UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
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Commission File Number: 000-51213
ECOLOCAP SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
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NEVADA
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36-4668489
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1250 S. Grove Ave, Suite 308
Barrington, Illinois 60010
(Address of principal executive offices, including zip code)
866-479-7041
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act:
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None
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Common Stock
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act: YES [X] NO [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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[ ]
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Accelerated Filer
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[ ]
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Non-accelerated Filer (Do not check if a smaller reporting company)
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[ ]
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Smaller Reporting Company
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[X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter - June 30, 2013: $1,048,037.
As of April 13, 2014, 6,865,010,372 shares of the registrant’s common stock were outstanding.
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Page
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Business.
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3
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Risk Factors.
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6
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Unresolved Staff Comments.
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6
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Properties.
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6
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Legal Proceedings.
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6
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Mine Safety Disclosures.
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7
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Market for the Registrant’s Common Equity, Related Stockholders Matters and Issuer
Purchases of Equity Securities.
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7
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Selected Financial Data.
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9
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Management’s Discussion and Analysis of Financial Condition and Results of Operation.
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9
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Quantitative and Qualitative Disclosures About Market Risk.
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12
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Financial Statements and Supplementary Data.
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12
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
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27
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Controls and Procedures.
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27
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Other Information.
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28
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Directors, Executive Officers and Corporate Governance.
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36
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Executive Compensation.
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38
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Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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40
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Certain Relationships and Related Transactions, and Director Independence.
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42
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Principal Accountant Fees and Services.
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42
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Exhibits and Financial Statement Schedules.
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43
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45
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46
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-2-
EcoloCap Solutions Inc. is an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop, manufacture 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.
We plan to develop economically feasible renewable energy.
History of the Business
We were incorporated in the State of Nevada on March 18, 2004, as Cygni Systems Corporation. We were originally formed with the intent of raising funds and entering into business as a software design company. From the date of our incorporation until June 17, 2005, we were in the development stage of online and network security management software and online and network security consulting services.
A change of control occurred on June 17, 2005. On August 19, 2005, we entered into and closed a Share Exchange Agreement (the “XL Share Exchange Agreement”) with XL Generation AG. Pursuant to the terms of the XL Share Exchange Agreement, we acquired all of the issued and outstanding shares of common stock of XL Generation AG. On August 23, 2005, we filed a Certificate of Amendment with the State of Nevada, changing our name to “XL Generation International Inc.”
XL Generation was the holding company of a Swiss entity, XL Generation AG, which was the marketer of an artificial sport surface called “XL Turf.” We aspired to become a leading global force in the artificial turf and flooring markets by building both the strength of the XL brand and strategic partnerships with key regional turf and flooring providers. Due to market and other conditions,our board of directors decided that it was in our best interest to initiate a complete and total withdrawal from the artificial flooring sector, artificial turf and all related business.
Following our withdrawal from the artificial flooring sector, artificial turf and all related business and after identifying new business opportunities, we changed our name from “XL Generation International Inc.” to “Ecolocap Solutions Inc.”
On November 13, 2007, we filed a Certificate of Amendment with the State of Nevada, changing our name to “EcoloCap Solutions Inc.” Our shares of common stock are traded on the Bulletin Board operated by the Financial Industry Regulatory Authority under the symbol ECOS.
On September 10, 2009, the Company completed the acquisition of 55% of Micro Bubble Technologies (MBT), a provider of Nano technology, for a purchase price of $7,172,000 in common shares of the Company. This acquisition was funded from common stock. The final purchase price remains subject to post-closing working capital adjustments. The purchase price allocation is considered preliminary; additional adjustments may be recorded during the allocation period specified by “SFAS 141”, as additional information becomes known or payments are made.
Micro Bubble developed and manufactures M-Fuel, an innovative suspension fuel that far exceeds all conventional fuels’ costs and efficiencies and the NPW machine that converts waste organic oils into biodiesel and pure glycerine. It also developed the Carbon Nano Tube Battery (CNT-Battery), and the Nano Li- Battery both fully recyclable, rechargeable batteries that far exceeds the performance capabilities of any existing battery on the market at this time. The acquisition of this business will enable the Company to expand its reference in an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop, manufacture and sell cleaner alternative energy products.
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.
-3-
Our Business
We are a development stage company. Ecolocap Solutions Inc. is an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop, manufacture 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 and manufactures M-Fuel, an innovative emulsion 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 an emulsion of 60% heavy oil, 38%, and a 2% stabilizing additive for external combustion engines and 70% heavy oil, 28% water and 2% 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. Independent tests conducted in the US, Korea and Australia demonstrate M-Fuels unique burning process facilitates increased efficiency, resulting in average reduced NOx emissions by 60%, particulate emissions by 98% reduces fuel consumption by 30% to 40%%, and cut costs by up to 20%.
The Clean Air Act specifies that any emulsion diesel fuel that has 14% or greater water is eligible for a 19.7% rebate on the fuel tax. The end user of M-Fuel may in some cases, save money on prices for diesel.
Nano Li Battery
Independent tests have demonstrated that the Nano Li battery utilizing new anode and cathode technologies and only requiring 10% by weight Li is the least expensive and highest Whr/Kg of any comparable type battery at 25% of the cost/KwHr. Independent tests
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Volumetric energy density
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Wh/l
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496.29
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Mass
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Kg
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5.45
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Mass energy density
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Wh/Kg
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215.80
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Watt power density
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W/kg
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Voltage
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V
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4.20
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NPW Machine
NPW Series biodiesel processing machines will allow customers to utilize cheaper waste feedstock (high free fatty acid organic oils such as trap grease, beef tallow, chicken fat, algae), reduce production cost /gallon, and produce biodiesel exceeding all ASTM specs. Most equipment providers must first approve feedstock to ensure biodiesel quality. We do not need to approve the biodiesel feedstock and there is no limit on the degree of waste oil that can be processed (up to 99.2% FFA Feedstock). A secondary process is recovers glycerin as a production by product. We also have an additional Glycerin Refining Machine that can make several grades of glycerin to meet applications designated by the customer.
