NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ecolocap Solutions Inc. ("we", "our", and the "Company") is an integrated and complementary network of environmentally focused technology companies that utilize advanced nanotechnology to design, develop and sell cleaner alternative energy products. Our business approach combines science, innovation, and market-ready solutions to achieve environmentally sustainable and economically advantageous, power and energy management practices in the following areas:
M-Fuel
The Company, through its subsidiary Micro Bubble Technologies Inc. (MBT), developed M-Fuel, an innovative suspension fuel that is designed to offer fully scalable and customizable fuel solutions that will increase efficiency, lower operating costs, and reduce emissions. M -Fuel is a suspension mixture of 60% heavy oil, 40% H plus O2 molecules, and a 0.3% stabilizing additive. The production of M-Fuel takes place in our Nano Processing Units (NPU), a self contained device that is sized for output. The NPU's can be configured to operate in conjunction with an engine or burner to sully M-Fuel on demand, or pre-manufactured for delivery.
ECOS/BIO-ART
ECOS/Bio-ART is a patented air injected high-speed aerobic biological fermentation technology, utilizing uniquely cultured Bacillus, and incorporated into a specifically designed in-vessel unit. The remediation process takes seven days and reduces moisture content to an average between 12%-25% on an output equal to 1/3 the input. The output can be used as organic fertilizer, animal feed, animal bedding or biomass. The computer controlled process monitors the temperature on 3 different levels. The technology is designed to reduce the costs associated with food waste disposal and in the process will reduce the environmental impact or methane greenhouse gas production.
NOTE 2 - BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited interim consolidated financial statements of
the Company
, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended December 31, 2015 as filed with the SEC. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.
Going Concern
The accompanying
consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had recurring losses, negative working capital, is dependent on its shareholders to provide additional funding for operating expenses and has no recurring revenues. These items raise substantial doubts about the Company's ability to continue as a going concern.
Management's plan for the Company's continued existence include selling additional common stock of the Company and borrowing additional funds to pay overhead expenses.
With the opportunities
created by the ECOS BIO-ART and M Fuel, management has b
egun
the process of redeploying its assets, identifying business strategies that offers above average profit potential and identifying the resources necessary to successfully execute it new strategic direction.
Recognizing the opportunity this new market represents, the Company has developed an integrated development approach that focuses upon both existing and needed infrastructure facilities to produce substantial new value.
The Company's future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds.
The Company's inability to obtain additional cash could have a material adverse effect on its financial position, results of operations and its ability to continue in existence. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3
–
ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES
Accrued expenses consisted of the following at:
|
|
June 30
2016
|
|
|
December 31
2015
|
|
Accrued interest
|
|
$
|
374,418
|
|
|
$
|
290,114
|
|
Accrued interest-related parties
|
|
|
157,075
|
|
|
|
131,543
|
|
Accrued compensation-related parties
|
|
|
577,844
|
|
|
|
502,844
|
|
Accounts payable
|
|
|
240,000
|
|
|
|
240,000
|
|
Accrued operating expenses-related parties
|
|
|
295,166
|
|
|
|
250,166
|
|
Accrued operating expenses
|
|
|
309,666
|
|
|
|
306,812
|
|
|
|
$
|
1,954,169
|
|
|
$
|
1,721,479
|
|
NOTE 4
– CONVERTIBLE
NOTES PAYABLE
Loans are convertible at amounts ranging from 40% to 60% of the market price of the common shares of the Company at the time of conversion and bear interest rates ranging from 8% to 22% per annum. The increase during the six month period ended June 30, 2016 and 2015 of $14,653 and $28,090 in non-cash borrowings are related to the default on Tonaquint loans, respectively. During the period ended June 30, 2016, the Company was in default of its convertible notes due to non-repayment which triggered an increase of the outstanding balances.
The convertible feature of these loans, due to their potential settlement in an indeterminable number of shares of the Company's common stock has been identified as a derivative. The derivative component is fair valued at the date of issuance of the obligation and the amount is marked to market at each reporting period. All of the convertible notes are in default as of June 30, 2016.
There were no conversions of convertible debts during the period ended June 30, 2016. During the year ended December 31, 2015 note payable of $1,973 was converted into 393,000 shares.
A summary of the amounts outstanding as of June 30, 2016 and December 31, 2015 are as follows:
|
|
Balance
June 30,
2016
|
|
|
Balance
December 31,
2015
|
|
|
|
|
|
|
|
|
Tonaquint
|
|
$
|
585,846
|
|
|
$
|
571,193
|
|
Redwood Management, LLC
|
|
|
372,992
|
|
|
|
372,992
|
|
Proteus Capital
|
|
|
32,500
|
|
|
|
32,500
|
|
LG Capital
|
|
|
19,500
|
|
|
|
19,500
|
|
GSM Capital Group LLC
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
$
|
1,040,838
|
|
|
$
|
1,026,185
|
|
NOTE 5 – NOTES PAYABLE – RELATED PARTIES
During the six month period ended June 30, 2016, notes payable to related parties increased by $225,000. The additions are for accrual of unpaid salaries and not actual cash proceeds. The amount owed to stockholders at June 30, 2016 is $1,621,679. These loans are non interest bearing but interest is being imputed at 5.00% per annum and are payable on demand. An interest amount of $33,725 has been imputed in 2016. There were no conversions during the six month period ended June 30, 2016. During the year ended December 31, 2015, total loans of $274,500 were converted into 2,745,000,000 shares.
