3 - 6

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6

Item 4.	Controls and Procedures	6 - 7

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	7

Item 1A.	Risk Factors	7

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	8

Item 3.	Defaults Upon Senior Securities	8

Item 4.	Mine Safety Disclosures	8

Item 5.	Other Information	8

Item 6.	Exhibits	9

Signatures		10

PART 1 – FINANCIAL INFORMATION

Item 1 – Condensed Consolidated Financial Statements - Unaudited

ECO-SHIFT POWER CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013

(Expressed in United States Dollars)

	June 30, 2014			December 31, 2013
	$			$

ASSETS
Cash		39,763			107,770
Restricted cash [note 5]		—			217,377
Accounts receivable		47,349			24,442
Inventory		217,681			142,891
Advances and deposits		199,928			150,756
Prepayments and other receivables		487,366			55,020
Total current assets		992,087			698,256
Property and equipment		12,717			12,098
Total assets		1,004,804			710,354

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Liabilities
Accounts payable and accrued liabilities		980,612			418,415
Customer deposits		24,002			357,976
Liquidated damages payable [note 6]		70,300			70,300
Provision for a contingent liability [note 7]		140,582			141,030
Advances from shareholders [note 8]		133,294			118,696
Convertible notes payable [note 9]		195,609			189,685
Promissory notes payable [note 11]		644,332			604,080
Total current liabilities		2,188,731			1,900,182
Derivative liabilities [note 10]		897,569			—
Total liabilities		3,086,300			1,900,182

Stockholders’ deficiency
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 1 share issued and outstanding as at June 30, 2014 and December 31, 2013		1			1
Common stock, $0.01 par value, 400,000,000 shares authorized, 60,900,476 and 54,863,211 common shares issued and outstanding as at June 30, 2014 and December 31, 2013, respectively, which includes 4,138,394 exchangeable common shares [note 12]		609,005			548,631
Additional paid-in capital		3,966,487			2,895,815
Accumulated other comprehensive gain		96,249			82,292
Accumulated deficit		(6,753,238	)		(4,716,567	)
Total stockholders’ deficiency		(2,081,496	)		(1,189,828	)
Total liabilities and stockholders’ deficiency		1,004,804			710,354

Commitments and contingencies [note 13]

See accompanying notes

F-1

ECO-SHIFT POWER CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

(Expressed in United States Dollars)

	Three months ended			Three months ended
	June 30, 2014			June 30, 2013
	$			$

REVENUE		46,760			45,458

COSTS OF SALES		37,160			4,919

GROSS (LOSS) PROFIT		9,600			40,539

EXPENSES
Salaries and benefits		208,800			188,051
Legal and professional fees		1,383,875			85,856
Rent and occupancy		66,763			41,649
Marketing and advertising		41,021			3,716
Travel		14,613			13,597
Interest and bank charges		285,122			31,138
Repair and maintenance		15,184			6,951
Telecommunications		9,941			7,252
Change in fair value of derivative liabilities (Note 10)		(328,620	)		—
Other operating expenses		52,581			20,704
		1,749,280			398,914
Net loss for the period before income taxes		(1,739,680	)		(358,375	)
Income taxes		—			—
Net loss for the period		(1,739,680	)		(358,375	)
Foreign currency translation adjustment		(22,382	)		28,624
Comprehensive loss		(1,762,062	)		(329,751	)

Loss per share, basic and diluted		(0.0292	)		(0.0092	)

Weighted average number of common shares outstanding		60,414,762			35,972,444

See accompanying notes

F-2

ECO-SHIFT POWER CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

(Expressed in United States Dollars)

	Six months ended			Six months ended
	June 30, 2014			June 30, 2013
	$			$

REVENUE		373,960			307,110

COSTS OF SALES		139,513			115,772

GROSS PROFIT		234,447			191,338

EXPENSES
Salaries and benefits		414,158			337,964
Legal and professional fees		1,575,547			136,785
Rent and occupancy		99,414			65,665
Marketing and advertising		61,639			7,746
Travel		35,119			24,692
Interest and bank charges		304,525			63,575
Repair and maintenance		25,683			15,302
Telecommunications		18,296			15,160
Change in fair value of derivative liabilities (Note 10)		(328,620	)		—
Other operating expenses		65,357			50,254
		2,271,118			717,143
Net loss for the period before income taxes		(2,036,671	)		(525,805	)
Income taxes		—			—
Net loss for the period		(2,036,671	)		(525,805	)
Foreign currency translation adjustment		13,957			46,226
Comprehensive loss		(2,022,714	)		(479,579	)

Loss per share, basic and diluted		(0.0346	)		(0.0135	)

Weighted average number of common shares outstanding		58,411,636			35,554,512

See accompanying notes

F-3

ECO-SHIFT POWER CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

(Expressed in United States Dollars)

