NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS
EcoloCap Solutions Inc. is an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop and sell cleaner alternative energy products. We bring together the technology, engineering, and operational management for the successful development of environmentally significant products and projects. Our business approach combines science, innovation, and market-ready solutions to achieve environmentally sustainable and economically advantageous, power and energy management practices in the following areas:
MBT M-Fuel
EcoloCap Solutions Inc., through its subsidiary Micro Bubble Technologies Inc. (MBT), developed M-Fuel, an innovative suspension fuel that far exceeds all conventional fuels’ costs and efficiencies. This environmentally-friendly and economical product is designed to offer fully scalable and customizable fuel solutions that will increase efficiency, lower operating costs, and reduce emissions. M -Fuel is a suspension mixture of 60% heavy oil, 40% H plus O2 molecules, and a 0.3% stabilizing additive. The production of M-Fuel takes place in our Nano Processing Units (NPU), a self contained device that is sized for output. The NPU’s can be configured to operate in conjunction with an engine or burner to sully M-Fuel on demand, or pre-manufactured for delivery. M-Fuels unique burning process facilitates increased efficiency, resulting in reduced emissions by 60%, reduced fuel consumption by 40%, and cut costs by up to 25%.
MBT -Batteries
EcoloCap Solutions Inc., through its subsidiary Micro Bubble Technologies Inc. (MBT), developed the Carbon Nano Tube Battery (CNT-Battery), a fully recyclable, rechargeable battery that far exceeds the performance capabilities of any existing battery on the market at this time. This environmentally-friendly and economical product is designed to offer fully scalable and customizable power solutions that will increase efficiency, lower operating costs, and reduce emissions. Our proprietary technology modifies the fabrication of lead acid batteries by applying a highly-conductive carbon nano tube coating to the anode and cathode cells. As a result, conductive surface area is increased by a factor of billions and electricity is carried out more efficiently. The CNT-Battery’s advanced technology demonstrates eight times the reserve capacity of traditional lead acid batteries, two and a half times the energy density of lithium-ion batteries, and a recharge time of just five minutes; all at a fraction of the cost of lithium-ion batteries.
DEVELOPMENT STAGE COMPANY
The Company was an active business from 2005 through 2006 and was involved in the artificial sport surface. From 2007 through September 2010, the Company was looking for new business and commenced the Carbon Credits (CER’S) business. In the 2009, the Company acquired a participation in Micro Bubble Technologies Inc. and became an integrated and complementary network of environmentally focused technology company. The Company currently has operations but limited revenues and, in accordance with the relevant authoritive guidance is considered a Development Stage Enterprise. As a development stage enterprise, the Company discloses the deficit accumulated during the development stage and the cumulative statements of operations and cash flows from January 1, 2007 to the current balance sheet date.
F-6
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiary Micro Bubble Technologies Inc. (see Note 12 All significant inter-company accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original maturities not exceeding three months to be cash equivalents.
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, deposits, prepaid expenses, notes payable, and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
MC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. MC 820 describes three levels of inputs that may be used to measure fair value:
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level l - quoted prices in active markets for Identical assets or liabilities
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-
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level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
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-
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level 3 - inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
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INCOME TAXES
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
F-7
USE OF ESTIMATES
In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenue and expenses in the income statement. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company’s business plan is to sell machinery used to prepare M-fuel. The machinery is manufactured for the Company by a third-party in Korea. Revenue is recognized at the time of shipment and when title changes hands to the buyer.
Convertible Instruments
We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
LOSS PER COMMON SHARE
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss, adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities.
STOCK BASED COMPENSATION
We recognize compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.
F-8
GOODWILL, OTHER INTANGIBLES AND LONG-LIVED ASSETS
The Company records as goodwill the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired. Current authoritative guidance requires that goodwill not being amortized, but to be tested for impairment annually as well as when an event or change in circumstance indicates an impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows, as well as the estimated fair value of long-lived assets, involves significant estimates on the part of management. In order to estimate the fair value of a long-lived asset, the Company may engage a third-party to assist with the valuation. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future.