During the six month period ended June 30, 2016, the Company received $66,453 in loans from Hanscom K Inc. The amount owed to Hanscom K. Inc. at June 30, 2016 is $377,940. These loans are non-interest bearing and are payable on demand.
During the six month period ended June 30, 2016, the Company did not receive any loans from RCO Group Inc. The amount owed to RCO Group Inc. at June 30, 2016 is $28,500. These loans bear interest at 8.00% per annum and are payable on demand.
A summary of the amounts outstanding as of June 30, 2016 and December 31, 2015 are as follows:
|
|
Balance
June 30,
2016
|
|
|
Balance
December 31,
2015
|
|
|
|
|
|
|
|
|
Stockholders
|
|
$
|
1,621,679
|
|
|
$
|
1,396,679
|
|
Hanscom K. Inc.
|
|
|
377,940
|
|
|
|
311,487
|
|
RCO Group Inc.
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
$
|
2,028,119
|
|
|
$
|
1,736,666
|
|
NOTE 6 – DERIVATIVE LIABILITIES
During the six month period ended June 30, 2016, the Company recorded various derivative liabilities associated with the convertible notes payable discussed in Notes 4. The Company computes the value of the derivative liability at each reporting period using the Black Scholes Method using a risk free rate ranging from 0.36% and 0.52%, volatility rates ranging between 345.20% and 741.60% and a forfeiture rate of 0.00%. The derivative liability at June 30, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Tonaquint
|
|
$
|
942,404
|
|
|
$
|
815,979
|
|
Proteus Capital Group LLC
|
|
|
72,222
|
|
|
|
72,221
|
|
GSM Capital Group LLC
|
|
|
63,276
|
|
|
|
66,162
|
|
LG Capital
|
|
|
42,757
|
|
|
|
48,221
|
|
Redwood Management, LLC
|
|
|
745,983
|
|
|
|
372,994
|
|
Total
|
|
$
|
1,866,642
|
|
|
$
|
1,375,577
|
|
Financial assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Fair Value of Financial Instruments
Level 1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level 3— Inputs reflecting management's best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the period ended June 30, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,866,642
|
|
|
$
|
1,866,642
|
|
Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,375,577
|
|
|
$
|
1,375,577
|
|
The following table summarizes the derivatives liability from January 1
st
through June 30, 2016
|
|
Derivative liabilities
|
|
|
|
|
|
Balance December 31, 2015
|
|
$
|
1,375,577
|
|
Loss on change in fair value of the derivative
|
|
|
491,065
|
|
Balance June 30, 2016
|
|
$
|
1,866,642
|
|
NOTE 7 – CAPITAL STOCK
The Company is authorized to issue 10,000,000,000 shares of common stock (par value $0.00001) of which 3,249,327,026 were issued and outstanding as of June 30, 2016 and December 31, 2015.
There were no conversions of convertible debts into common shares of the Company during the six months ended June 30, 2016.
During 2015, the following convertible debt owners converted loans plus accrued interests into common shares of the Company.
|
|
Loans
converted
|
|
|
Interest
converted
|
|
|
Common shares
of the Company
|
|
|
|
|
|
|
|
|
|
|
|
Tonaquint (Note 4)
|
|
$
|
1,973
|
|
|
$
|
-
|
|
|
|
393,000
|
|
Accrued compensation
|
|
|
50,000
|
|
|
|
-
|
|
|
|
500,000,000
|
|
Stockholders (Note 5)
|
|
|
274,500
|
|
|
|
-
|
|
|
|
2,745,000,000
|
|
Total
|
|
$
|
326,473
|
|
|
$
|
-
|
|
|
|
3,245,393,000
|
|
NOTE 8
–
RELATED PARTY TRANSACTIONS
During the six month period ended June 30, 2016, notes payable to the stockholders increased by $225,000. The additions are for accrual of unpaid salaries and not actual cash proceeds.
These loans carry an interest of 5.00% and are payable on demand.
For the periods ended June 30, 2016 and 2015, interest accrued to related parties totaled $59,257 and $55,448.
During the six month period ended June 30, 2016, the Company received $66,453 in loans from Hanscom K Inc. The amount owed to Hanscom K Inc. at June 30, 2016 is $377,940. These loans are non-interest bearing and are payable on demand.
NOTE 9 – SUBSEQUENT EVENTS
During the first two quarters of 2017, the following convertible debt owners converted loans plus accrued interests into common shares of the Company.
|
|
Loans
converted
|
|
|
Interest
converted
|
|
|
Common shares
of the Company
|
|
|
|
|
|
|
|
|
|
|
|
Tonaquint (note 4)
|
|
$
|
96,311
|
|
|
$
|
85,990
|
|
|
|
2,157,581,572
|
|
GSM Capital Group LLC (note 4)
|
|
|
28,790
|
|
|
|
-
|
|
|
|
436,527,302
|
|
LG Capital (note 4)
|
|
|
19,500
|
|
|
|
7,444
|
|
|
|
197,116,728
|
|
Total
|
|
$
|
144,601
|
|
|
$
|
93,434
|
|
|
|
2,791,225,602
|
|
In February 2017, the Company and Hanscom K Inc. jointly and severally entered into a loan agreement for an amount $485,000 which is subject to annual interest of 16% and matures on November 1, 2017.
During May 2017, an aggregate of $108,220 in loans from stockholders were converted into 541,100,000 shares of the common stock.