	Six months ended			Six months ended
	June 30, 2014			June 30, 2013
	$			$
OPERATING ACTIVITIES
Net loss for the period		(2,036,671	)		(525,805	)
Items not affecting cash
Issuance of shares for services		1,399,588			—
Change in fair value of derivative liabilities		(328,620	)		—
Interest/accretion expense on convertible notes		276,959			—

Change in working capital balances
Accounts receivable		(22,534	)		40,567
Inventory		(74,912	)		17,816
Advances and deposits		(49,242	)		(239,752	)
Income taxes recoverable		—			24,639
Prepayments		15,832			(3,721	)
Accounts payable and accrued liabilities		551,461			91,828
Customer deposits		(326,311	)		(120,515	)
Cash used in operating activities		(594,450	)		(714,943	)

INVESTING ACTIVITIES
Decrease in restricted cash		212,439			—
Cash provided by investing activities		212,439			—

FINANCING ACTIVITIES
Bank indebtedness		—			(47,268	)
Net proceeds from issuance of shares		36,800			—
Proceeds from issuance of convertible notes		198,975			97,032
Proceeds from issuance of promissory notes		41,346			751,772
Advances (Repayment) from shareholders		14,683			(72,995	)
Cash provided by financing activities		291,804			728,541

Net (decrease) increase in cash during the period		(90,207	)		13,598

Effect of foreign currency translation adjustment		22,200			(13,502	)

Cash, beginning of the period		107,770			1,761
Cash, end of period		39,763			1,857

See accompanying notes

F-4

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

1. NATURE OF OPERATIONS

Eco-Shift Power Corp. (“Eco-Shift Canada”, or the “Company”) was incorporated on May 15, 2008 under the laws of the Province of Ontario, Canada. Eco-Shift Canada is primarily engaged in developing, selling and distributing electrical lighting products.

Eco-Shift Power Corp. (formerly Simplepons, Inc. or “Simplepons”) was a Delaware corporation formed on February 7, 2011. Simplepons was in the business of the sale of coupon books and was developing a mobile coupon subscription that solves the problem of leaving your coupons at home. On February 5, 2013, Simplepons completed a reverse merger and subsequently the board of directors (the “Board”) ceased the then existing coupon subscription business.

The Company’s consolidated financial statements include the assets, liabilities and historical operations of both Eco-Shift Canada and Simplepons as one entity.

2. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities Exchange Commission (“SEC”) instructions to Form 10-Q and Article 8 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company’s audited financial statements and notes thereto included in a current report on Forms 10-K and 10-K/A filed with the SEC on April 8, 2014.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations for the interim periods presented have been reflected herein. Operating results for the six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. Notes to the Unaudited interim consolidated financial statements which would substantially duplicate the disclosures contained in the Company’s audited consolidated financial statements for the year ended December 31, 2013 as included in the current report on Forms 10-K and 10-K/A filed with the SEC on April 8, 2014 have been omitted.

3. GOING CONCERN

The Company’s unaudited interim consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced losses from operations since inception that raise substantial doubt as to its ability to continue as a going concern.

The Company’s existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through continued business development and additional equity investment in the Company. Management is pursuing various sources of financing. In the event the Company is not able to raise the necessary equity financing, the Company intends to seek stockholder loans or debt financing, as needed, until profitable operations are attained.

The unaudited interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

F-5

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Earnings Per Share

The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Basic and diluted losses per share were the same at the reporting dates as there were no common stock equivalents outstanding at June 30, 2014 and 2013. All outstanding warrants and options have an anti-dilutive effect on the loss per share and are therefore excluded from the determination of the diluted loss per share calculation for the three and six months ended June 30, 2014 and 2013.

Inventory

Inventory, which comprises of electrical lighting materials and supplies, is valued at the lower of cost and market value, with cost being determined on a weighted average basis. The cost of inventory includes purchase price, freight, custom duties and other delivery expenses. Market for materials and supplies is net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less any applicable variable selling costs.

The Company evaluates the carrying value of inventory on a regular basis, taking into account such factors as historical and anticipated future sales compared with quantities on hand and the price the Company expects to obtain for products in the market compared with historical cost.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, advances from shareholders and convertible debt. The estimated fair value of cash, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.

The Company utilizes various types of financing to fund its business needs, including convertible debt and warrants. The Company reviews its warrants and conversion features of securities issued as to whether they are freestanding or contain an embedded derivative and, if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified into equity with changes in fair value recognized in current earnings. At June 30, 2014, the Company had convertible debt and warrants to purchase common stock, the fair values of which are classified as a liability. Some of these units have embedded conversion features that are treated as a discount on the notes. Such financial instruments are initially recorded at fair value and amortized to interest expense over the life of the debt using the effective interest method.

Inputs used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level one — Quoted market prices in active markets for identical assets or liabilities;

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the convertible debt and warrants to purchase common stock (discussed above). The Company classifies the fair value of these convertible notes and warrants under level three.

F-6

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.

Income Taxes

The Company provides for federal and state income taxes payable, as well as for those deferred because of the timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized.