Impairment:
At each reporting date, the Company assesses whether there is any indication that its intangible assets, or property, plant and equipment are impaired. If any such indication exists, the Group estimates the recoverable amount of the asset and the impairment loss if any. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. If an asset does not generate cash flows that are independent from those of other assets or groups of assets, recoverable amount is determined for the cash generating unit to which the asset belongs. The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use. Value in use is the present value of future cash flows from the asset or cash generating unit discounted at a rate that reflects market interest rates adjusted for risks specific to the asset or cash- generating unit that have not been reflected in the estimation of future cash flows. If the recoverable amount of an intangible or tangible asset is less than its carrying value, an impairment loss is recognised immediately in profit or loss and the carrying value of the asset reduced by the amount of the loss. A reversal of an impairment loss on intangible assets (excluding goodwill) or property, plant and equipment is recognised as it arises provided the increased carrying value does not exceed that which it would have been had no impairment loss been recognised. Impairment losses on goodwill are not reversed. During the year ended December 31, 2010, we incurred an intangible assets impairment loss of $3,077,793.
This impairment loss relates to our acquisition for MICRO BUBBLE TECHNOLOGIES INC. as our management has adjusted downward our Customer Relationship agreements because the two agreements have been terminated over the past year. We incurred a goodwill impairment loss of $3,774,793.
This impairment loss relates to our acquisition for MICRO BUBBLE TECHNOLOGIES INC. is in direct proportion of the adjustment of our Customer Relationship agreements.
During the year ended December 31, 2011, we recorded an intangible assets impairment loss of $5,656,423.
This impairment loss relates to our acquisition for MICRO BUBBLE TECHNOLOGIES INC. as our management has adjusted downward our Batteries and M-Fuel technologies because the two technologies have not been generated the forecasted income over the past year.
PROPERTY AND EQUIPMENT AND DEPRECIATION POLICY
Property and equipment are recorded at cost. Depreciation is provided for in amounts sufficient to amortize the costs of the related assets over their estimated useful lives on the straight-line and accelerated methods for both financial reporting and income tax purposes.
F-9
Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
NOTE 3 – GOING CONCERN
The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company posted net loss of $1,543,631 for the year ended December 31, 2012.The Company has negative working capital of $3,121,703 at December 31, 2012 and a stockholders’ deficiency of $6,981,489 at December 31, 2012. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans for the Company’s continued existence include selling additional stock and borrowing additional funds to pay overhead expenses.
With the opportunities created by the Batteries and M Fuel, management has begun the process of redeploying its assets, identifying business strategies that offers above average profit potential and identifying the resources necessary to successfully execute it new strategic direction.
Recognizing the opportunity this new market represents, the Company has developed an integrated development approach that focuses upon both existing and needed infrastructure facilities to produce substantial new value.
The Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds.
The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations and its ability to continue in existence. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – PROPERTY & EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the assets ranging from 3 to 7 years.
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December 31
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|
December 31,
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|
|
2012
|
|
2011
|
|
|
|
|
|
Testing equipment
|
$
|
493,000
|
$
|
496,000
|
Computer equipment
|
|
11,654
|
|
11,654
|
Furniture & fixtures
|
|
12,701
|
|
12,701
|
|
$
|
517,355
|
$
|
520,355
|
|
|
|
|
|
Less: accumulated depreciation
|
|
143,426
|
$
|
127,349
|
|
|
|
|
|
Balance December 31, 2012
|
$
|
373,929
|
$
|
393,006
|
F-10
NOTE 5 – ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES
Accrued expenses consisted of the following at December 31:
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|
2012
|
|
2011
|
Accrued interest
|
$
|
59,180
|
$
|
19,746
|
Accrued compensation
|
|
201,346
|
|
88,751
|
Accounts payable
|
|
268,500
|
|
736,000
|
Accrued operating expenses
|
|
358,457
|
|
247,404
|
|
$
|
887,483
|
$
|
1,091,901
|
NOTE 6 – NOTE PAYABLE
In 2012, the Company received loan from Tonaquint Inc. in the amount of $112,500. The amount owed to Tonaquint Inc. at December 31, 2012, is shown net of the remaining debt discount of $69,584 resulting in a balance of $42,916. The loan is convertible, over a one year period, into restricted common shares at a fixed price. The price of the shares is equal to 60% of the market price of the shares at the date of the execution of the conversion. This loan bears interest at 8% per annum and is payable on demand.
