TAER Tarsier Ltd (PK)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2016

NOTE 1 – ORGANIZATION

Tarsier Ltd. (the “Company”) was incorporated in Delaware on November 19, 2010 originally under the name China International Enterprise Corp. In 2011, the Company changed its name to HXT Holdings, Inc. On September 2, 2011, the Company acquired all of the outstanding capital stock of China Metal Holding, Inc. (“China Metal”), a privately-owned corporation formed in the State of Delaware. China Metal is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Changzhou Huayue Electronics Company, Limited (“Changzhou Huayue”), a limited liability company organized under the laws of the People’s Republic of China (“China” or “PRC”). Changzhou Huayue is engaged in developing, manufacturing and selling high frequency induction lights and electrolytic capacitors. Changzhou Huayue’s offices and manufacturing facilities are located in China. Effective November 2, 2011, the Company changed its name to Huayue Electronics, Inc. On December 4, 2015, the Company changed its name to Tarsier Ltd.

On April 23, 2015, the Company entered into a Partnership Interest Purchase Agreement to purchase 51% of the limited liability partnership interests in SavWatt Kazakhstan Ltd. (“SavWatt”), a limited liability partnership formed under the laws of Kazakhstan. SavWatt Kazakhstan was formed by Sutton Global Associates, Inc. (see Note 8) on April 8, 2015 to engage in the business of manufacturing and distributing energy efficient products in Kazakhstan and other Eastern European countries. No funding has been provided by either party and therefore there is no non-controlling interest as of February 29, 2016.

In May 2015, the Company approved plans to dispose of China Metal, including its subsidiary Changzhou Huayue. China Metal was sold on June 12, 2015. Refer to Note 4 for further discussion.

On September 8, 2015, the Company formed Tarsier Systems Ltd. (“Tarsier Systems”), a New York corporation. Tarsier Systems is a 100% owned subsidiary of the Company.

On December 28, 2015, the Company entered into a joint venture agreement with NOVOsol Power Company, Corp. (“Novosol”), to form Tarsier Novosol Energy for the development of a portfolio of turbine energy projects in the Philippines. The Company will own and control 51% of the outstanding stock of Tarsier Novosol Energy. As of April 19, 2016, the entity has yet to be formed.

On February 10, 2016, the Company formed Tarsier Energy, Ltd. (“Tarsier Energy”), a Delaware corporation, to resell electric and gas in New York, New Jersey, Pennsylvania and Maryland. Tarsier Energy is a 100% owned subsidiary of the Company.

NOTE 2 – BASIS OF PRESENTATION

These unaudited consolidated financial statements as of and for the three (3) and nine (9) months ended February 29, 2016 and 2015, respectively, reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.

These interim unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended May 31, 2015 and 2014, which are included in the Company’s May 31, 2015 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on September 15, 2015 and Form 10-K/A filed on October 13, 2015. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three (3) and nine (9) months ended February 29, 2016 are not necessarily indicative of results to be expected for the entire year ending May 31, 2016.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2016

NOTE 3 – GOING CONCERN

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. The Company had negative working capital of $1,717,148 at February 29, 2016 and incurred a net loss of $2,412,875 for the nine months ended February 29, 2016. The Company also has certain promissory notes which are past due.

These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These unaudited consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to fund acquisitions in order to generate profitable operations in the future.

The Company anticipates that future funds received will enable it to execute its business plan and generate positive operating results. However, the outcome of these matters cannot be predicted at this time and there are no assurances that the Company will be successful in accomplishing its plans.

NOTE 4 - DISCONTINUED OPERATIONS

In May 2015, the Company approved plans to dispose of its China Metal subsidiary, including China Metal’s wholly-owned subsidiary, Changzhou Huayue. Management elected to dispose of the entities because the Company intends to focus its operations outside of China and rather in the U.S. and other foreign markets. On June 2, 2015, the Company entered into a Stock Purchase Agreement to sell 100% of the issued and outstanding shares of common stock of China Metal. The Company completed the sale on June 12, 2015.

In accordance with ASC 205-20, China Metal, and its wholly-owned subsidiary Changzhou Huayue, have been presented as a discontinued business in the consolidated financial statements as of May 31, 2015. Previously reported results for the unaudited comparable periods ended November 30, 2014 have been restated to reflect this reclassification.

The operational results of China Metal are presented in the “Net income from discontinued operations, net of taxes” line item on the unaudited consolidated statement of operations for the periods ended November 30, 2014. The assets and liabilities of the discontinued business are presented on the consolidated balance sheet as of May 31, 2015 as assets and liabilities from discontinued operations.