Upon inception, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), superseded by ASC 740-10. The Company did not recognize a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit as of the date of adoption. The Company did not recognize interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest related to unrecognized tax benefits in interest expense and penalties in other operating expenses.

Recently issued accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that recently issued accounting pronouncements adopted do not have a material impact on its financial position or results of operations.

5. RESTRICTED CASH

Restricted cash represented cash which was held in a trust account and was available subject to approval from certain investors.

6. LIQUIDATED DAMAGES PAYABLE

Pursuant to the Company’s private placement completed during the year ended December 31, 2012 in the gross amount of $370,000, purchasers (the “Holders”) are entitled to liquidated damages if a registration statement covering the resale of the 1,480,000 shares of common stock sold under the private placement (the “Registrable Securities”) is not filed within 60 days of the termination date of the private placement on May 15, 2012 and declared effective within 150 days of the termination date. The Company shall make pro rata payments to each Holder, in an amount equal to 1.0% of the aggregate amount invested by such Holder (based upon the number of Registrable Securities then owned by such Holder) for each 30-day period or pro rata for any portion thereof following the date by which such Registration Statement should have been filed or effective (the “Blackout Period”).

Such payments can be made in cash or shares of common stock with the fair market value on the date of issuance and shall constitute the Holder’s exclusive monetary remedy for such events, but shall not affect the right of the Holder to seek injunctive relief. The amounts payable as liquidated damages shall be paid monthly within ten (10) business days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period. Such payments shall be made to each holder at the sole option of the Company in either cash or shares of common stock. As of June 30, 2014 and December 31, 2013, the Company has accrued liquidated damages payable in the amount of $70,300.

F-7

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

7. PROVISION FOR A CONTINGENT LIABILITY

The Company has been named as a co-defendant in a claim by a customer, who is seeking damages of $10,000,000 CAD ($9,372,100) and return of a deposit of $150,000 CAD ($140,582) which was received by the Company under a Value-Added Reseller arrangement. The Company has filed a counterclaim against the customer for damages of $9,548,560 CAD ($8,949,005) resulting from the plaintiff’s breach of contract plus punitive damages of $1,000,000 CAD ($937,210) for negligence and loss of business reputation. Management of the company believes these claims are without merit and has accrued $150,000 CAD ($140,582) in the unaudited interim consolidated financial statements in regards to this claim, as management believes this represents a reasonable estimate of the amount the Company may ultimately be required to pay.

8. ADVANCES FROM SHAREHOLDERS

The advances from shareholders are unsecured, non-interest bearing and due on demand.

9. CONVERTIBLE NOTES PAYABLE

The outstanding convertible notes of $195,609 comprise of $189,082 issued to Eco-Shift Scientific Inc. and $6,527 issued to JSJ Investments as detailed below:

a)	Convertible notes issued to Eco-Shift Scientific Inc.

On June 17 and July 3, 2013, the Company entered into two 10% convertible promissory notes with Eco-Shift Scientific Inc. amounting to $189,082 ($201,750 CAD). These two notes were due on June 17, 2014 and July 3, 2014, respectively. Prior to the maturity date, the holder has the option to convert the principle and accrued interest into shares of the Company’s common stock at $0.25 per share. The Company is in the process of formalizing arrangements with these noteholders to extend the term by one more year.

These notes have been issued to an associated company (a related party as one of the shareholder of “E”-Shift Scientific Inc. is a close family member of the shareholder of the Company). Interest expense recognized on these notes for the three and six months ended June 30, 2014 amounts to $4,569 and $9,096, respectively (2013 - $nil and $385, respectively).

As a result of issuance of JSJ Investment notes as explained below, the Eco-Shift notes were tainted and the embedded conversion feature in these notes have been accounted for as a derivative liability due to the variable conversion provision and full reset conversion price feature based on guidance in ASC 820 and EITF 07-05 (See note 10).

b)	Convertible notes issued to JSJ Investments

On April 7, 2014 and June 10, 2014, the Company issued convertible promissory notes in the principal amounts of $100,000 each to JSJ Investments (“Holder”). These notes bear interest at 12% per annum and have a six-month term. The note is pre-payable at any time by the Company, subject to payment of a redemption premium of 125% in lieu of principal and interest otherwise payable. The note is also convertible by the holder into shares of common stock of the Company at a 50% discount to the average of the three lowest trades on the previous ten trading days before conversion. The note may be converted in two tranches of $50,000 plus interest, or 4.99% of the then current issued and outstanding number of shares of common stock of the Company, whichever is lower.

Gross amount received – contractual balance	$	200,000

Net proceeds	$	200,000

F-8

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

9. CONVERTIBLE NOTES PAYABLE (continued)

b)	Convertible notes issued to JSJ Investments (continued)

Following is an analysis of convertible debt due to JSJ Investments at June 30, 2014:

		June 30, 2014

Contractual balance	$	200,000
Less unamortized discount		(193,473	)

Convertible debt	$	6,527

The embedded conversion feature in the Note has been accounted for as a derivative liability due to the variable conversion provision and full reset conversion price feature based on guidance in ASC 820 and EITF 07-05 (See note 10).