On April 2, 2012, the Company signed an agreement with Plaus Company to convert an account payable into a note payable. The amount owed to Plaus Company at December 31, 2012 is $496,000. This note bears interest at 5% per annum and is payable on demand.
In 2012, the Company received loan from AES Capital Corp. in the amount of $21,000. The amount owed to AES Capital Corp. at December 31, 2012, is shown net of the remaining debt discount of $15,867 resulting in a balance of $5,133. The loan is convertible, over a one year period, into restricted common shares at a fixed price. The price of the shares is equal to 50% of the market price of the shares at the date of the execution of the conversion. This loan bears interest at 8% per annum and is payable on demand.
In 2012, the Company received loan from JMJ Financial in the amount of $25,000. The amount owed to JMJ Financial at December 31, 2012, is shown net of the remaining debt discount of $17,500 resulting in a balance of $7,500. The loan is convertible, over a one year period, into restricted common shares at a fixed price. The price of the shares is equal to 60% of the market price of the shares at the date of the execution of the conversion. This loan bears interest at 8% per annum and is payable on demand.
NOTE 7 – PAYABLE – STOCKHOLDERS
On January1, 2012, DT Crystal elected to convert loans of $2,404 into 414,483 common shares of the Company. The calculated price of the shares of the Company was to $0.0058 per common shares ($2,404 divided by 414,483 shares) and the market price was equal to 0.0076 per common shares of the Company which results in an interest expense of $746. The amount owed to DT Crystal at December 31, 2012 is $0.
During 2012, Asher Enterprises Inc converted loans aggregating $146,000 plus accrued interests of $8,500 into 57,790,127 common shares of the Company. The calculated value of the shares ranged from $.0013 to .0041 per share and the market price ranged from 0039 to .025 per share.
In 2012, the Company received loans from Asher Enterprises Inc. in the amount of $205,000. The unpaid balance of the loan December 31, 2012, is shown net of the remaining debt discount of $91,311 resulting in a balance of $39,189. The loans are convertible, over a one year period, into restricted common shares at a fixed price. The price of the shares is equal to 58% of the market price of the shares at the date of the execution of the conversion. This loan bears interest at 8% per annum and is payable on demand.
F-11
In 2012, the Company received loans from AGS Capital Group LLC in the amount of $116,500. On November 15, 2012 AGS Capital Group LLC converted loans of $29,814 into 6,276,660 shares of the Company. The calculated value of the shares was equal to $0.0057 per share and the market price was $0.0017 per share.
On December 12, 2012 AGS Capital Group LLC converted loans of $23,540 into 7,000,000 shares of the Company. The calculated value of the shares was equal to $0.0034 per share and the market price was $0.0073 per share. The amount owed to AGS Capital Group LLC at December 31, 2012, is shown net of the remaining debt discount of $52,896 resulting in a balance of $10,250. The loans are convertible, over a one year period, into restricted common shares at a fixed price. The price of the shares is equal to 50% of the market price of the shares at the date of the execution of the conversion. This loan bears interest at 8% per annum and is payable on demand.
In 2012, the Company received loans from Panache Capital LLC in the amount of $65,000. On December 5, 2012 Panache Capital LLC converted loans of $25,092 into 8,200,000 shares of the Company. The calculated value of the shares was equal to $0.0031 per share and the market price was $0.008 per share. The amount owed to Panache Capital LLC at December 31, 2012, is shown net of the remaining debt discount of $33,408 resulting in a balance of $6,500. The loans are convertible, over a one year period, into restricted common shares at a fixed price. The price of the shares is equal to 50% of the market price of the shares at the date of the execution of the conversion. This loan bears interest at 7% per annum and is payable on demand.