Our Current Operations
Ecolocap sold its first NPU system in 2010 and is presently undergoing contract negotiations for multiple installations.
-4-
The Nano Li Battery promise to change the panorama of the energy storage market in the near-term by offering superior performance compared to existing lithium-ion batteries and greatly reduced prices. Several industries, including the telecommunications industry, have been receptive with either substantial orders or serious demonstrations of interest. We have signed MOU’s for production facilities in Vietnam and Holland.
MBT has also developed a new process that blends non-miscible liquids (oil and water) on a submicron level in order to create a new non-emulsified fuel product that it calls EM-Fuel. Tests conducted in the City of Brisbane, Australia have verified all claims to emissions and savings. We are in the process of signing a distribution contract for M-Fuel in Australia and New Zealand. Additionally, contracts are under negotiation for a large power plant in Chile and possible implementation of M-Fuel in the Ukraine.
Given the turmoil in the Mideast M-Fuel is being evaluated by African and Caribbean nations where the diesel is the main source of power generation as the immediate way to reduce costs, and as an ancillary benefit is the reduction of emission.
In December 2010, MBT announced that it has signed an agreement with Triad Constructors, Inc. to utilize Triad for the sales, distribution, installation and commissioning of the new NPW biodiesel processing units sold.
In April 2011, MBT announced the execution of a purchase agreement with Empresas Energy Partners Chile Generadora de Energia LTDA (EPC) for the shipment of an NPU-10 series fuel emulsion plant to Degan, Chile to produce M-Fuel for 30-45 days starting the first week of may. Upon successful completion of the testing an additional three NPU-60 fuel emulsion plants will be purchased to provide fuel for the entire 40 megawatt station. EPC estimates their demand for M-Fuel will facilitate the need for a minimum of 36 NPU-60 fuel emulsions.
In May 2011, MBT announced that it has signed a distribution agreement with Nano-Tech Industries Pty Ltd, of Acacia Ridge, Australia, to distribute all of its products in Australia, New Zealand and the Pacific Islands.
In July 2011, MBT shipped to Empresas Energy Partners Chile Generadora de Energia LTDA (EPC), for testing purpose, an NPU-10 series fuel emulsion plant to Degan, Chile to produce M-Fuel.
In 2012, Michael Siegel CEO and Jeung Kwak, Chairman have travelled to Ukraine to meet with the Ministry of Energy and Coal. They have presented the non-emulsified fuel product M-Fuel.
In 2012, we have sent samples to Great Britain and Ireland for testing in furnace applications.
Our Vision
EcoloCap brings together the innovation, engineering, and industry knowledge to create products that have a significant—constructive and quantifiable—impact on the environment, while cost-effectively enhancing intrinsic performance characteristics. With these ground-breaking alternative energy products, EcoloCap is uniquely positioned to unleash the power of nanotechnology and revolutionize the world largest markets.
EcoloCap Solutions Inc. is an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop, manufacture 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:
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On-Road Transportation: EV/PHEV, trucks, buses, public fleets, mass transit fleets, private fleets
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Off-Road Transportation: marine engines, locomotives, construction equipment
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Power Generation: cell towers, data centers, apartments complexes, hospitals, universities
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-5-
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Grid Stabilization: utilities, energy services, systems operators, merchant operators, municipalities
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Industrial: power plants, manufacturing plants, boilers, furnaces, turbines, driers, kilns
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Government: military, defense contractors, systems integrators, aerospace, propulsion systems
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Regulation
The MBT batteries will be undergoing full destructive testing and should be completed by the end of the 3rd quarter. At the present time the only regulations that may affect the MBT Nano Li battery is the transportation by passenger plane. Once destruction testing demonstrates the safety of the batteries they should be allowed to be transported passenger plane.
We will be seeking final approval by the EPA for the M-Fuel additive.
Competition
There are many battery manufactures and types of batteries. The battery market is defined by the mission and cost. To date there is no direct comparison for our batteries and we plan to initially impact the mission sensitive projects.
The M-Fuel technology is unique and is superior to any type of emulsion fuel at reduced selling process than the pre-processed fuel. In our process we recover the free SOx and NOx present in fuel before processing. No other emulsion process eliminates heavy metals, S and N from the fuel prior to processing of the fuel. This process will also be marketed as a standalone process for the elimination of Sulphur from fuel oil.
The bio-diesel processing system makes diesel biodiesel from wasted fats. The MBT process is superior to competing process and at 25% of the cost. The MBT process is the only process that produces 99% pure glycerine by product.
The markets in which we do business are highly competitive. In the market in which we operate, there are many competitors, some of which are significantly larger, have access to much more important resources or capital than us, or have established reputations among potential customers.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
None.
We do not own any real estate. We do not plan on investing in real estate in the near future. We are currently renting office space in Barrington IL on a month to month basis for $2,001 per month. The Company believes that its current office facilities will not be sufficient for the foreseeable future.
We are not presently a party to any litigation.
-6-
PART II
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MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Market Information
Our shares of common stock are traded on the Bulletin Board operated by the Financial Industry Regulatory Authority (FINRA) under the symbol “ECOS”.
The following table sets forth for the periods indicated the high and low close prices for the Common Shares in U.S. Dollars. These quotations reflect only inter dealer prices, without retail mark up, mark down or commissions and may not represent actual transactions.
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2013
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High
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Low
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December 31, 2013
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$
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0.0015
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$
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0.0001
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September 30,2013
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$
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0.0007
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$
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0.0001
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June 30, 2013
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$
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0.0028
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$
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0.0004
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March 31, 2013
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$
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0.011
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$
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0.0014
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2012
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High
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Low
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December 31, 2012
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$
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0.030
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$
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0.004
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September 30,2012
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$
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0.030
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$
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0.004
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June 30, 2012
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$
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0.033
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$
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0.004
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March 31, 2012
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$
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0.045
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$
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0.003
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Holders
As of March 31, 2014, we had sixty-two stockholders of record.