10. DERVIATIVE LIABILITIES

Based on ASC Topic 815 and related guidance, the Company concluded the convertible notes issued to JSJ on April 7, 2014 and June 10, 2014 are required to be accounted for as derivatives as of the issue date due to the variable conversion provision and a full reset feature on the conversion/exercise price. Also, due to the variable conversion provision, outstanding convertible debt and warrants became tainted due to the indeterminate number of shares issuable under the JSJ notes. At the date of issuance of the JSJ convertible notes, the notes and warrant derivative liabilities were measured at fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the consolidated statements of operations as “Gain (loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815-10 and are disclosed on the balance sheet under Derivative Liabilities.

The following table summarizes the convertible debt and warrant liabilities activity for the period ended June 30, 2014:

Description		Convertible Notes			Warrant Liabilities			Total

Fair value at Issuance	$	588,120		$	638,069		$	1,226,189
Change in Fair Value	$	(122,679	)	$	(205,941	)	$	(328,620	)
Fair value at June 30, 2014	$	465,441		$	432,128		$	897,569

For the period ended June 30, 2014, net derivative income was $328,620.

The lattice methodology was used to value the convertible notes and warrants with the following assumptions.

Assumptions			June 30, 2014

Dividend yield			0.00%
Risk-free rate for term			0.11% - 0.88%
Volatility			219%
Maturity dates			6/17/15 - 2/28/17
Stock price			0.39

F-9

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

10. DERVIATIVE LIABILITIES (continued)

Following tainted warrants (tainted by the JSJ Investments notes and therefore require derivative treatment) are summarized as:

Warrants
Holder	Issue Date		Maturity Date		Issuance - Warrants		Exercise Price		Derivative Value at 4/7/14		Derivative Value at 6/30/14		Mark to Market
					#				$		$		$
10/04/12 - Golden Explorations		4/7/2014		10/31/2015		2,000,000		0.5000		300,432		199,535		(100,897	)
11/19/12 - Erwin Speckert		4/7/2014		11/30/2015		800,000		0.5000		119,758		79,411		(40,347	)
11/21/12 - Golden Explorations		4/7/2014		11/30/2015		600,000		0.5000		89,796		59,558		(30,238	)
05/13/13 - F. Boulos		4/7/2014		5/31/2016		6,000		1.0000		360		276		(84	)
05/13/13 - P. Bowman IRA LLC		4/7/2014		5/31/2016		6,000		1.0000		360		276		(84	)
09/11/13 - F. Boulos		4/7/2014		9/30/2016		100,000		0.2500		19,780		16,819		(2,961	)
09/11/13 - P. Bowman IRA LLC		4/7/2014		9/30/2016		100,000		0.2500		19,775		16,819		(2,956	)
12/17/13 - BHKT		4/7/2014		12/31/2016		120,000		0.5000		17,514		11,483		(6,031	)
12/17/13 - Fundacion R.P.D.		4/7/2014		12/31/2016		20,000		0.5000		2,918		1,914		(1,004	)
12/17/13 - A.I.R.		4/7/2014		12/31/2016		43,560		0.5000		6,354		4,168		(2,186	)
12/17/13 - Arango M. Fernando		4/7/2014		12/31/2016		15,720		0.5000		2,293		1,504		(789	)
12/17/13 - Carlos Lugo		4/7/2014		12/31/2016		4,000		0.5000		583		383		(200	)
12/17/13 - Saga Saguros S.A.		4/7/2014		12/31/2016		8,000		0.5000		1,166		766		(400	)
12/17/13 - Enrique Rohrmoser		4/7/2014		12/31/2016		20,000		0.5000		2,915		1,914		(1,001	)
12/17/13 - Walter Brunetti		4/7/2014		12/31/2016		10,000		0.5000		1,457		957		(500	)
12/17/13 - Sungari Trading		4/7/2014		12/31/2016		80,000		0.5000		11,652		7,655		(3,997	)
12/17/13 - CM Capital Corp.		4/7/2014		12/31/2016		15,064		0.2500		2,947		2,516		(431	)
12/17/13 - Fundacion R.P.D.		4/7/2014		12/31/2016		60,000		0.5000		8,735		5,741		(2,994	)
02/12/14 - Westwood Capital S.A.		4/7/2014		2/28/2017		40,000		0.5000		5,809		3,816		(1,993	)
02/12/14 - Jacquiline Dozal de Prescott		4/7/2014		2/28/2017		40,000		0.5000		5,808		3,816		(1,992	)
02/14/14 - Fundacion R.P.D.		4/7/2014		2/28/2017		80,000		0.5000		11,613		7,631		(3,982	)
02/14/14 - CM Capital Corp.		4/7/2014		2/28/2017		31,064		0.2500		6,044		5,170		(874	)
										638,069		432,128		(205,941	)

F-10

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

11. PROMISSORY NOTES PAYABLE

The details of the promissory notes outstanding as at June 30, 2014 are as follows:

Date of	Date of		Amount		Rate of
issuance	maturity		$		interest			Security
March 15, 2010		N/A		46,850		4	%	Net assets of the Company
March 15, 2010		N/A		46,850		4	%	Net assets of the Company
June 10, 2010		N/A		23,425		10	%	Net assets of the Company
February 1, 2012		N/A		46,850		10	%	Net assets of the Company
December 11, 2012		December 11, 2013*		21,083		12	%	No security
January 29, 2013		January 15, 2014*		182,715		12	%	No security
March 15, 2013		December 11, 2013*		234,384		12	%	No security
April 10, 2014		October 10, 2014		42,175		12	%	Net assets of the Company
				644,332

N/A – There is no maturity date of these promissory notes. Repayment is due when the Company has sufficient working capital to operate.

Promissory notes amounting to $163,975 ($175,000 CAD) have been issued to close family members of the shareholders which are outstanding as at June 30, 2014.

* These promissory notes are in default and management is in the process of negotiating to extend these for further one year term.

12. STOCKHOLDERS’ DEFICIENCY

Authorized stock

As at June 30, 2014 and December 31, 2013, the Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.0001 and 400,000,000 shares of common stock with a par value of $0.01.

Issued and outstanding stock

In January 2014, the Company issued 400,000 shares of common stock pursuant to a consulting agreement. These shares were valued at $0.35 per common share representing the market price at the time of issuance. Accordingly $140,000 has been recorded as legal and professional charges in the statement of operations with corresponding credits to common stock and additional paid-in capital.

In January 2014, the Company issued remaining 25,000 shares of common stock out of the total shares of 50,000 common stock pursuant to a Confidential Settlement Agreement and Mutual General Release with a claimant finalized during the year ended December 31, 2013.

In January 2014, the Company issued 1,650,000 shares of common stock in respect of stock based compensation recorded during the year ended December 31, 2013.

In February 2014, the Company entered into various subscription and warrant agreements for the issuance of 160,000 shares of common stock at a price of $0.25 per common share.

In February 2014, the Company issued 29,911,799 shares of common stock in exchange of 34,047,928 outstanding exchangeable shares pursuant to the terms of the Voting and Trust Agreement, Rollover Agreement and Support Agreement finalized as referred to in the consolidated financial statements for the year ended December 31, 2013.

In April 2014, the Company engaged a third party consultant to provide certain business consulting services for a term of one year and issued 1,300,000 shares of common stock as compensation for such services. These shares were valued at $0.45 per common stock and $585,000 was recorded as prepaid expenses to be amortized over a term of one year. Accordingly, the Company recorded $146,342 as professional charges in the statement of operations for the quarter ended June 30, 2014.

F-11

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

12. STOCKHOLDERS’ DEFICIENCY (continued)

Issued and outstanding stock (continued)

In April 2014, the Company agreed to settle certain claims for consulting services provided by a third party through issuance of 2,500,000 shares of common stock. These shares were valued at $0.45 per common stock and $1,125,000 was recorded as professional charges in the statement of operations.

13. COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases premises under an operating lease with a five year term in Cambridge, Ontario. Minimum lease commitments under the lease as at June 30, 2014 were:

2014 (6 months remaining)	$	40,971
2015		82,492
2016		83,103
2017		41,857
	$	248,423

In April 2014, the Company entered into an Asset Purchase Agreement, subject to completion of certain conditions, with E-Shift Scientific Inc., which provided for the purchase of certain assets and intellectual property of E-Shift Scientific. The consideration for such purchase included the payment of $500,000 in cash on or before October 25, 2014, and the issuance of 9,800,000 shares of common stock of the Company, together with a three-year option to purchase 2,500,000 shares of common stock at $0.25 per share, and a three-year warrant to purchase 1,500,000 shares of common stock at $0.25 per share. The option is immediately exercisable and the warrant is exercisable beginning eighteen months after the issue date. As at June 30, 2014, the agreement is not yet effective due to non-completion of certain conditions as explained in the agreement.

Contingencies

On January 7, 2014, the Company commenced an action in the Superior Court of Justice for Ontario against N.V. NederlandscheApparatenfabriek “Nedap”, NiekNijenhuis, Thomas Lang, JeroenSomsen, Venture Lighting International Inc., Andrew Tyrrell, NRG Metalworks Inc., Craig Chornaby, Full Energy Solutions Distribution and Jan Christopher Vargas (together, the Defendants). The Company claims for $25 million CAD ($22.6 million) in compensatory and punitive damages for breach of contract, breach of confidence, conspiracy, breach of fiduciary duty, intentional interference with economic relations and inducing breach of contract. The Company anticipates amending its statement of claim to also allege patent infringement. The Defendents have delivered statements of defence. The Company does not expect this action to proceed to trial until 2015 or 2016.

On July 2, 2014, the Company commenced an action in the Federal Court of Canada against Costco Wholesale Canada Ltd. for patent infringement. The defendant has delivered a statement of defence. The Company does not expect this action to proceed to trial until 2015 or 2016.