On June 12, 2015, the Company completed its sale of China Metal. The Company repurchased 10,000,000 shares of its outstanding common stock from the seller and delivered to the seller 100% of the capital stock of China Metal, which was valued at $598,573 at the time of the sale. The purchased shares were retired and the cost was recorded against additional paid-in capital. As the seller was a related party (see Note 11), the transaction was recorded at cost and no gain or loss was recorded on the sale. There was no activity in the discontinued entity for the three and nine months ended February 29, 2016.

The major components of net income from discontinued operations were as follows:

The major classes of assets and liabilities from discontinued operations were as follows:

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All inter-company transactions and balances are eliminated in consolidation.

The following is a summary of the Company’s subsidiaries included in the consolidated financial statements as of February 29, 2016:

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2016

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant accounting estimates reflected in the Company’s consolidated financial statements includes promissory note debt discounts. Actual results could differ from those estimated by management.

Business combinations  

The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses, including management’s estimation of the fair value of any contingent consideration, is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of operations.

Non-controlling interests

Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of Accounting Standards Codification (“ASC”) 810 “ Consolidation ”, and are reported as a component of equity, separate from the parent company’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in the Company’s consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents.

Revenue recognition

The Company’s revenue is derived from the sale of products. The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104, included in ASC 605,  Revenue Recognition . The Company’s determination to recognize revenue is based on the following:

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2016

Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as advance from customers.

Cost of revenue

Included in cost of revenue are payments to third parties for their use of the electricity grid.

Income taxes

The Company accounts for income tax under the asset and liability method as stipulated by ASC 740, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Included in the deferred tax asset is the net operating loss carryforwards. The Company is not able to predict if such future taxable income will be more likely than not sufficient to utilize the benefit. As such, the Company does not believe the benefit is more likely than not to be realized and it has recognized a full valuation allowance for these deferred tax assets as of February 29, 2016 and 2015.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the three and nine months ended February 29, 2016 and 2015.

Fair value of financial instruments

The Financial Accounting Standards Board’s ASC Topic 820, “ Fair Value Measurements ”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.

The three levels are defined as follows:

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - inputs to the valuation methodology are unobservable.

The Company’s accounts payable and accrued expenses, due to shareholder and notes payables approximate fair values due to their short-term maturities. Cash is considered to be highly liquid and easily tradable as of February 29, 2016 and May 31, 2015 and therefore classified as Level 1 within the fair value hierarchy.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

The derivative liability has been valued at fair market value, in consideration of the fair value of the potential future consideration that may be required upon settlement under the terms of the convertible debt instruments. The Company’s derivative liability is classified as Level 3 financial instrument.

Stock-based compensation

The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The Company accounts for nonemployee share-based awards in accordance with ASC Topic 505-50.

Earnings (loss) per common share

The Company utilizes the guidance per FASB Codification ASC 260 Earnings per Share (“ASC 260”). Basic earnings per share are calculated by dividing income available to stockholders by the weighted average number of common stock shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common share equivalents outstanding during the period. Dilutive common stock share equivalents consist of common shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified treasury stock method). Such securities, shown below, presented on a common share equivalent basis and outstanding as of February 29, 2016 and 2015 have been excluded from the per share computations, since its inclusion would be anti-dilutive:

Convertible instruments

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with accounting standards for “Accounting for Derivative Instruments and Hedging Activities.”

Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three 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 otherwise applicable generally accepted accounting principles 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. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, 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 earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares 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. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

During the period ended February 29, 2016, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. Accordingly, the Company has recognized a derivative liability in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance sheet thereafter and in determining which valuation method is most appropriate for the instrument (e.g., Black-Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate, if any.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. ASC 350-30-35-4 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

The Company has the option to perform a qualitative assessment for impairment of its goodwill to determine if it is more likely than not that the fair value of a reporting unit is below its carrying value. If the Company determines based on a qualitative assessment that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then it would not be required to perform the two-step quantitative impairment test described below. If necessary, the Company will perform a quantitative assessment for impairment of its goodwill using the two-step approach.

Foreign currency translation

The functional currency of the U.S. parent company is U.S. Dollars, or USD. The functional currency of the discontinued subsidiary at May 31, 2015 is Renminbi or RMB, and its reporting currency is U.S dollars for the purpose of these financial statements.  The accounts of the Chinese subsidiary were translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters,” According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the unaudited statement of operations and comprehensive income for the three and nine months ended February 28, 2015.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassification had no impact on previously reported results of operations or stockholders’ equity.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

Recent accounting pronouncements

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the accounting of debt discounts. The effects of this update are to be applied retrospectively as a change in accounting principle. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating the effects of adopting ASU 2015-03.

In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company has adopted the guidance as described in Note 4.