Dividends
We have never declared or paid cash dividends. There are currently no restrictions which limit our ability to pay dividends in the future.
Securities authorized for issuance under equity compensation plans
On March 31, 2008, we filed a new Equity Incentive Plan (the “Plan”), effective as of March 31, 2008. On March 30, 2006, we adopted the 2006 Equity Incentive Plan (the “Plan”), effective as of March 24, 2006. Under the Plan, we may issue options, stock appreciation rights, restricted shares, deferred shares or performance shares. The maximum number of such shares of our common stock that may be issued under the Plan is 2,000,000 shares. Our officers, directors, employees and consultants, as well as those of our subsidiaries, may participate in the Plan, as our Compensation Committee may deem to be advisable and in our best interests. No one individual may be awarded options to purchase more than 500,000 shares in any one fiscal year. No one individual may be granted more than 250,000 shares in any one fiscal year. The terms and conditions of each grant shall be as set forth in an award agreement approved by the Compensation Committee.
-7-
Equity Compensation Plan Information
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Plan category
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Number of securities
issued upon exercise of
outstanding options,
warrants and rights
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Weighted-average
exercise price of
outstanding options,
warrants and rights
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Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
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(a)
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(b)
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(c)
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Equity compensation plans approved by
security holders
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n/a
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n/a
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n/a
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Equity compensation plans not approved by security holders
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365,000
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1.04
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1,040,000
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Total
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365,000
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1.04
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1,040,000
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Registration Statement
On November 17, 2010, a Registration Statement on Form S-8 (the “Registration Statement”) was filed by Ecolocap Solutions, Inc., a Nevada corporation (the “Company” or the “Registrant”), and the Ecolocap Solutions Inc. 2010 Non-Qualified Stock Option Plan (the “Plan”) relating to 10,000,000 shares of its Common Stock, par value $0.001 per share (the “Common Stock”), to be offered and sold to accounts of eligible persons of the Company under the Plan.
As of December 31, 2013, 10,000,000 shares of common stock have been issued pursuant to this Offering, in compensation for services.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Company and Affiliated Purchasers
None.
Section 15(g) of the Securities Exchange Act of 1934
Our company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as “bid” and “offer” quotes, a dealers “spread” and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
-8-
The application of the penny stock rules may affect your ability to resell your shares.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Operations
The following discussion of the financial condition and results of our operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2013 (this “Report”). This Report contains certain forward-looking statements and our future operating results could differ materially from those discussed herein. Certain statements contained in this Report, including, without limitation, statements containing the words “believes”, “anticipates,” “expects” and the like, constitute “forward-looking statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaims any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments.
Business Plan
Ecolocap is negotiating with a factory in Korea that would enable the Company to build 6 NPU and NPW’s machine per month.
Results of Operations
For the Year ended December 31, 2013
Overview
We incurred net losses of $2,024,207 for the year ended December 31, 2013 as compared to a net loss of $1,543,631 for the year ended December 31, 2012. There has been a decrease of $300,000 in research and development expenses, an increase in impairment loss on fixed assets of $302,750 and an increase in interest expenses of $1,671,767 mainly attributable to the interest expense resulting from derivative liabilities.
Development Stage Expenditures
During the year ended December 31, 2013, we recognized Development Stage Expenditures of $3,560,104, an increase of 46% from the year ended December 31, 2012. There has been a decrease of $300,000 in research and development expenses, an increase in impairment loss on fixed assets of $302,750 and an increase in interest expenses of $1,671,767 mainly attributable to the interest expense resulting from derivative liabilities.
-9-
Sales
For the years ended December 31, 2013 and 2012, we recorded no sales. In 2012, we received other revenue of $200,000 representing fees received according to a Standstill Agreement signed by the Company with Fuel Emulsions International Inc. (FEI.
Total Cost and Expenses
During the year ended December 31, 2013, we incurred Total Costs and Expenses of $3,560,104, an increase of 46% from the year ended December 31, 2012. There has been a decrease of $300,000 in research and development expenses, an increase in impairment loss on fixed assets of $302,750 and an increase in interest expenses of $1,673,430 mainly attributable to the interest expense resulting from derivative liabilities.
Selling, General and Administration
During the year ended December 31, 2013, we incurred selling, general and administrative expenses of $689,381, as compared to $1,032,094 for the year ended December 31, 2012 for a decrease of 33%.The decrease resulted from the Board of Directors fees and lower professional fees.
Interest
We calculate interest in accordance with the respective note payable. For the year ended December 31, 2013, we incurred $2,518,828 as compared to $845,398 for the year ended December 31, 2012.The increase is caused by interest expense on increased borrowings and interest expense recorded upon issuance of convertible debt in which the debt discount related to the conversion feature recorded as a derivative exceed the face value of the note.
Liquidity and Capital Resources
At December 31, 2013, we had $1,237 in cash, as opposed to $6,902 in cash at December 31, 2012. Total cash used in operations for the year ended December 31, 2013 was $774,481. As a result of its new business plan, management estimates that cash requirements through the end of the fiscal year ended December 31, 2014 will be between $2.0 million to $5.5 million. As of the date of this Report, we do not have available resources sufficient to cover the expected cash requirements through the end of the first quarter of 2014 or the balance of the year. As a result, there is substantial doubt that we can continue as an ongoing business without obtaining additional financing. Management’s plans for maintaining our operations and continued existence include selling additional equity securities and borrowing additional funds to pay operational expenses. There is no assurance we will be able to generate sufficient cash from operations, sell additional shares of Common Stock or borrow additional funds. Our inability to obtain additional cash could have a material adverse effect on our financial position, results of operations and our ability to continue our existence. If our losses continue and we are unable to secure additional financing, we may ultimately be required to seek protection from creditors under applicable bankruptcy laws.