14. RELATED PARTY TRANSACTIONS

The Company’s transactions with related parties were, in the opinion of the directors, carried out on normal commercial terms and in the ordinary course of the Company’s business.

Other than those disclosed elsewhere in the financial statements, there were no other related party transactions or balances.

15. SUPPLEMENTAL CASH FLOWS INFORMATION

During the three and six months ended June 30, 2014 interest of $14,345 and $34,637 (2013 - $27,615 and $57,126) were paid.

F-12

ECO-SHIFT POWER CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED)

(Expressed in United States Dollars)

16. SUBSEQUENT EVENTS

On July 2, 2014 through July 18, 2014, the Company entered into subscription agreements with accredited investors for the issuance of convertible promissory notes in the aggregate principal amount of $365,000, together with common stock purchase warrants to purchase an aggregate of 1,525,000 shares of common stock at $0.25 per share, to three accredited investors. The convertible notes bear interest at 8% per annum, subject to a default rate at 12% per annum, and mature on the one-year anniversary of the date of issuance. The notes may be pre-paid at any time at the option of the Company. The unpaid principal and accrued and unpaid interest are convertible at any time before prepayment in full or the maturity date, at the option of the note holder, into shares of common stock of the Company at a conversion price of $0.15 per share. The warrants are exercisable for three years.

The Company paid a third party service provider commissions and expenses of approximately $59,000 in connection with the issuance of the notes and warrants.

The sales of securities were made as part of an offering of up to $850,000 of convertible promissory notes and warrants.

F-13

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

This Quarterly Report on Form 10-Q contains “forward-looking statements”. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” and negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties associated with such forward-looking statements. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about business strategies; future cash flows; financing plans; plans and objectives of management; future cash needs; future operations; business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

Plan of Operation

The Company is focused on the continued execution of a strategic plan aimed at increasing shareholder value. Operations are focused on three key revenue streams, which include low-cost LED high bay lighting, wireless light management systems, and software platforms for demand management and automated demand response. Operations will maintain a focus on lighting retrofit projects and expand to include Original Equipment Manufacturer (OEM) functions.

Operations in Q2 2014 remained focused on the final phases of product commercialization. Company resources have been redirected to product development in order to expedite the timelines for commercial launch of new products which are anticipated to gain significant market share. Beginning in Q3 2014, significant changes to operations are planned as the company starts to sell products as an Original Equipment Manufacturer (OEM). The Company forecasts significant sales growth in the latter half of 2014 based on expectations for the new low-cost high bay LED products and the Wireless Light Management System. In Q3, the Company plans to hire additional staff in step with revenue increases. The Company plans to hire 2 additional highly experienced OEM sales staff that will be focused on national electrical supply companies and national electrical contractors in both the US and Canada. The Company will continue to focus on the lighting retrofit market with existing sales staff. The Company also plans to hire 2 additional technical staff that will be required for back-office support associated with the Wireless Light Management Systems well as administrative and warehouse staff as needed to manage the significant increase in sales volumes.

Operations to Focus on Three High-Growth Revenue Streams:

A key focus of operations for remainder of 2014 will be the launch of the Company’s LED high bay that is expected to have one of the lowest MSRP’s available on the North American market. The Company is preparing operations for significant sales given that the LED high bay will be competitively priced with legacy technologies, offering significant energy savings for clients at comparable capital cost. Operations will be refocused to ensure that the Company can manage high volume sales as an OEM. Operations will also be focused on the back-office components of the Wireless Light Management System for the remainder of 2014. Investments will be made in a new high-speed fiber optic line, cloud-based servers, and technical staff. The Company will be making additional investments in the functionality of the Virtual Power Plant Platform through 2014 and the first half of 2015. These investments will be based on lessons learned from the Ontario Demand Response Market. The Company plans to participate in the Independent Electricity System Operator (IESO) Pilot Program which is tentatively planned for early 2015. The Pilot Program will give the Company an opportunity to refine the Virtual Power Plant Platform prior to launching into Demand Response markets throughout North America. The Company will continue to offer the Predictive Peak Demand Forecasting service, which will eventually be aligned with the Virtual Power Plant Platform.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Plan of Operation (continued)

Strategic Partnerships:

The Company will have a continued focus on Strategic Partnerships throughout the remainder of 2014. The Letter of Intent signed with Sharp Manufacturing USA in Q2 2014 is representative of the strategy to align with Strategic Partners to accelerate the launch of OEM LED products into the market. The Company will also continue with the retrofit program for auto dealerships. In Q2 2014, the Company launched the successful Lighting Retrofit Program for Leader Auto Resources (LAR) members. In Q3 2014, the Company will continue with the planned roll-out into the US starting in Texas.

COMPARISON OF OPERATING RESULTS

Comparison of Three and Six Months Ended June 30, 2014 to Three and Six Months Ended June 30, 2013

Revenue

Revenue increased by $1,302 to $46,760 for the three months ended June 30, 2014 from $45,458 for the three months ended June 30, 2013.

