NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ecolocap Solutions Inc ("we", "our" and the "Company") is an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop and sell cleaner alternative energy products. 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:
M-Fuel
The Company, through its subsidiary Micro Bubble Technologies Inc. (MBT), developed M-Fuel, an innovative suspension fuel that 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.
ECOS/BIO-ART
ECOS/Bio-ART is a patented air injected high-speed aerobic biological fermentation technology, utilizing uniquely cultured Bacillus, and incorporated into a specifically designed in-vessel unit. The remediation process takes seven days and reduces moisture content to an average between 12%-25% on an output equal to 1/3 the input. The output can be used as organic fertilizer, animal feed, animal bedding or biomass. The computer controlled process monitors the temperature on 3 different levels. The technology is designed to reduce the costs associated with food waste disposal and in the process, will reduce the environmental impact or methane greenhouse gas production.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company for interim reporting are consistent with those included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2016. There were no material changes to our significant accounting policies during the interim period ended September 30, 2017.
The Company's inventory consists of equipment purchased for resale and is valued at the lower of cost or net realizable value. Cost is principally determined using the first in, first out method.
Certain reclassifications of amounts previously reported have been made to the accompanying financial statements in order to maintain consistency and comparability between the periods presented, primarily related to preferred shares stock on the balance sheet.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of the Company, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended December 31, 2016 as filed with the SEC. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.
Going Concern
The accompanying
consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had recurring losses, negative working capital, is dependent on its shareholders to provide additional funding for operating expenses and has no recurring revenues. These items raise substantial doubts about the Company's ability to continue as a going concern.
Management's plan for the Company's continued existence include selling additional common stock of the Company and borrowing additional funds to pay overhead expenses.
With the opportunities
created by the ECOS BIO-ART and M Fuel, management has b
egun
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 unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3
–
ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES
Accrued expenses consisted of the following at:
|
|
September 30
2017
|
|
|
December 31
2016
|
|
Accrued interest
|
|
$
|
574,280
|
|
|
$
|
545,378
|
|
Accrued interest-related parties
|
|
|
240,669
|
|
|
|
185,401
|
|
Accrued compensation-related parties
|
|
|
762,432
|
|
|
|
652,844
|
|
Accounts payable
|
|
|
240,000
|
|
|
|
240,000
|
|
Accrued operating expenses-related parties
|
|
|
844,166
|
|
|
|
340,166
|
|
Accrued operating expenses
|
|
|
318,177
|
|
|
|
328,509
|
|
|
|
$
|
2,979,724
|
|
|
$
|
2,292,298
|
|
NOTE 4
– CONVERTIBLE
NOTES PAYABLE
Loans are convertible at amounts ranging from 40% to 60% of the market price of the common shares of the Company at the time of conversion and bear interest rates ranging from 8% to 22% per annum.
The amounts received during the nine months period ended September 30, 2017 and 2016 are $44,000 and $0 in new loans and $19,500 and $14,653 in non-cash borrowings related to the default on Tonaquint and GSM GSM loans, respectively. During the period ended September 30, 2017, the Company was in default on its convertible notes due to non-repayment of the outstanding balances.
The convertible feature of these loans, due to their potential settlement in an indeterminable number of shares of the Company's common stock has been identified as a derivative. The derivative component is fair valued at the date of issuance of the obligation and the amount is marked to market at each reporting period. All the convertible notes are in default as of September 30, 2017.
During the nine months period ended September 30, 2017 notes payable of $163,672 plus accrued interests of $178,876 were converted into 4,947,338,959 shares.
There were no conversions of convertible debts in 2016.
A summary of the amounts outstanding as of September 30, 2017 and December 31, 2016 are as follows:
|
|
Loans
2017
|
|
|
Debt discount
2017
|
|
|
Balance
September 30,
2017
|
|
|
Balance
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tonaquint
|
|
$
|
532,179
|
|
|
$
|
44,000
|
|
|
$
|
488,179
|
|
|
$
|
585,846
|
|
Redwood Management, LLC
|
|
|
372,992
|
|
|
|
-
|
|
|
|
372,992
|
|
|
|
372,992
|
|
Proteus Capital
|
|
|
32,500
|
|
|
|
-
|
|
|
|
32,500
|
|
|
|
32,500
|
|
LG Capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,500
|
|
GSM Capital Group LLC
|
|
|
2,995
|
|
|
|
-
|
|
|
|
2,995
|
|
|
|
30,000
|
|
|
|
$
|
940,666
|
|
|
$
|
44,000
|
|
|
$
|
896,666
|
|
|
$
|
1, 040,838
|
|
NOTE 5 – NOTES PAYABLE – RELATED PARTIES
During the nine months period ended September 30, 2017, notes payable to stockholders increased by $262,090 of which $337,500 resulted from conversion of accrued salaries, net of $70,000 in payments made during the period to stockholders and $5,410 from conversions into shares. The additions are for accrual of unpaid salaries and not actual cash proceeds. The amount owed to stockholders at September 30, 2017 is $2,115,769. These loans are non-interest bearing but interest is being imputed at 5.00% per annum and are payable on demand. An interest amount of $74,287 has been imputed in 2017. During the nine months period ended September 30, 2017, total loans conversions of $5,410 were made into 541,100,000 shares and there were no conversions in the year ended December 31, 2016.