We had total current assets of $218,218 as of December 31, 2013. This was an increase of $211,308 as compared to current assets of $6,910 as of December 31, 2012. The increase was primarily attributable to an increase in the note receivable.
We had total assets of $218,218 as of December 31, 2013. This was a decrease of 162,621, or 43%, as compared to total assets of $380,839 as of December 31, 2012. The decrease was primarily attributable to an impairment loss on fixed assets.
We had total current liabilities of $4,336,806 as of December 31, 2013. This was an increase of $1,208,193 or 39%, as compared to current liabilities of $3,128,613 as of December 31, 2012. The net increase was attributable to derivative liabilities and note payables stockholders.
-10-
We are party to a lease for our Montreal office (the “Montreal Lease”), at a minimum annual rent of approximately $64,000 per year. The Montreal Lease expires in February 15, 2014. The Company has vacated the premises and according to the lease, a six month rent might have to be paid if the landlord commences a lawsuit against the Company. The rent for the six month period amount has been accrued in the accompanying Financial Statements.
Our financial condition raises substantial doubt about our ability to continue as a going concern. Management’s plan for our continued existence includes selling additional stock through private placements and borrowing additional funds to pay overhead expenses while maintaining marketing efforts to raise our sales volume. Our future success is dependent upon our ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that we will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds. Our inability to obtain additional cash could have a material adverse effect on our financial position, results of operations and our ability to continue as a going concern.
This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Memorandum. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
We have only had operating losses which raise substantial doubts about our viability to continue our business and our auditors have issued an opinion expressing the uncertainty of our company to continue as a going concern. If we are not able to continue operations, investors could lose their entire investment in our company.
Limited Operating History
We have a history of operating losses, and may continue to incur operating losses. We incurred losses since inception. We had negative working capital as of December 31, 2013 of $4,118,588 (compared with $3,121,703 for the same period last year), and a stockholders’ deficiency of $7,853,391 as of December 31, 2013 (compared with a stockholders’ deficiency of $6,981,489 as of December 31, 2012). These factors, among others raise substantial doubt about our ability to continue as a going concern. As a result of these factors, our auditors have issued an opinion in their audit report for the year ended December 31, 2013 expressing uncertainty about the ability of our Company to continue as a going concern. This means that there is substantial doubt whether we can continue as an ongoing business without additional financing and/or generating profits from our operations.
Contractual Obligations
We were the party to a lease for its Barrington office, at a minimum annual rent of approximately $24,000 per year. The Barrington lease expired in May 2013.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements other than as described above.
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
-11-
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
|
Index
|
||
|
|
||
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
|
|
||
|
F-2
|
||
|
F-3
|
||
|
F-5
|
||
|
F-6
|
||
|
F-7
|
||
-12-
Audit opinion
F-1
-13-
ECOLOCAP SOLUTIONS INC.
(A Development Stage Company)
December 31, 2013
|
2013
|
2012
|
|||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 1,237 | $ | 6,910 | ||||
|
Note Receivable
|
197,037 | - | ||||||
|
Prepaid expenses and sundry current assets
|
19,944 | - | ||||||
|
|
||||||||
|
TOTAL CURRENT ASSETS
|
218,218 | 6,910 | ||||||
|
|
||||||||
|
|
||||||||
|
PROPERTY AND EQUIPMENT, AT COST, LESS
ACCUMULATED DEPRECIATION
|
- | 373,929 | ||||||
|
|
||||||||
|
TOTAL ASSETS
|
$ | 218,218 | $ | 380,839 | ||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
|
||||||||
|
Customer deposits
|
175,000 | 175,000 | ||||||
|
Notes payable
|
539,335 | 551,549 | ||||||
|
Notes payable-stockholders
|
1,056,859 | 791,144 | ||||||
|
Derivative liabilities
|
1,589,616 | 723,437 | ||||||
|
Accrued expenses and sundry current liabilities related party
|
32,352 | 12,829 | ||||||
|
Accrued expenses and sundry current liabilities
|
943,644 | 874,654 | ||||||
|
|
||||||||
|
TOTAL CURRENT LIABILITIES
|
$ | 4,336,806 | $ | 3,128,613 | ||||
|
|
||||||||
|
STOCKHOLDERS’ DEFICIENCY
|
||||||||
|
Common stock
|
$ | |||||||
|
10,000,000,000 shares authorized, par value $0.00001, 2,874,786,512 and
372,410,782 shares, respectively issued and outstanding
|
28,748 | 3,724 | ||||||
|
Additional paid in capital
|
35,427,919 | 34,799,550 | ||||||
|
Accumulated Deficit
|
(25,059,593 | ) | (25,059,593 | ) | ||||
|
Deficit accumulated during development stage
|
(18,250,465 | ) | (16,725,170 | ) | ||||
|
|
||||||||
|
TOTAL STOCKHOLDERS’ DEFICIENCY- Ecolocap Solutions, Inc.
|
$ | (7,853,391 | ) | $ | (6,981,489 | ) | ||
|
Less Non-controlling interest
|
3,734,803 | 4,233,715 | ||||||
|
TOTAL STOCKHOLDERS’ DEFICIENCY
|
(4,118,588 | ) | (2,747,774 | ) | ||||
|
|
||||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
$ | 218,218 | $ | 380,839 | ||||
F-2
-14-
ECOLOCAP SOLUTIONS INC.
