NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
(Unaudited)
NOTE 1: NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of operations
The Company was incorporated under the laws of the State of Nevada on June 28, 2006 under the name of Patterson Brooke Resources Inc.
On April 7, 2010, the Company amended its Articles of Incorporation to change its corporate name from “Patterson Brooke Resources Inc.” to “Cleantech Transit, Inc.” Then, on May 30, 2013, the Company changed its name to “EQCO2, Inc.”.
Originally the Company was organized for the purpose of acquiring and developing mineral properties. The Company has decided to allow the Alice claim to lapse without renewing it on May 24, 2010. Therefore, the Company is no longer a pre-exploration stage company but is now considered a development stage company as defined under FASB ASC 915, and commenced operations in the public and private transportation bus and coach industries, providing high quality engineered modern eco-friendly vehicles in a cost conscious and environmentally sustainable manner.
On July 11, 2011 the Company formed Cleantech Energy, Inc. as a wholly owned subsidiary. There has been no activity in this entity, through July 31, 2013.
On July 25, 2011 the Company formed Cleantech Exploration Corp. as a wholly owned subsidiary. There has been no activity in this entity, through July 31, 2013.
Basis of Presentation
The interim financial statements for the three and nine months ended July 31, 2013 and 2012 are unaudited. These financial statements are prepared in accordance with the requirements for unaudited interim periods, and consequently do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America.
The results of operations for the interim periods are not necessarily indicative of the results for the full year. In management’s opinion all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods included, and are of a normal recurring nature. These interim financial statements should be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended October 31, 2012, filed with the SEC
NOTE 2: GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The aggregate accumulated deficit and accumulated deficit during the development stage and pre-exploration stage of the Company is $3,057,382 ($2,837,715 and $219,677, respectively). The Company has not established revenues to cover its operating costs. This uncertainty raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company's plan. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company recognizes income and expenses based on the accrual method of accounting.
Principles of Consolidation
The consolidated financial statements of the Company include the Company and its wholly-owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to be reversed. An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized.
Statement of Cash Flows
For the purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.
Basic and Diluted Net Income (loss) Per Share
Basic net income (loss) per share amounts is computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes antidilutive and then the basic and diluted per share amounts are the same. As of July 31, 2013, the Company has no dilutive common stock equivalents outstanding.
Revenue Recognition
Revenue is recognized on the sale and transfer of goods or completion of service. During the three and nine month period ended July 31, 2013, the Company did not have any revenue.
Advertising and Market Development
The company expenses advertising and market development costs as incurred.
Financial and Concentrations Risk
The Company does not have any concentration or related financial credit risk.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles accepted in the United States of America. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.
Impairment of Long-lived Assets
The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 360-10-35-17 if events or circumstances indicate that their carrying amounts might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using rules of ASC 930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts payable, and convertible notes payable approximate fair values because of the immediate or short-term maturity of these financial instruments.
Recent Accounting Pronouncements
The Company does not expect the adoption of recent accounting pronouncements to have a material impact on the Company’s financial statements.
NOTE 4: EQUITY METHOD INVESTMENT
On August 19, 2011 the Company entered into an agreement with Phoenix Biomass Energy, Inc. (and amendment dated September 28, 2011) whereby the Company obtained a 40% interest in Ortigalita Power Company, LLC., from Phoenix Biomass for $360,000. The Company is accounting for this investment under the equity method. Ortigalita is building a plant to produce electricity from waste and by-products. The Company has paid $335,000 in cash and has executed a no interest, demand note payable for the remaining balance of $25,000. The closing date of this purchase was October 31, 2011. As the Company paid less than the relative fair value of the net assets received, it has recorded a gain on bargain purchase in the amount of $110,362, in accordance with ASC 805-30
.
During the nine months ended July 31, 2012, the investee reported a net loss of $163,712. The Company therefore recorded its share of these losses in the statement of operations $163,712.
On July 31, 2012 the Board of Directors reviewed the 40% interest investment the Company held in Ortigalita Power Company, LLC. It purchased from Phoenix Biomass for $360,000. The Company’s investee loss incurred through July 31, 2012 was $163,712, leaving the value of the investment as $306,650. Through the Company’s review and discussion with the controlling interest of the project, it was determined that a substantial investment would be required to bring the plant to a production level that would be profitable. As the Company is unable to make such an investment, the Company determined its investment was impaired and recorded a related impairment loss of $306,650 in its statement of operations.
NOTE 5: NOTES PAYABLE
On September 30, 2011 the Company issued a no interest, demand note to Phoenix Biomass as part of the investment in the Ortigalita plant project in the amount of $25,000.
On July 20, 2012, the Company, at the request of the convertible note holders, converted $223,957 of notes to 43,068,600 shares (pre-split) of common stock at $0.0052 per share. As part of the conversion the accrued interest of $41,140 on the notes was forgiven by the note holders, and contributed to additional paid-in capital.
On July 19, 2013 the Company issued a note payable for $38,000. The note is payable on demand, but if unpaid by December 15, 2014, 10% per annum interest will begin to accrue.
On May 20, and June 28, 2013 a related party advanced the Company $5,000 on each date for a total of $10,000. These advances are payable on demand and bear no interest.
As of July 31, 2013, the Company had notes payable of $73,000 plus advances of $35,345, bearing no interest and due on demand.
