NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND NATURE OF BUSINESS
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included, Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or any other period. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2012 filed with form 10 K.
The Company was an active business from 2005 through 2006 and was involved in the manufacture and sales of an 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.
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.
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. after the elimination of inter-company accounts and transactions.
CASH
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 MEASUREMENTS
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.
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.
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.
LONG-LIVED ASSETS
Long-lived assets, including fixed 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.
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 basis over the estimated useful life of the asset ranging from 3 to 7 years.
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. During the nine months ended September 30, 2013 the Company has incurred losses of $601,492. The Company has negative working capital of $2,853,641 at September 30, 2013 and a stockholders’ deficiency of $6,893,939 at September 30, 2013. In addition, the Company has not generated any revenue since re-entering the development stage. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans for the Company’s continued existence include selling additional stock and borrowing additional funds to pay overhead expenses.
With the opportunities created by the Batteries and M Fuel, management has begun the process of redeploying its assets, identifying business strategies that offers above average profit potential and identifying the resources necessary to successfully execute it new strategic direction.
Recognizing the opportunity this new market represents, the Company has developed an integrated development approach that focuses upon both existing and needed infrastructure facilities to produce substantial new value.
The Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds.
The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations and its ability to continue in existence. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – PROPERTY & OFFICE EQUIPMENT
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September 30
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December 31,
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|
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2013
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|
2012
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Testing equipment
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$
|
493,000
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$
|
493,000
|
Computer equipment
|
|
11,654
|
|
11,654
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Furniture & fixtures
|
|
12,701
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|
12,701
|
|
|
517,355
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|
517,355
|
|
|
|
|
|
Less: accumulated depreciation
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|
196,999
|
|
143,426
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Balance September 30, 2013
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$
|
320,356
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$
|
373,929
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NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at:
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|
September 30,
2013
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|
December 31,
2012
|
Accrued interest
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$
|
119,088
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$
|
59,180
|
Accrued compensation
|
|
285,747
|
|
201,346
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Accounts payable
|
|
240,000
|
|
268,500
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Accrued operating expenses
|
|
314,640
|
|
358,457
|
|
$
|
959,475
|
$
|
887,483
|
NOTE 6 – NOTE PAYABLE
During 2013, Tonaquint Inc converted loans aggregating $84,100 into 186,086,472 common shares of the Company. The calculated value of the shares ranged from $0.0003 to $0.0009 per share and the market price ranged from $0.0007 to $0.0022 per share.
In 2012, the Company received loan from Tonaquint Inc. in the amount of $112,500. The amount owed to Tonaquint Inc. at September 30, 2013, is shown net of the remaining debt discount of $7,742 resulting in a balance of $20,658. 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.
During 2013, Redwood Management, LLC converted loans aggregating $120,548 into 182,091,845 common shares of the Company. The calculated value of the shares ranged from $0.0001 to $0.0018 per share and the market price ranged from $0.0008 to $0.003 per share.
On April 2, 2012, the Company signed an agreement with Plaus Company to convert an account payable into a convertible note payable. The amount owed to Plaus Company at March 31, 2013 is $496,000. This note bears interest at 5% per annum and is payable on demand. On January 24, 2013, Plaus Company assigned its convertible note payable to Redwood Management, LLC. The amount owed to Redwood Management, LLC at September 30, 2013, is shown net of the remaining debt discount of $118,734 resulting in a balance of $256,718. 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.
In 2012, the Company received loan from AES Capital Corp. in the amount of $21,000. The amount owed to AES Capital Corp. at September 30, 2013, is shown net of the remaining debt discount of $0 resulting in a balance of $21,000. 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 loan received in 2012 from JMJ Financial has all been converted into common shares of the Company.
During 2013, JMJ Financial converted loans aggregating $25,000 plus accrued interests of $3,310 into 79,000,000 common shares of the Company. The calculated value of the shares ranged from $0.0002 to $0.0006 per share and the market price ranged from $0.0022 to $0.0007 per share.
In 2013, the Company received loan from JMJ Financial in the amount of $25,000. The amount owed to JMJ Financial at September 30, 2013, is shown net of the remaining debt discount of $8,055 resulting in a balance of $16,945. 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
During 2013, Asher Enterprises Inc converted loans aggregating $138,600 plus accrued interests of $6,300 into 315,588,636 common shares of the Company. The calculated value of the shares ranged from $0.0008 to $0.0018 per share and the market price ranged from $0.0001 to $0.0017 per share. In 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 $0.0013 to $0.0041 per share and the market price ranged from $0.0039 to $0.025 per share.
During 2013, the Company received loans from Asher Enterprises Inc. in the amount of $117,500. In 2012, the Company received loans from Asher Enterprises Inc. in the amount of $205,000. The unpaid balance of the loans September 30, 2013, is shown net of the remaining debt discount of $39,836 resulting in a balance of $67,065. 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.
In 2012, the Company received loans from AGS Capital Group LLC in the amount of $116,500. During 2013, AGS Capital Group LLC converted loans aggregating $63,146 plus $482 in interest into 56,765,916 shares of the Company. The calculated value of the shares ranged from $0.009 to $0.0016 per share and the market price ranged from $0.0025 to $0.0036 per share. On November 15, 2012, AGS Capital Group LLC converted loans of $53,314 into 13,276,660 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.