(A Development Stage Company)
Stockholders’ Equity
|
Common stock
|
Deficit
|
|||||||||||||||||||||||||||||||||||
|
Authorized
|
accumulated
|
Other
|
||||||||||||||||||||||||||||||||||
| 5,000,000,000 |
Additional
|
during
|
Comprehensive
|
|||||||||||||||||||||||||||||||||
|
Stockholders
|
Shares, Par value
|
paid in
|
Accumulated
|
Development
|
Income
|
Non-controlling
|
||||||||||||||||||||||||||||||
|
Deficiency
|
Shares
|
$0.00001 |
Capital
|
Deficit
|
Stage
|
(Loss)
|
Subtotal
|
interest
|
Total
|
|||||||||||||||||||||||||||
|
January 1, 2007
|
34,578,268 | $ | 975 | $ | 13,425,882 | $ | (25,059,593 | ) | - | $ | 220,463 | (11,412,273 | ) | $ | (11,412,273 | ) | ||||||||||||||||||||
|
Proceeds from the issuance of Common stock
|
990,000 | 10 | 1,003,390 | - | - | 1,003,400 | 1,003,400 | |||||||||||||||||||||||||||||
|
Stock options
|
1,372,897 | 1,372,897 | 1,372,897 | |||||||||||||||||||||||||||||||||
|
Net Income
|
- | - | 6,306,507 | 6,306,507 | 6,306,507 | |||||||||||||||||||||||||||||||
|
Other comprehensive Income
|
(220,463 | ) | (220,463 | ) | (220,463 | ) | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2007
|
35,568,268 | $ | 985 | $ | 15,802,169 | $ | (25,059,593 | ) | 6,306,507 | $ | - | (2,949,932 | ) | $ | (2,949,932 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued for settlement of services
|
4,500,000 | 45 | 3,838,955 | 3,839,000 | 3,839,000 | |||||||||||||||||||||||||||||||
|
Shares issued following exercise of stock options
|
25,000 | 1 | 249 | 250 | 250 | |||||||||||||||||||||||||||||||
|
Proceeds from the issuance of Common stock
|
250,000 | 2 | 74,998 | - | - | 75,000 | 75,000 | |||||||||||||||||||||||||||||
|
Shares issued for settlement of a debt
|
3,470,471 | 35 | 3,137,265 | 3,137,300 | 3,137,300 | |||||||||||||||||||||||||||||||
|
Net Loss
|
- | - | (4,939,044 | ) | (4,939,044 | ) | (4,939,044 | ) | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2008
|
43,813,739 | $ | 1,067 | $ | 22,853,636 | $ | (25,059,593 | ) | 1,367,463 | $ | - | (837,426 | ) | $ | (837,426 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued following acquisition
|
54,000,000 | 540 | 7,171,460 | 7,172,000 | 7,172,000 | |||||||||||||||||||||||||||||||
|
Shares issued for services
|
1,650,000 | 17 | 267,984 | 268,000 | 268,000 | |||||||||||||||||||||||||||||||
|
Non-controlling interest pursuant
to acquisition(see Note 2)
|
5,643,000 | 5,643,000 | ||||||||||||||||||||||||||||||||||
|
Proceeds from the issuance of Common stock
|
460,923 | 5 | 139,995 | 140,000 | ||||||||||||||||||||||||||||||||
|
Net Loss
|
- | - | (907,051 | ) | (907,051 | ) | (68,806 | ) | (975,857 | ) | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2009
|
99,924,662 | $ | 1,628 | $ | 30,433,075 | $ | (25,059,593 | ) | 460,412 | $ | - | 5,835,523 | $ | 5,574,194 | 11,409,717 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued for services
|
825,000 | 8 | 92,492 | 92,500 | 92,500 | |||||||||||||||||||||||||||||||
|
Shares issued for settlement of a debt
|
15,399,276 | 84 | 1,219,502 | 1,219,586 | 1,219,586 | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Proceeds from the issuance of Common stock
|
4,362,154 | 44 | 217,956 | 218,000 | 218,000 | |||||||||||||||||||||||||||||||
|
Imputed interest on non-interest bearing
stockholders loans
|
6,116 | 6,116 | 6,116 | |||||||||||||||||||||||||||||||||
|
Net Loss
|
(8,390,200 | ) | (8,390,200 | ) | (461,400 | ) | (8,851,600 | ) | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2010
|
120,511,092 | $ | 1,205 | $ | 31,969,701 | $ | (25,059,593 | ) | (7,929,788 | ) | $ | - | (1,018,475 | ) | $ | 5,112,794 | 4,094,319 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued for services
|
9,456,414 | 95 | 213,984 | 214,079 | 214,079 | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued for settlement of a debt
|
67,407,978 | 674 | 1,865,978 | 1,866,652 | 1,866,652 | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Proceeds from the issuance of Common stock
|
1,657,895 | 16 | 68,142 | 68,158 | 68,158 | |||||||||||||||||||||||||||||||
|
Imputed interest on non-interest bearing
stockholders loans
|
16,848 | 16,848 | 16,848 | |||||||||||||||||||||||||||||||||
|
Net Loss
|
(7,517,843 | ) | (7,517,843 | ) | (612,987 | ) | (8,130,830 | ) | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2011
|
199,033,379 | $ | 1,990 | $ | 34,134,653 | $ | (25,059,593 | ) | (15,447,631 | ) | $ | - | (6,370,581 | ) | $ | 4,499,807 | (1,870,774 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued for services
|
9,363,781 | 94 | 99,243 | 99,337 | 99,337 | |||||||||||||||||||||||||||||||
|
Shares issued for settlement of a debt
|
164,013,622 | 1,640 | 537,880 | 539,520 | 539,520 | |||||||||||||||||||||||||||||||
|
Imputed interest on non-interest bearing
stockholders loans
|
27,774 | 27,774 | 27,774 | |||||||||||||||||||||||||||||||||
|
Net Loss
|
(1,277,539 | ) | (1,277,539 | ) | (266,092 | ) | (1,543,631 | ) | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2012
|
372,410,782 | $ | 3,724 | $ | 34,799,550 | $ | (25,059,593 | ) | (16,725,170 | ) | $ | - | (6,981,489 | ) | $ | 4,233,715 | (2,747,774 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Shares issued for services
|
15,083,117 | 151 | 13,425 | 13,576 | 13,576 | |||||||||||||||||||||||||||||||
|
Shares issued for settlement of debts
|
2,487,292,613 | 24,873 | 573,661 | 598,534 | 598,534 | |||||||||||||||||||||||||||||||
|
Imputed interest on non-interest bearing
stockholders loans
|
41,283 | 41,283 | 41,283 | |||||||||||||||||||||||||||||||||
|
Net Loss
|
(1,525,295 | ) | (1,525,295 | ) | (498,912 | ) | (2,024,207 | ) | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
December 31, 2013
|
2,874,786,512 | $ | 28,748 | $ | 35,427,919 | $ | (25,059,593 | ) | (18,250,465 | ) | $ | - | (7,853,391 | ) | $ | 3,734,803 | (4,118,588 | ) | ||||||||||||||||||
F-3
-15-
ECOLOCAP SOLUTIONS INC.