NOTE 6 – ACQUISITIONS

On December 31, 2015, the Company completed an acquisition of certain of the assets of Demansys Energy Inc., (“Demansys”), including a patent-pending energy management software platform that was formerly marketed under the name “Grid Daemon.” The acquisition also included the assignment of an existing contract for the use of the software platform by a major NY-based industrial client. The total purchase price consideration was $1,900,000, consisting of: (i) a convertible promissory note in the principal amount of $450,000 and (ii) 2,500,000 shares of the Company’s common stock valued at a price of $0.58 per share totaling $1,450,000. The promissory note is payable in various installments from January to June 2016. The note bears interest only upon a late payment at the rate of 6% per annum (plus an additional 15% per annum following an event of default) and, following a payment default under such note, is convertible, at the option of the holder, into shares of common stock at a 30% discount to the 10-day average closing price of the Company’s common stock immediately preceding the date of conversion. The common shares are to be held in escrow and will be released to the seller only if the Company generates at least $2.0 million of net revenues from the acquired software platform over the two-year period ending on December 31, 2017.

The computer software and equipment purchases includes the Grid Daemon software valued at $958,513 and supporting computer equipment with a fair value of $13,050. The estimated useful lives of the computer software and equipment are four years. Amortization of the Grid Daemon software and depreciation of the computer equipment for the three and nine months ended February 29, 2016 were $39,938 and $544, respectively. The preliminary allocation to the Grid Daemon computer software includes the value of the assignment of the customer contract. Both the fair value of the contingent stock consideration and the allocation of the purchase price are subject to change within the measurement period.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the Company’s financial results as if the Demansys asset acquisition occurred on June 1, 2014. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results. The following unaudited pro forma financial information includes incremental computer software and equipment amortization as a result of the asset acquisitions.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

NOTE 7 – NOTES PAYABLE

On August 24, 2015, the Company entered into an unsecured, short-term promissory note with an accredited investor for $79,000. The note earns interest at 2% per annum and matured on November 23, 2015. In conjunction with the note, the Company issued 180,000 common shares to the investor. The shares resulted in a debt discount of $44,790 based on the relative fair value of the shares issued, of which $3,459 and $44,790 was amortized during the three and nine months ended February 29, 2016, respectively. The debt discount was fully amortized and the principal was still outstanding and past due at February 29, 2016. Accrued interest is included in accounts payable and accrued expenses on the unaudited consolidated balance sheet.

On September 3, 2015, the Company entered into an unsecured, short-term promissory note with an accredited investor for $78,000. The note earns interest at 2% and matured on December 3, 2015. In conjunction with the note, the Company issued 156,000 common shares to the investor. The shares resulted in a debt discount of $41,889 based on the relative fair value of the shares issued, of which $1,381 and $41,889 was amortized during the three and nine months ended February 29, 2016, respectively. The debt discount was fully amortized and the principal was still outstanding and past due at February 29, 2016. Accrued interest is included in accounts payable and accrued expenses on the unaudited consolidated balance sheet.

On November 23, 2015, the Company entered into an unsecured, short-term promissory note with an existing accredited investor for $25,000. The note earns interest at 6% and matured on January 24, 2016. In conjunction with the note, the Company issued 25,000 common shares to the investor. The shares resulted in a debt discount of $9,177 based on the relative fair value of the shares issued, of which $8,678 and $9,177 was amortized during the three and nine months ended February 29, 2016, respectively. The debt discount was fully amortized and the principal was still outstanding and past due at February 29, 2016. Accrued interest is included in accounts payable and accrued expenses on the unaudited consolidated balance sheet.

The following is a summary of notes payable at February 29, 2016:

NOTE 8 – CONVERTIBLE NOTES PAYABLE

On December 14, 2015, the Company entered into a convertible promissory note in connection with services performed for $30,000. The note earns interest at 2% per annum and matures on December 13, 2016. The holder, at its sole option, may convert the outstanding principal balance and accrued interest, into the Company’s common stock at a discount of 30% at maturity, with a floor price of $0.40 per share. In connection with this note, the Company recorded a beneficial conversion feature of $13,500, of which $2,848 was amortized during the three and nine months ended February 29, 2016.

On January 29, 2016, the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”). Pursuant to the Credit Agreement, TCA agreed to lend up to a maximum of $15,000,000 for working capital purposes, and provided an initial credit line in the amount of $5,000,000, which is subject to funding in the discretion of TCA. In connection with the closing, an initial take down of $400,000 was funded by TCA. Any increase in the amount of the credit line from the initial amount up to the maximum amount is at the discretion of TCA. The remaining $4,600,000 of the credit line has not yet been funded to the Company.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

The amounts borrowed pursuant to the Credit Agreement are evidenced by a Revolving Note (the “Revolving Note”) that is secured by a first priority security interest in substantially all of the Company’s assets in favor of TCA pursuant to a Security Agreement (the “Security Agreement”). The loan also is secured by the pledge of the capital stock of Tarsier Ltd and Tarsier Systems. The initial borrowing under the Revolving Note in the amount of $400,000 bears interest at the rate of 11% per annum and is due and payable on July 29, 2016. The maturity date may be extended in TCA’s sole discretion for an additional two six-month periods. TCA will collect in reserve an amount that is held in a lock box account equal to 20% of the revolving loan commitment on such date.

