| NOTE 4 - Convertible Debentures | a) On
July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares
of the Companys common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per
share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31,
2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly,
and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is
obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold
by the Company. The note is secured against substantially all of the assets of the Company.
The
note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Companys
common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of
certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure
to file various reports with the SEC within 120 days of the issuance of the note.
On
December 31, 2015, the Company and the note holder agreed to extend the maturity date to December 31, 2016. Interest shall
accrue at 12% per annum but may be reduced to 8% for any period of time in which the interest is paid in cash and not accrued.
The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future
cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new
debt instruments are substantially different, and the Company treated the original convertible note extinguished and exchanged
for a new convertible note. The Company recorded a gain on extinguishment of debt of $492,585. The Company also recognized
the fair value of the embedded conversion feature of $16,507,415 as a derivative liability and reduced the value of the convertible
loan to $nil.
During
the year ended December 31, 2015, the Company recorded total accretion of $500,000. At March 31, 2018 and December 31, 2017,
the carrying value of the note was $500,000.
b) On February 11,
2016, the Company entered into two convertible promissory notes for a total of $275,000, pursuant to which the Company received
proceeds of $237,500, net of an original issue discount of $25,000 and legal fees of $12,500. The notes are convertible at
a price equal to 60% of the lowest trading price of the Company's common stock for the 20 prior trading days, bearing interest
at 8% per annum and due on February 11, 2017. Due to these provisions, the embedded conversion options qualified for derivative
accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities
of $308,492 resulted in a full discount to the note payable of $250,000 and the recognition of $59,492 as additional interest
expense.
During the year
ended December 31, 2017, the entire balance of the discounts and costs were recognized in full. At March 31, 2018 and December
31, 2017, the carrying value of the notes was $275,000 and $275,000 with unamortized discount of $nil and $0, respectively.
These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
c) On May 17, 2016,
the Company entered into a convertible promissory note for $55,000, pursuant to which the Company received proceeds of $48,000,
net of an original issue discount of $5,000 and legal fees of $2,000. The notes are convertible at a price equal to 55% of
the lowest trading price of the Company's common stock for the 20 prior trading days, bearing interest at 8% per annum and
due on May 17, 2017. Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation
under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liabilities of $95,047 resulted in a full
discount to the note payable of $50,000 and the recognition of $45,047 as additional interest expense.
At March 31, 2018
and December 31, 2017, the carrying value of the notes was $35,400 and $59,400 with unamortized discount of $nil and $0, respectively.
These notes are past due as of the issuance of these financial statements, as a result the interest rate increased to 24%.
d) On October 30, 2017,
the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds of $25,000.
The notes are convertible at any time after September 13, 2018 at a mutually agreed upon conversion price, bearing interest
rate at 10% per annum and due on October 30, 2019. Due to these provisions, the embedded conversion options does not currently
qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
At March 31, 2018
and December 31, 2017, the carrying value of the note was $25,000 and $25,000, respectively.
e) On November 18,
2017, the Company entered into a convertible promissory note for $25,000, pursuant to which the Company received proceeds
of $25,000. The notes are convertible at any time after September 13, 2018 at a mutually agree upon conversion price, bearing
interest rate at 10% per annum and due on November 30, 2019. Due to these provisions, the embedded conversion options does
not currently quality for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
During January and
February 2018, the Company received an additional $75,000 under the same terms as the preciously issued convertible promissory
note.
At March 31, 2018
and December 31, 2017, the carrying value of the notes was $100,000 and $25,000, respectively.
f) On March 16, 2018,
the Company entered into a convertible promissory note for $36,750, pursuant to which the Company received proceeds of $35,000,
net of an original issue discount of fees of $1,750. The note is convertible at a price equal to 55% of the lowest trading
price of the Company's common stock for the 20 prior trading days, bearing interest at 8% per annum and due on March 15, 2019.
Due to these provisions, the embedded conversion options qualified for derivative accounting and bifurcation under ASC 815-15
Derivatives and Hedging. The initial fair value of the derivative liabilities of $71,305 resulted in a full discount to the
note payable of $36,750 and the recognition of $36,305 as a loss on the issuance of a convertible note. |