(A Development Stage Company)
|
Beginning of
|
||||||||||||
|
development stage,
|
||||||||||||
|
January 1, 2007,
|
||||||||||||
|
December 31,
|
December 31,
|
through
|
||||||||||
|
2013
|
2012
|
December 2013
|
||||||||||
|
|
||||||||||||
|
SALES
|
$ | - | $ | - | $ | 469,840 | ||||||
|
|
||||||||||||
|
Cost of sales
|
- | - | 452,000 | |||||||||
|
|
||||||||||||
|
Gross Profit
|
- | - | 17,840 | |||||||||
|
|
||||||||||||
|
COSTS AND EXPENSES:
|
- | - | - | |||||||||
|
|
||||||||||||
|
Selling, general and administrative
|
689,381 | 1,032,094 | 4,896,820 | |||||||||
|
Depreciation and amortization
|
71,180 | 73,290 | 991,976 | |||||||||
|
Research and development
|
- | 300,000 | 1,360,278 | |||||||||
|
Gain on settlement debts-foreign Subsidiary
|
- | - | (8,013,125 | ) | ||||||||
|
Gain on sale of equipment
|
- | (209,214 | ) | (209,214 | ) | |||||||
|
Impairment Loss Fixed Assets
|
302,750 | - | 302,750 | |||||||||
|
Impairment Loss Intangible Assets
|
- | - | 5,499,842 | |||||||||
|
Impairment Loss Goodwill
|
- | - | 7,008,721 | |||||||||
|
Compensation expense (gain)
|
(116,925 | ) | (55,280 | ) | 28,201 | |||||||
|
Stock Based compensation
|
- | - | 5,211,897 | |||||||||
|
Debt conversion inducement expense
|
- | - | 820,297 | |||||||||
|
Compensation for services
|
- | - | 258,000 | |||||||||
|
Gain on derivatives liabilities at market
|
(1,418,972 | ) | (242,646 | ) | (1,661,618 | ) | ||||||
|
Payments received under Standstill Agreement
|
- | (200,000 | ) | (200,000 | ) | |||||||
|
Interest expense-related party
|
73,635 | 40,603 | 114,238 | |||||||||
|
Interest expense
|
2,445,193 | 804,795 | 3,815,709 | |||||||||
|
Interest income
|
(22,037 | ) | (22,037 | ) | ||||||||
|
Foreign exchange loss (gain)
|
2 | (11 | ) | (163,427 | ) | |||||||
|
|
||||||||||||
|
TOTAL COSTS AND EXPENSES
|
2,024,207 | 1,543,631 | 20,039,308 | |||||||||
|
|
||||||||||||
|
Net loss from continuing operations
|
$ | (2,024,207 | ) | $ | (1,543,631 | ) | $ | (20,021,468 | ) | |||
|
Net loss from discontinued operations
|
$ | - | $ | - | (185,451 | ) | ||||||
|
|
||||||||||||
|
Gain on Sale of discontinued operations
|
- | - | 48,257 | |||||||||
|
|
||||||||||||
|
Net loss
|
(2,024,207 | ) | (1,543,631 | ) | (20,158,662 | ) | ||||||
|
|
||||||||||||
|
Attributable to:
|
||||||||||||
|
Ecolocap Solutions Inc.
|
$ | (1,525,295 | ) | $ | (1,277,539 | ) | $ | (18,250,465 | ) | |||
|
Non-controlling interest
|
$ | (498,912 | ) | $ | (266,092 | ) | $ | (1,908,197 | ) | |||
|
|
||||||||||||
|
Loss Per Share
|
||||||||||||
|
Continuing operations
|
$ | (0.00 | ) | (0.01 | ) | N/A | ||||||
|
|
$ | (0.00 | ) | $ | (0.01 | ) | $ | N/A | ||||
|
Average weighted Number of Shares Outstanding
|
1,141,204,704 | 288,861,328 | N/A | |||||||||
F-4
-16-
ECOLOCAP SOLUTIONS INC.