In 2012, the Company received $215,488 in loans from stockholders. The amount owed to stockholders at December 31, 2012 is $673,459. These loans are non interest bearing but interest is being imputed at 5.00% per annum and are payable on demand.
In 2012, the Company received net loans from Hanscom K. Inc. in the amount of $6,354. The amount owed to Hanscom K. Inc. at December 31, 2012 is $33,246. These loans are non-interest bearing and are payable on demand.
During 2012, the Company did not receive any loans from RCO Group Inc. The amount owed to RCO Group Inc. at December 31, 2012 is $28,500. These loans are non-interest bearing and are payable on demand.
On January 31, 2012 Black Mountain Equities, Inc. converted debenture of $15,000 into 5,178,763 shares of the Company. The fair value of the shares was equal to $0.0029 per share and the market price was $0.0048 per share.
On March 22, 2012 Black Mountain Equities, Inc. converted debenture of $20,000 plus $2,500 of interests into 12,857,173 shares of the Company. The fair value of the shares was equal to $0.0017 per share and the market price was $0.016 per resulting in a debt conversion inducement expense of $183,215. The amount of the Black Mountain Equities, Inc. convertible
debenture, Inc. at December 31, 2012 is $0.
NOTE 8 – DERIVATIVE LIABILITIES
On December 8, 2011, the Company issued a drawdown convertible promissory note (“the drawdown note”) to an investor, in the principal amount of $32,500, at an interest rate of eight percent (8%) per annum. The drawdown note can be prepaid upon five days notice, is payable nine months following its issuance on September 5, 2012, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 58% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The Company requested $32,500 and received proceeds in the amount of $25,000 from the drawdown note on December 8, 2011. The conversion option was recorded as a discount on notes payable of $20,500 was valued using the Black- Scholes Method using a risk free rate of 2.00%, volatility rate of 230.36%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown note. Interest expense of $33,396 was recorded in 2012 related to this conversion option. Additional interest expense of $604 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
F-12
From April 2 to May 29, 2012, the Company issued a drawdown convertible promissory notes (“the drawdown notes”) to an investor, in the aggregate amount of $177,500, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 58% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $177,500 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $65,419 was recorded in 2012 related to this conversion options. Additional interest expense of $7,263 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
On September 20, 2012, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $112,500, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 58% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $112,500 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $38,797 was recorded in 2012 related to this conversion options. Additional interest expense of $550 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
On October 11, 2012, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $25,000, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 60% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $25,000 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $27,951 was recorded in 2012 related to this conversion options. Additional interest expense of $450 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
On November 13, 2012, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $65,000, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 50% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $65,000 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $42,358 was recorded in 2012 related to this conversion options. Additional interest expense of $548 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
On December 4, 2012, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $102,500, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 50% of the average of the lowest three trading prices of the Company’s common stock during the
F-13
ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $102,500 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $66,796 was recorded in 2012 related to this conversion options. Additional interest expense of $712 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
On December 7, 2012, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $27,500, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 58% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $27,500 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $27,677 was recorded in 2012 related to this conversion options. Additional interest expense of $147 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
On December 17, 2012, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $21,000, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice, is payable nine months following its issuance, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 50% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The conversion options were recorded as a discount on notes payable of $21,000 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 228.63%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $13,685 was recorded in 2012 related to this conversion options. Additional interest expense of $51 was accrued as of December 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
NOTE 9 – CAPITAL STOCK
The Company is authorized to issue 1,000,000,000 shares of common stock (par value $0.001) of which 372,410,782 were issued and outstanding as of December 31, 2012.
On January 1, 2012, Capex Investments Limited elected to convert loans of $148,977 into 25,582,129 common shares of the Company. The calculated price of the shares of the Company was equal to $0.0058 per common share($148,977 divided by 25,582,129 shares) and the market price was equal to 0.0076 per common shares of the Company which results in an interest expense of $45,448. The amount owed to Capex Investments Limited at December 31, 2012 is $0.