Revenue increased by $66,850 to $373,960 for the six months ended June 30, 2014 from $307,110 for the six months ended June 30, 2013.

The overall increase in revenue in both the periods in 2014 as compared to 2013 were mainly due to our focus in 2013 to the completion of the reverse merger and securing additional capital and lines of credit. As the Company is now public, there are more promising work orders which will substantially increase the revenue of the Company going forward.

Cost of Goods Sold

Cost of goods sold was $37,160 for the three months ended June 30, 2014, compared to $4,919 for the three months ended June 30, 2013, an increase of $32,241from the prior period.

Cost of goods sold was $139,513 for the six months ended June 30, 2014, compared to $115,772 for the six months ended June 30, 2013, an increase of $23,741 from the prior period.

The increase in cost of goods sold were almost in line with the increase in revenues.

Expenses

Overall expenses increased to $1,749,280 for the three months ended June 30, 2014 from $398,914 for the three months ended June 30, 2013.

Overall expenses increased to $2,271,118 for the six months ended June 30, 2014 from $717,143 for the six months ended June 30, 2013.

The major increase in overall expenses of $1,350,366 and $1,553,975 for the three and six months period ended June 30, 2014, respectively mainly represented increase in legal and professional expenses by $1,298,019 and $1,438,762, interest and bank charges by $253,984 and $240,950 offset by change in fair value gain of derivative liabilities by $328,620.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Increase in legal professional expenses mainly represented:

	●	In April 2014, the Company engaged a third party consultant to provide certain business consulting services for a term of one year and issued 1,300,000 shares of common stock as compensation for such services. These shares were valued at $0.45 per common stock and $585,000 was recorded as prepaid expenses to be amortized over a term of one year. Accordingly, the Company recorded $146,342 as professional charges in the statement of operations for the quarter ended June 30, 2014; and

	●	In April 2014, the Company agreed to settle certain claims for consulting services provided by a third party through issuance of 2,500,000 shares of common stock. These shares were valued at $0.45 per common stock and $1,125,000 was recorded as professional charges in the statement of operations.

Increase in interest and bank charges represented mainly recording of interest/accretion expense of $276,959 in connection with the valuation of convertible notes and derivative warrants.

The Company also recorded change in fair value gain of $328,620 in connection with the valuation of convertible notes and derivative warrants.

Net loss.

During the three months ended June 30, 2014, we incurred a net loss of $1,739,680 as compared to a net loss of $358,375 during the three months ended June 30, 2013.

During the six months ended June 30, 2014, we incurred a net loss of $2,036,671 as compared to a net loss of $525,805 during the six months ended June 30, 2013.

The major reason for the increase in net loss in the current period as compared to the previous period is primarily due to increase in expenses as explained in the above expenses section.

Liquidity and Capital Resources

As of June 30, 2014, the Company had total assets of $1,004,804, which included total current assets of $992,087 consisted of cash of $39,763, accounts receivable of $47,349, inventory of $217,681, advances and deposits of $199,928, prepayments of $487,366, and property and equipment of $12,717, which s classified as a non-current asset.

The Company had total liabilities of $3,086,300 as of June 30, 2014. Current liabilities consisted of accounts payable and accrued liabilities of $980,612, customer deposits of $24,002, liquidated damages payable of $70,300, contingent liability of $140,582, advances from shareholders of $133,294, convertible notes payable of $195,609 and promissory notes payable of $644,332. Non current liabilities consisted of derivative liabilities of $897,569.

The Company had a working capital deficit of $1,196,644 and an accumulated deficit of $6,753,238 as of June 30, 2014.

Net cash used in operating activities. During the six months ended June 30, 2014, the Company used $594,450 of net cash in operating activities compared to $714,943 of net cash used in operating activities for the six months ended June 30, 2013. The decrease in net cash used in operating activities by $120,493 was mainly attributable changes in composition of working capital balances offset by changes in non-cash items.

Net cash provided by investing activities. During the six months ended June 30, 2014 net cash provided by investing activities was $212,439 as compared to $nil for the six months ended June 30, 2014. The increase was due to a decrease of restricted cash during six months ended June 30, 2014.

Net cash provided by financing activities. During the six months ended June 30, 2014 net cash provided by financing activities was $291,804 as compared to $728,541 for the six months ended June 30, 2013. The overall decrease of $436,737 is mainly due to repayment of $608,483 offset by the proceeds of issuance of shares and notes by $171,746.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Need For Additional Capital

The Company has experienced losses from operations since inception that raise substantial doubt as to its ability to continue as a going concern. The Company will need to raise additional funding to complete its plan of operations and repay the notes described above. The Company’s operations do not currently produce sufficient operating cash to support the Company’s operations without additional funding. If the Company is unable to raise adequate working capital it will be restricted in the implementation of its business plan and may be forced to cease filing reports with the SEC.