During the nine months period ended September 30, 2017, the Company received $284,924 and made payments of $109,350 to Hanscom K Inc. The amount owed to Hanscom K. Inc. at September 30, 2017 is $629,354. These loans are non-interest bearing and are payable on demand.
During the nine months period ended September 30, 2017, the Company did not receive any loans from RCO Group Inc. The amount owed to RCO Group Inc. at September 30, 2017 is $28,500. These loans bear interest at 8.00% per annum and are payable on demand.
A summary of the amounts outstanding as of September 30, 2017 and December 31, 2016 are as follows:
|
|
Balance
September 30, 2017
|
|
|
Balance
December 31, 2016
|
|
|
|
|
|
|
|
|
Stockholders
|
|
$
|
2,115,769
|
|
|
$
|
1,853,679
|
|
Hanscom K. Inc.
|
|
|
629,354
|
|
|
|
453,780
|
|
RCO Group Inc.
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
$
|
2,773,623
|
|
|
$
|
2,335,959
|
|
NOTE 6 – LONG TERM DEBT
Long term debt consists of
|
|
Balance
September 30, 2017
|
|
|
Balance
December 31, 2016
|
|
Note payable to a bank in monthly installments of approximately $2,491 inclusive of interest at 39.00% per annum.
|
|
$
|
75,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
1,016
|
|
|
|
-
|
|
|
|
$
|
73,984
|
|
|
$
|
-
|
|
Principal payments due on long-term debt as of September 30, 2017 for each of the next five fiscal years are:
Year
|
|
Amount
|
|
|
|
|
|
2018
|
|
$
|
1,016
|
|
2019
|
|
|
1,248
|
|
2020
|
|
|
1,832
|
|
2021
|
|
|
2,688
|
|
2022
|
|
|
3,946
|
|
Thereafter
|
|
|
64,270
|
|
|
|
|
|
|
|
|
$
|
75,000
|
|
NOTE 7 – DERIVATIVE LIABILITIES
During the nine months period ended September 30, 2017, the Company recorded various derivative liabilities associated with the convertible debts discussed in Note 4 and warrants.
The Company has determined that the features associated with the embedded conversion option on the notes should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. This also tainted the Company's existing warrants thus requiring derivative accounting treatment for these instruments.
The Company computes the value of the derivative liability at each reporting period using the Black Scholes Method using a risk free rate ranging of 0.14%, volatility rates ranging between 361.00% and 477.00% and a forfeiture rate of 0.00%. The derivative liability at September 30, 2017 and December 31, 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Tonaquint
|
|
$
|
856,641
|
|
|
$
|
4,799,461
|
|
Proteus Capital Group LLC
|
|
|
142,161
|
|
|
|
356,835
|
|
GSM Capital Group LLC
|
|
|
11,992
|
|
|
|
324,662
|
|
LG Capital
|
|
|
-
|
|
|
|
231,059
|
|
Redwood Management, LLC
|
|
|
727,848
|
|
|
|
3,682,835
|
|
Total
|
|
$
|
1,738,642
|
|
|
$
|
9,394,852
|
|
For the warrants discussed above, the Company computes the value of the derivative liability at the issuance of the related obligation and at each reporting period using the Black Scholes Method which includes the following assumptions: a risk free rate of 0.14%, volatility rates of 481.00% and a forfeiture rate of 0.00%. The derivative liability at September 30, 2017 and December 31, 2016 is as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Lakeshore Recycling Systems LLC
|
|
$
|
103,913
|
|
|
$
|
779,351
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,913
|
|
|
$
|
779,351
|
|
The following table summarizes the derivative liabilities at September 30, 2017 and December 31, 2016;
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Tonaquint
|
|
$
|
856,641
|
|
|
$
|
4,799,461
|
|
Proteus Capital Group LLC
|
|
|
142,161
|
|
|
|
356,835
|
|
GSM Capital Group LLC
|
|
|
11,992
|
|
|
|
324,662
|
|
LG Capital
|
|
|
-
|
|
|
|
231,059
|
|
Redwood Management, LLC
|
|
|
727,848
|
|
|
|
3,682,835
|
|
Lakeshore Recycling Systems LLC
|
|
|
103,913
|
|
|
|
779,351
|
|
Total
|
|
$
|
1,842,555
|
|
|
$
|
10,174,203
|
|
Financial assets and liabilities recorded at fair value in our unaudited consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Fair Value of Financial Instruments
Level 1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level 3— Inputs reflecting management's best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the period ended September 30, 2017.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,842,555
|
|
|
$
|
1,842,555
|
|
Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2016.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,174,203
|
|
|
$
|
10,174,203
|
|
The following table summarizes the derivatives liability from January 1
st
through September 30, 2017:
|
|
Derivative liabilities
|
|
|
|
|
|
Balance December 31, 2016
|
|
$
|
10,174,203
|
|
Addition of new derivative
|
|
|
44,000
|
|
Day one loss due to derivative
|
|
|
33,865
|
|
Settled upon conversion of debt
|
|
|
(685,003
|
)
|
Loss on change in fair value of the derivative
|
|
|
(7,724,510
|
)
|
Balance September 30, 2017
|
|
$
|
1,842,555
|
|
NOTE 8 – CAPITAL STOCK
The Company is authorized to issue 10,000,000,000 shares of common stock (par value $0.00001) of which 8,737,765,985 were issued and outstanding as of September 30, 2017 and 3,249,327,026 as of December 31, 2016.