On January 3, 2012, we issued 3,382,323 shares of to Claude Pellerin, our secretary, in exchange for fees payable to him January 3, 2012, we issued 273,394 shares of to each Board of Director member, for a total of 1,913,758 shares, in exchange for fees payable to them..On April 20, 2012, we issued 475,703 shares of to each Board of Director member, for a total of 3,329,921 shares, in exchange for fees payable to them..On November 6, 2012, we issued 737,779 shares of to Tri Vu Truong, a Board of Director member, in exchange for fees payable to him.
The calculated value of these shares differed from the market value of the shares by $55,280 in total and is included in compensation gain in the accompanying statement of operations.
F-14
|
Compensation expense
|
Board members
|
64,836
|
Tri Vu Truong
|
(3,468)
|
Claude Pellerin
|
(6,088)
|
|
|
Total
|
55,280
|
NOTE 10 – INCOME TAXES
The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes under enacted tax laws and rates.
Components of the Company’s deferred tax liabilities and assets are as follows:
|
|
December 31
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
|
|
|
|
Deferred tax asset- net operating losses
|
$
|
8,585,927
|
$
|
8,061,093
|
Statutory tax rate
|
|
35.0%
|
|
35.0%
|
Deferred tax assets
|
|
3,005,000
|
|
2,821,000
|
Valuation allowance
|
|
(3,005,000)
|
|
(2,821,000)
|
|
$
|
-
|
$
|
-
|
A valuation allowance for the deferred tax asset has been provided, as it is more likely that not that this asset will not be realized. If there is a change in ownership, the ability to fully utilize the tax losses may be limited.
NOTE 11 –STANDSTILL AGREEMENT
The other incomes were generated by fees received according to Standstill Agreements signed by the Company with Fuel Emulsions International Inc. (FEI). The Company signed a first Standstill Agreement that gave FEI the exclusivity to negotiate with potential investors and third party customers with respect to the sale of fuel emulsion technology and associated additives According to the Standstill Agreement, FEI had to pay two instalments of $50,000 (January 20 and February 10, 2012) to keep its negotiation exclusivity on the M-Fuel technology. After the expiration of the first Standstill Agreement on February 29, 2012, the Company signed a second Standstill Agreement that expired on March 31, 2012. According to the second Standstill Agreement, FEI had to pay two instalments of $50,000 (February 29 and March 15, 2012) to keep its negotiation exclusivity on the M-Fuel technology.
NOTE 12 – DISCONTINUED OPERATIONS
On November 4, 2010, the Company transferred all of its shares of Ecolocap Solutions (Canada) Inc. to DT Crystal Holdings Ltd in exchange of the reduction of $100,000 of its debts.
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NOTE 13 – COMMITMENTS AND CONTINGENCIES
The Company is a party to a lease for its Montreal office, at a minimum annual rental of approximately $64,000 per year. The Company has vacated the premises and according to the lease, a six month rent might have to be paid if the landlord intends a lawsuit against the Company. The six month rent amount has been accrued in the accompanying Financial Statements. The rent expense charged to operations for the year ended December 31, 2012 and 2011 was $22,792 and $22,792, respectively.
The Company is a party to a lease for its Barrington office, at a minimum annual rent of approximately $23,000 per year. The Barrington Lease expires in May, 2013.
NOTE 14 – RELATED PARTY TRANSACTIONS
In 2012, the Company received loans from stockholders in the amount of $215,488. These loans carry an interest of 5.00% and are payable on demand.
NOTE 15 – SUBSEQUENT EVENTS
During the first quarter of 2013, Asher Enterprises Inc. converted loans aggregating $65,000 into 43,345,443 common shares of the Company.
During the first quarter of 2013, AGS Capital Group LLC converted loans aggregating $63,146 into 56,765,916 common shares of the Company.
During the first quarter of 2013, Panache Capital LLC converted loans aggregating $40,522 into 31,941,621 common shares of the Company.
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