NOTE 6: RELATED PARTY TRANSACTIONS
On April 1, 2012 the Company entered into a one year management agreement with Crown Equity Holdings, Inc. Under the terms of the agreement the Company will pay Crown Equity Holdings $22,000 monthly, in cash. If the Company does not pay the amount in cash the Company will issue shares for the difference between $66,000 and the cash amount paid at the end of each quarter. The management agreement covered the period from May 1, 2012 to July 31, 2013.
On January 31, 2013, the Company issued 148,333,335 shares of common stock with a value of $53,400; using the quoted value of the Company’s common stock on January 31, 2013 ($12,600 was prepaid from the previous quarter).
On February 22, 2013 the Company issued 30,000,000 shares of common stock to three individuals that are related parties for services performed. The value of these shares was based on the closing price of the Company’s common stock on that date, for a total value of $27,000.
On May 20, and June 28, 2013 a related party advanced the Company $5,000 on each date for a total of $10,000. These advances are payable on demand and bear no interest.
On July 1, 2013 the Company signed a consulting service agreement with a related party. Under the terms of the agreement, the Company shall pay the consultant $20,000 per month for its consulting services. The term of the agreement is on year ending on June 30, 2014.
On July 19, 2013 the Company issued a note payable for $38,000. The note is payable on demand, but if unpaid by December 15, 2014, 10% per annum interest will begin to accrue.
NOTE 7: STOCKHOLDERS EQUITY
On August 23, 2011 the Company designated 5,000,000 of the 10,000,000 preferred shares as Series A Convertible preferred. These share have a conversion right of 10 shares of common for each share of preferred, a voting right as a class, and liquidation preference valuation of $0.50 per share.
During the year ended October 31, 2012, the Company issued 301,400,000 shares of common stock with a value of $132,000 for the management fees due for the quarter ended October 31, 2012. As additional compensation to Crown Equity Holdings, the Company issued 228,365,760 shares of common stock with a value of $237,500 ($0.00104 per share) for services rendered.
On January 31, 2013 the Company issued 148,333,335 shares of common stock to Crown Equity Holdings, Inc. with a value of $53,400 as payment for management services during the quarter ended January 31, 2013 ($12,600) was prepaid from the previous quarter).
On February 7, 2013 the Company filed amended articles of incorporation authorizing 5,000,000, Series B preferred stock. Each share is convertible into 100 shares of common stock and each share has 50,000 votes on all matters of the Company. On May 8, 2013, the Board of Directors reduced the number of authorized Series B preferred shares to 1,000,000.
On February 22, 2013 the Company issued 100,000,000 shares of common stock to nine individuals and entities for services performed. These shares were valued based on the closing price of the Company’s common stock on that date, which was $.0009. Therefore, the Company recorded related compensation expense of $90,000. Three of the individuals were related parties and received an aggregate of 30,000,000 shares with a value of $27,000.
On April 14, 2013, the Company issued 33,333,335 shares of common stock to an individual, to settle advances outstanding of $10,000. The closing price of the Company’s common stock on this date was $.003. Therefore, the Company has recorded a loss on conversion of debt to equity in the amount of $90,000.
On June 5, 2013 the Company issued 5,000,000 shares of common stock for services provided, valued at $20,000.
On June 17, 2013 the Company issued 2,500,000 share of common stock for $5,000 in cash.
On June 21, 2013 the Company issued 5,000,000 shares of common stock for $10,000 in cash. On July 10, the shares were returned and cancelled, and on September 21, 2013 the related $10,000 received in cash, was returned to the subscriber.
On June 24, 2013 the Company issued 64,100,000 shares of common stock for the exchange of 1,282,000 shares of preferred stock.
On July 9, 2013 the Company issued 2,500,000 shares of common stock for services provided, valued at $5,000.
On July 12, 2013 the Company filed an amended article of incorporation with the State of Nevada increasing the authorized number of common shares to 5,000,000,000. Subsequent to that date, the Company affected a forward stock split of five shares for every one share issued and outstanding. All share references in these financial statements have been retroactively adjusted for this stock split, unless otherwise noted.
NOTE 8: COMMITMENTS AND CONTINGENCIES
On May 8, 2013 the Company entered into an exchange agreement with Discovery Carbon Environmental Securities, Inc (Discovery) a Nevada corporation. Under the terms of the agreement the Company will issue 500,000,000 shares of its common stock for all the outstanding stock of Discovery. In addition the Company will issued 500,000 shares of Series B preferred stock to the control person of Discovery. A related shareholder of the Company will redeem 203,099,095 shares of the Company’s common stock for 500,000 shares of the Company’s Series B preferred stock. As of September 12, 2013 the exchange had not been completed.
On July 1, 2013 the Company signed a consulting service agreement with a related party. Under the terms of the agreement, the Company shall pay the consultant $20,000 per month for its consulting services. The term of the agreement is one year ending on June 30, 2014.
NOTE 9: SUBSEQUENT EVENTS
On August 26, 2013 the Company issued a related party 500,000 Series B Preferred shares in compliance with the terms of the Exchange Agreement with Discovery Carbon Environmental Securities Corporation of May 8, 2013 because the related party had satisfied all of the conditions of that Exchange Agreement required of the related party in order for him to receive the Series B preferred shares. Each
share has 50,000 votes
.