The Company’s unaudited interim consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As shown in the accompanying unaudited interim consolidated financial statements, the Company has experienced losses from operations and has negative working capital as of June 30, 2014. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations.

Moving forward, the Company plans to seek out additional debt and/or equity financing (similar to the convertible notes and/or promissory notes) to pay costs and expenses associated with our filing requirements with the Securities and Exchange Commission and to affect our plan of operations (as described above); however, we do not currently have any specific plans to raise such additional financing at this time. The sale of additional equity securities, if undertaken by the Company and if accomplished, may result in dilution to our shareholders. The Company cannot assure you, however, that future financing will be available in amounts or on terms acceptable to us, or at all.

There can be no assurance that the Company will be able to continue to raise funds, in which case we may be unable to meet our obligations and we may cease operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

Item 3. 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 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information 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. This conclusion was based on the existence of the material weaknesses in our internal control over financial reporting previously disclosed and discussed below.

Item 4. Controls and Procedures (continued)

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 identified and continue to have the following material weaknesses in our internal controls over financial reporting: we currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Additionally, due to the fact that we have only three officers and directors who have no experience as officers or directors of a reporting company, such lack of experienced personnel may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our consolidated financial statements and an inability to provide accurate and timely financial information to our stockholders.

To address the need for more effective internal controls, management has plans to improve the existing controls and implement new controls as our financial position and capital availability improves.

(b) Changes in internal control over financial reporting. There were no changes in our internal controls over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company has been named as a co-defendant in a claim by a customer, who is seeking damages of $10,000,000 CAD ($9,046,000 USD) and return of a deposit of $150,000 CAD ($135,690 USD) which was received by the Company under a Value-Added Reseller arrangement. The Company has filed a counterclaim against the customer for damages of $9,548,560 CAD ($8,637,627 USD) resulting from the plaintiff’s breach of contract plus punitive damages of $1,000,000 CAD ($904,600 USD) for negligence and loss of business reputation. Management of the company believes these claims are without merit and has accrued $150,000 CAD ($135,690 USD) in the unaudited interim consolidated financial statements in regards to this claim, as management believes this represents a reasonable estimate of the mount the Company may ultimately be required to pay.

On January 7, 2014, the Company commenced an action in the Superior Court of Justice for Ontario against N.V. Nederlandsche Apparatenfabriek “Nedap”, Niek Nijenhuis, Thomas Lang, Jeroen Somsen, Venture Lighting International Inc., Andrew Tyrrell, NRG Metalworks Inc., Craig Chornaby, Full Energy Solutions Distribution and Jan Christopher Vargas (together, the Defendants). The Company claims for $25 million CAD ($22.6 million) in compensatory and punitive damages for breach of contract, breach of confidence, conspiracy, breach of fiduciary duty, intentional interference with economic relations and inducing breach of contract. The Company anticipates amending its statement of claim to also allege patent infringement. The Defendants have delivered statements of defence. The Company does not expect this action to proceed to trial until 2015 or 2016.

Other than the matters described above and previously disclosed in the Company’s Annual Report on Form 10-K/A, filed with the SEC on April 8, 2014, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K (Also refer 10-K/A) filed with the SEC on April 8, 2014 (the “Annual Report”) and investors are encouraged to read and review the risk factors included in the Annual Report prior to making an investment in the Company.

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

In January 2014, the Company issued 400,000 shares of common stock pursuant to a consulting agreement. These shares were valued at $0.35 per common share representing the market price at the time of issuance, and accordingly $140,000 has been recorded as legal and professional charges in the statement of operations with corresponding credit to common stock and additional paid-in capital.

In January 2014, the Company issued 1,650,000 shares of common stock in respect of stock based compensation recorded during the year ended December 31, 2013.

In February 2014, the Company entered into various subscription and warrant agreements for the issuance of 160,000 shares of common stock at a price of $0.25 per common share.

In April 2014, the Company agreed to settle certain claims for consulting services provided by a third party through issuance of 2,500,000 shares of common stock.

In April and June 10, 2014, the Company issued convertible promissory notes in the principal amounts of $100,000 each to JSJ Investments. These notes bear interest at 12% per annum and have a six-month term.

In April 2014, the Company issued a promissory note of $42,310 to a third party at an annual interest rate of 12% to be matured on October 10, 2014.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

There is no other information required to be disclosed under this item which was not previously disclosed.

Item 6. Exhibits.

Exhibit No.		Description

31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *

31.2		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *

32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS		XBRL Instance Document**

101.SCH		XBRL Taxonomy Extension Schema Document**

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB		XBRL Taxonomy Extension Label Linkbase Document**

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

* Filed herewith

** In accordance with Rule 406T of Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed furnished herewith and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ECO-SHIFT POWER CORP.

DATED: August 19, 2014	By:	/s/ Gilbert Wood
		Gilbert Wood
		Chief Executive Officer (Principal Executive Officer)

DATED: August 19, 2014	By:	/s/ James Hughes
		James Hughes
		Chief Financial Officer
		(Principal Financial Officer)