(A Development Stage Company)
|
Beginning of
|
||||||||||||
|
development stage,
|
||||||||||||
|
December 31,
|
December 31,
|
January 1, 2007,
through
|
||||||||||
|
2013
|
2012
|
December 31, 2013
|
||||||||||
|
Net loss
|
$ | (2,024,207 | ) | $ | (1,543,631 | ) | $ | (20,158,662 | ) | |||
|
Adjustment to reconcile net loss to net cash used in operating activities
|
||||||||||||
|
Depreciation and amortization
|
71,180 | 73,290 | 991,977 | |||||||||
|
Imputed interest of shareholders loans
|
41,283 | 27,774 | 92,021 | |||||||||
|
Impairment loss fixed assets
|
302,750 | - | 302,750 | |||||||||
|
Impairment loss intangible assets
|
- | - | 5,499,842 | |||||||||
|
Impairment loss goodwill
|
- | - | 7,008,721 | |||||||||
|
Gain on sale of equipment
|
- | (209,214 | ) | (209,214 | ) | |||||||
|
Compensation (gain) expense
|
(116,925 | ) | (55,280 | ) | 28,201 | |||||||
|
Debt conversion inducement expense
|
- | - | 820,297 | |||||||||
|
Issuance of common stock for services
|
- | - | 3,269,600 | |||||||||
|
Stock based compensation
|
- | - | 5,211,897 | |||||||||
|
Interest loans conversion
|
- | 46,194 | 46,194 | |||||||||
|
Gain on derivatives liabilities at market
|
(1,418,972 | ) | (242,646 | ) | (1,661,618 | ) | ||||||
|
Interest expense on derivatives
|
2,140,875 | 685,517 | 2,826,392 | |||||||||
|
Unrealized foreign exchange
|
(220,463 | ) | ||||||||||
|
Changes in operating assets and liabilities
|
||||||||||||
|
Prepaid expenses and sundry current assets
|
(19,944 | ) | 4,863 | 21,401 | ||||||||
|
Deposit on machinery
|
- | 175,000 | 545,400 | |||||||||
|
Customer deposit
|
- | (323,772 | ) | (279,940 | ) | |||||||
|
Accrued expenses and sundry current liabilities
|
249,479 | (38,801 | ) | (1,750,497 | ) | |||||||
|
Net cash provided by (used in) operating activities
|
$ | (774,481 | ) | $ | (1,400,706 | ) | $ | 2,384,299 | ||||
|
|
||||||||||||
|
Investing activities
|
||||||||||||
|
Disposition of property and equipment
|
- | 330,000 | 359,352 | |||||||||
|
Cash acquired during acquisition
|
- | - | 38,115 | |||||||||
|
Acquisitions of property and equipment
|
- | (175,000 | ) | (695,355 | ) | |||||||
|
Net cash provided by (used in) investing activities
|
$ | - | $ | 155,000 | $ | (297,888 | ) | |||||
|
|
||||||||||||
|
Financing activities
|
||||||||||||
|
Note receivable
|
(197, 037 | ) | - | (197,037 | ) | |||||||
|
Stock payable
|
- | - | (1,000,000 | ) | ||||||||
|
Issuance of common stock
|
- | - | 471,010 | |||||||||
|
Sale of common stock
|
1,003,400 | |||||||||||
|
Proceeds of loans payable
|
527,800 | 654,500 | 1,333,890 | |||||||||
|
Proceeds of loans from shareholder
|
438,045 | 595,634 | (3,825,044 | ) | ||||||||
|
Net cash provided by (used in) financing activities
|
$ | 768,808 | $ | 1,250,134 | $ | (2,213,781 | ) | |||||
|
|
||||||||||||
|
Increase (decrease) in cash
|
(5,673 | ) | 4,428 | (127,370 | ) | |||||||
|
Cash- beginning of year
|
6,910 | 2,482 | 128,607 | |||||||||
|
Cash - end of year
|
$ | 1,237 | $ | 6,910 | $ | 1,237 | ||||||
|
|
||||||||||||
|
Supplemental Disclosure of Cash Flow information
|
||||||||||||
|
Non cash items:
|
||||||||||||
|
Conversion of debt to Equity
|
- | - | 820,297 | |||||||||
|
Conversion of current liabilities to common stock
|
160,966 | - | 160,966 | |||||||||
|
Conversion of notes payable to common stock
|
280,230 | - | 280,230 | |||||||||
|
Debt discount in notes payable
|
259,784 | - | 259,784 | |||||||||
|
Conversion of notes payable stockholders to common stock
|
287,838 | - | 287,838 | |||||||||
|
Debt discount in notes payable stockholders
|
(115,508 | ) | - | (115,508 | ) | |||||||
|
Interest loans conversion
|
- | 46,194 | ||||||||||
F-5
-17-
ECOLOCAP SOLUTIONS INC.
(A Development Stage Company)
NOTE 1 – NATURE OF BUSINESS
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.
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. (see Note 15). All significant inter-company accounts and transactions have been eliminated.
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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 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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level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
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level 3 - inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
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The carrying amounts of cash, accounts payable, and accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of our short term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk.
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.
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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 when the following conditions are satisfied:
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i)
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persuasive evidence that an agreement exists;
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ii)
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the risks and rewards of ownership pass to the purchaser including delivery of the product;
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iii)
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the selling price is fixed and determinable; or,
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iv)
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collectively is reasonably assured.
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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.
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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.
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, 2013, we recorded a fixed assets impairment loss of $302,750. This impairment loss relates to our testing equipment as our management has adjusted downward the carrying value of our testing equipment because the equipment has not been generated the 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 basis over the estimated useful life of the asset ranging from 3 to 7 years.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. For the year ended 2013 and 2012 the amounts charged to research and development expenses was $0 and $300,000.
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 incurred a net loss of $2,024,207 for the year ended December 31, 2013.The Company has negative working capital of $4,118,588 at December 31, 2013 and a stockholders’ deficiency of $4,118,588 at December 31, 2013. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
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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 - NOTE RECEIVABLE
On December 17, 2013, the Company signed a receivable note with a KMBT, a manufacturer of machinery, in the aggregate amount of $285,000, at an interest rate of eight percent (8%) per annum. The drawdown notes can be prepaid upon five days notice and is payable nine months following its issuance. The amount receivable from KMBT at December 31, 2013, is shown net of the remaining unearned interest of $87,963 resulting in a balance of $197,037.