The amount owed to AGS Capital Group LLC at September 30, 2013, is $0.
In 2012, the Company received loans from Panache Capital LLC in the amount of $65,000. During 2013, Panache Capital LLC converted loans of $33,615 into 36,000,000 shares of the Company. The calculated value of the shares ranged from $0.0005 to $0.0014 per share and the market price ranged from $0.0011 to $0.0037 per share. 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 September 30, 2013, is shown net of the remaining debt discount of $0 resulting in a balance of $6,293. 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 2013, the Company received $245,407 in loans from stockholders. The amount owed to stockholders at September 30, 2013 is $918,866. These loans are non interest bearing but interest is being imputed at 5.00% per annum and are payable on demand.
In 2013, the Company paid net loans to Hanscom K. Inc. in the amount of $2,164. The amount owed to Hanscom K. Inc. at September 30, 2013 is $31,080. These loans are non-interest bearing and are payable on demand.
During 2013, the Company did not receive any loans from RCO Group Inc. The amount owed to RCO Group Inc. at September 30, 2013 is $28,500. These loans are non-interest bearing and are payable on demand.
NOTE 8 – DERIVATIVE LIABILITIES
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 $4,639 was recorded as of September 30, 2013 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 $1,001 was recorded as of September 30, 2013 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 $1,075 was recorded as of September 30, 2013 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 $1,274 was recorded as of September 30, 2013 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 $496,000, 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 five 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 $496,000 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 $323,226 was recorded in 2012 related to this conversion options. Additional interest expense of $24,515 was recorded as of September 30, 2013 related to the eight percent (8%) per annum payable under the drawdown note.
In January and February, 2013, the Company issued a drawdown convertible promissory note (“the drawdown notes”) to an investor, in the aggregate amount of $60,000, 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 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 $60,000 were valued using the Black- Scholes Method using a risk free rate of 0.14%, volatility rate of 292.00%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $64,451was recorded in 2013 related to this conversion options. Additional interest expense of $2,421 was recorded as of September 30, 2013 related to the eight percent (8%) per annum payable under the drawdown note.
On May 10, 2013, 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 264.00%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $25,709 was recorded in 2013 related to this conversion options. Additional interest expense of $898 was recorded as of September 30, 2013 related to the eight percent (8%) per annum payable under the drawdown note.
On June 4, 2013, 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 264.00%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown notes. Interest expense of $29,673 was recorded in 2013 related to this conversion options. Additional interest expense of $673 was recorded as of September 30, 2013 related to the eight percent (8%) per annum payable under the drawdown note.
On August 29, 2013, 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 264.00%, 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 2013 related to this conversion options. Additional interest expense of $202 was recorded as of September 30, 2013 related to the eight percent (8%) per annum payable under the drawdown note.
NOTE 9 – CAPITAL STOCK
The Company is authorized to issue 5,000,000,000 shares of common stock (par value $0.00001) of which
1,243,026,767
were issued and outstanding as of September 30, 2013.
During 2013, Tonaquint Inc converted loans aggregating $84,100 into 186,086,472 common shares of the Company (Note 6).
During 2013, Redwood Management, LLC converted loans aggregating $120,548 into 182,091,845 common shares of the Company (Note 6.
During 2013, JMJ Financial converted loans aggregating $25,000 plus accrued interests of $3,310 into 79,000,000 common shares of the Company (Note 6).
During 2013, Asher Enterprises Inc converted loans aggregating $138,600 plus accrued interests of $6,300 into 315,588,636 common shares of the Company (Note 7).
During 2013, AGS Capital Group LLC converted loans aggregating $63,146 plus $482 in interest into 56,765,916 shares of the Company (Note 7).
During 2013, Panache Capital LLC converted loans of $33,615 into 36,000,000 shares of the Company (Note 7).
NOTE 10 – INCOME TAXES
We account for income taxes using the asset and liability method. Deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. As of September 30, 2013, we carried a valuation allowance for the entire deferred tax asset as a result of uncertainties regarding the realization of the asset balance. We will maintain a full valuation allowance against our deferred tax assets until sufficient positive evidence exists to support a reversal of the valuation allowance.
NOTE 11 – RELATED PARTY TRANSACTIONS
In 2013, the Company received loans from stockholders in the amount of $245,407. These loans carry an interest of 5.00% and are payable on demand.
For the three and nine month periods ended September 30, 2013, interest paid to related party totaled 2,238 and $8,271.
NOTE 12 – SUBSEQUENT EVENTS
In October 2013, Asher Enterprises Inc. converted loans aggregating $8,200 into 136,666,666 common shares of the Company.
In October 2013, Tonaquint Inc. converted loans aggregating $14,246 into 178,100,000 common shares of the Company.
In October 2013, AES Capital Corp. converted loans aggregating $6,650 into 133,000,000 common shares of the Company.
In October 2013, AGS Capital Group LLC converted loans aggregating $3,454 into 69,070,183 common shares of the Company.
In October 2013, Redwood Management, LLC converted loans aggregating $2,460 into 49,200,000 common shares of the Company.