In October 2017, the Company amended its Articles of Incorporation to increase its authorized capital to 25,000,000,000 shares of common stock (par value $0.00001).
The Company is authorized to issue 100,000,000 shares of preferred stock (par value $0.00001) of which 10,250,000 were issued and outstanding as of September 30, 2017 and 750,000 as of December 31, 2016, respectively. Each share of Series A Preferred Stock has 100,000 vote per share.
In August 2017, the Company issued 250,000 preferred shares to an officer. The fair value of the preferred shares issued was determined to be zero.
In September 2017, the Company issued 9,250,000 preferred shares to related parties' stockholders. The fair value of the preferred shares issued was determined to be zero.
During the nine months period ended September 30, 2017, the following convertible debt owners converted loans plus accrued interests into common shares of the Company. There were no conversions of convertible debts into common shares of the Company during the year ended December 31, 2016.
|
|
Loans
converted
|
|
|
Interest
converted
|
|
|
Common shares
Of the Company
|
|
|
|
|
|
|
|
|
|
|
|
Tonaquint (Note 4)
|
|
$
|
97,667
|
|
|
$
|
171,432
|
|
|
$
|
3,605,081,573
|
|
GSM Capital Group LLC (Note 4)
|
|
|
46,505
|
|
|
|
-
|
|
|
|
1,145,140,658
|
|
LG Capital (Note 4)
|
|
|
19,500
|
|
|
|
7,444
|
|
|
|
197,116,728
|
|
Stockholders (Note 5)
|
|
|
5,410
|
|
|
|
-
|
|
|
|
541,100,000
|
|
Total
|
|
$
|
169,082
|
|
|
$
|
178,876
|
|
|
$
|
5,488,438,959
|
|
Warrants
On December 19, 2016, the Company issued three warrants to Lakeshore Recycling Systems, LLC (LRS). The first warrant allows LRS to purchase up to five and one third percent of issued and outstanding shares of common stock of the Company at the time of exercise of the warrant at a price of $0.0003. The second warrant allows LRS to purchase up to five and one third percent of issued and outstanding shares of common stock of the Company at the time of exercise of the warrant at a price of $0.0025. The third warrant allows LRS to purchase up to five and one third percent of issued and outstanding shares of common stock of the Company at the time of exercise of the warrant at a price of $0.005. The exercise time of the warrants is the period between March 15, 2017 and December 15, 2026.
|
|
Warrants
|
|
|
|
|
|
Balance December 31, 2016
|
|
|
519,567,390
|
|
Warrants granted – Lakeshore Recycling Systems, LLC due to increase in outstanding shares
|
|
|
877,601,391
|
|
Balance September 30, 2017
|
|
|
1,397,168,781
|
|
As of September 31, 2017, the warrants have an intrinsic value of $0.
NOTE 9 – COMMITMENTS
In July 2017, the Company signed a lease for the Company's Morton Grove office, at a minimum annual rent of approximately $70,000 per year. The Morton Grove lease expires in August 2018.
NOTE 10 – SUBSEQUENT EVENTS
The following convertible debt owners converted loans plus accrued interests into common shares of the Company:
|
|
Loans
converted
|
|
|
Interest
converted
|
|
|
Common shares
Of the Company
|
|
|
|
|
|
|
|
|
|
|
|
Tonaquint
|
|
$
|
-
|
|
|
$
|
73,899
|
|
|
$
|
1,231,656,499
|
|
GSM Capital Group LLC
|
|
|
2,995
|
|
|
|
20,838
|
|
|
|
953,288,093
|
|
Total
|
|
$
|
2,995
|
|
|
$
|
94,737
|
|
|
$
|
2,184,944,592
|
|