NOTE 5 – PROPERTY & EQUIPMENT
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December 31
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December 31,
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2013
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2012
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Testing equipment
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$ | 493,000 | $ | 493,000 | ||||
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Computer equipment
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11,654 | 11,654 | ||||||
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Furniture & fixtures
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12,701 | 12,701 | ||||||
| $ | 517,355 | $ | 517,355 | |||||
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Less: accumulated depreciation
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214,605 | 143,426 | ||||||
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Less: accumulated impairment loss
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302,750 | - | ||||||
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Balance December 31, 2013
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$ | - | $ | 373,929 | ||||
NOTE 6 – ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES
Accrued expenses consisted of the following at December 31:
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2013
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2012
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Accrued interest
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$ | 103,405 | $ | 46,351 | ||||
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Accrued interest-related party
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32,352 | 12,829 | ||||||
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Accrued compensation
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302,861 | 201,346 | ||||||
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Accounts payable
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240,000 | 268,500 | ||||||
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Accrued operating expenses
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297,378 | 358,457 | ||||||
| $ | 975,996 | $ | 887,483 | |||||
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NOTE 7 – NOTE PAYABLE
During the years ended December 31, 2013 and 2012, the Company received the proceeds of various loans which are convertible at amounts ranging from 50% to 60% of the market price of the common shares of the Company at the time of conversion and bear interest at 8% per annum. The amounts received during the year ended December 31, 2013 and 2012 are $521,483 and $654,500, respectively.
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 value at the date of issuance of the obligation and this amount is allocated between the derivative and the underlying obligation. The difference is recorded as a debt discount and amortized over the life of the debt.
During these same periods, other convertible debts were converted into common shares of the Company. During the year ended December 31, 2013, total loan conversions of $280,230 plus accrued interests of $22,384 were made into 1,254,144,984 shares respectively and there was no conversion in 2012.
A summary of the amounts outstanding as of December 31, 2013 and 2012 is as follows:
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Loans
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Debt discount
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Balance
December 31,
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Balance
December 31,
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2013
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2013
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2013
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2012
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Tonaquint
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$ | 480,062 | $ | (362,735 | ) | $ | 117,327 | $ | 42,916 | |||||||
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Redwood Management, LLC
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372,992 | - | 372,992 | 496,000 | ||||||||||||
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AES Capital Corp.
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24,016 | - | 24,016 | 5,133 | ||||||||||||
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JMJ Financial
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25,000 | - | 25,000 | 7,500 | ||||||||||||
| $ | 902,070 | $ | (362,735 | ) | $ | 539,335 | $ | 551,549 | ||||||||
NOTE 8 – PAYABLE – STOCKHOLDERS
In 2013, the Company received $266,179 in loans from stockholders. The amount owed to stockholders at December 31, 2013 is $966,638. 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 December 31, 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 December 31, 2013 is $28,500. These loans are non-interest bearing and are payable on demand.
During the years ended December 31, 2013 and 2012, the Company received the proceeds of various loans which are convertible at amounts ranging from 50% to 60% of the market price of the common shares of the Company at the time of conversion and bear interest at 8% per annum. The amounts received during the year ended December 31, 2013 and 2012 are $174,532 and $386,500, respectively.
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 this amount is allocated between the derivative and the underlying obligation. The difference is recorded as a debt discount and amortized over the life of the debt.
During these same periods, other convertible debts were converted into common shares of the Company. During the year ended December 31, 2013 and 2012, total loan conversions of $287,838 plus accrued interests of $8,082 and $224,446 plus accrued interests of $8,500 were made into 1,233,147,629 and 79,266,787 shares respectively.
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A summary of the amounts outstanding as of December 31, 2013 and 2012 is as follows:
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Loans
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Debt discount
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Balance
December 31,
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Balance
December 31,
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2013
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2013
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2013
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2012
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Asher Enterprises Inc
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$ | 67,400 | $ | (43,052 | ) | $ | 24,348 | $ | 39,189 | |||||||
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AGS Capital Group LLC
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19,055 | (19,055 | ) | - | 10,250 | |||||||||||
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Panache Capital LLC
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6,293 | - | 6,293 | 6,500 | ||||||||||||
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Stockholders
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966,638 | - | 966,638 | 673,459 | ||||||||||||
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Hanscom K. Inc.
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31,080 | - | 31,080 | 33,246 | ||||||||||||
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RCO Group Inc.
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28,500 | - | 28,500 | 28,500 | ||||||||||||
| $ | 1,118,966 | $ | (62,107 | ) | $ | 1,056,859 | $ | 791,144 | ||||||||
NOTE 9 – DERIVATIVE LIABILITIES
During the years ended December 31, 2013 and 2012, the Company recorded various derivative liabilities associated with the convertible debts discussed in Notes 7 and 8. The Company computes the value of the derivative liability at the issuance of the related obligation using the Black Scholes Method using a risk free rate of 0.14%, volatility rates ranging between 228.63% and 292.00% and a forfeiture rate of 0.00%. The derivative liability at December 31, 2013 and 2012 is as follows:
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2013
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2012
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Asher Enterprises Inc
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$ | 125,853 | $ | 338,822 | ||||
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Tonaquint
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996,669 | 133,627 | ||||||
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AES Capital Corp.
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14,350 | 34,404 | ||||||
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AGS Capital Group LLC
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30,553 | 102,155 | ||||||
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JMJ Financial
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42,904 | 49,868 | ||||||
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Panache Capital LLC
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6,293 | 64,561 | ||||||
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Redwood Management, LLC
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372,994 | - | ||||||
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Total
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$ | 1,589,616 | $ | 723,437 | ||||
NOTE 10 – CAPITAL STOCK
The Company is authorized to issue 10,000,000,000 shares of common stock (par value $0.0001) of which 2,874,786,512 were issued and outstanding as of December 31, 2013.
During 2013, the following convertible debt owners converted loans plus accrued interests into common shares of the Company
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Loans
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Interests
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Common shares
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converted
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converted
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Of the Company
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Asher Enterprises Inc (note 8)
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$ | 182,100 | $ | 7,600 | $ | 980,849,505 | ||||||
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Tonaquint (note 7)
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125,572 | 19,074 | 810,853,139 | |||||||||
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AES Capital Corp. (note 7)
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6,650 | 133,000,000 | ||||||||||
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AGS Capital Group LLC (note 8)
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71,123 | 482 | ||||||||||