Upon an event of default under the Revolving Note, TCA may convert all or any portion of the outstanding principal and accrued and unpaid interest, and any other sums due and payable under the Revolving Note, into shares of the Company’s common stock at a conversion price equal to 85% of the lowest daily volume weighted average price of the common stock during the five trading days immediately prior to the applicable conversion date, in each case subject to TCA not being able to beneficially own more than 4.99% of the Company’s outstanding common stock upon any conversion. The TCA note was not determined to be a derivative liability because the embedded conversion features only apply if the Company enters into an event of default. At February 29, 2016, the Company was not in default per the TCA Credit Agreement.

The Company has the right to prepay the Revolving Note, in whole or in part. If the Company prepays the Revolving Note in excess of 80% of the principal then due within 90 days prior to the maturity date of the Revolving Note, the Company is obligated to pay TCA an amount for liquidated damages and for the costs of being prepared to make funds available under the Credit Agreement equal to 2.5% of the outstanding Revolving Note Commitment.

An event of default under the Credit Agreement includes (i) any non-payment of the obligations, (ii) a material misrepresentations in the Credit Agreement or any related document, (iii) a default of the Company’s obligations under the terms of the Credit Agreement or any other related agreement, (iv) a default under any other obligation, (v) a bankruptcy of the Company or other assignment for the benefit of creditors, (vi) a judgment against the Company in excess of a specified amount, (vii) the occurrence of a “Material Adverse Effect” as described in the Credit Agreement, (vii) a change of control, (viii) an impairment of any of the collateral pledged, (ix) a material adverse change in the financial condition or value of the collateral, or (x) a determination by TCA that the prospect for repayment of the obligation is impaired. Upon the occurrence of an event of default under the Credit Agreement or the Revolving Note, all amounts become immediately due and payable.

The Company also agreed to pay TCA various fees during the term of the Credit Agreement, including (i) a commitment fee in the amount of 2% of the amount drawn, (ii) an advisory fee of $5,000,000 (the “Advisory Fee”), which is payable in 24 monthly installments of $125,000 starting in August 2016, at the Company’s election, in cash or through the sale by TCA of shares of the Company’s common stock issued to TCA upon conversion of a portion of the 9,500,000 shares of Series A Preferred Stock, (the “Series A Preferred Stock”), issued to TCA under the Credit Agreement (see Note 9), with a balloon balance due at the end of such 24-month period, and (iii) collection fees, asset monitoring and due diligence fees. The Company paid TCA an aggregate of $51,700 in cash for fees, expenses and closing costs in connection with the initial closing under the Credit Agreement, and an additional $30,000 in cash for legal costs, netting $318,300 in connection with such closing. The Advisory Fee payable starting in August 2016 is included as accrued debt issuance costs on the unaudited consolidated balance sheet. The fees paid in cash, plus the accrued Advisory Fee, resulted in total deferred financing costs of $5,081,700 which are netted against the accrued debt issuance costs liability. During the three and nine months ended February 29, 2016, the Company incurred $180,283 in amortization of the deferred financing costs.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

The following is a summary of accrued debt issuance costs and deferred financing costs at February, 29, 2016:

On February 11, 2016, the Company entered into a convertible promissory note with an institutional lender for $56,750. The note earns interest at 10% per annum and matures on November 11, 2016. At any time following the date of the note, and ending on the later of (i) the maturity date and (ii) the date of payment of the default amount, the noteholder may elect to convert all or any part of the outstanding principal, and any accrued interest, into shares of the Company’s common stock. The outstanding principal, and any accrued interest, are convertible at a price equal to the lesser of (i) 60% multiplied by the lowest trading price during the previous 25 day trading period ending on the latest complete trading day prior to the date of the note and (ii) 60% multiple by the lowest trading price during the 25 day trading period ending on the latest complete trading day prior to the conversion date. In connection with this note, the Company recorded a derivate liability which was recognized as a debt discount. The Company recorded an initial debt discount of $45,311, of which $2,988 was amortized during the three and nine months ended February 29, 2016.

The following is a summary of activity of convertible notes payable for the nine months ended February 29, 2016:

NOTE 9 – DERIVATIVE LIABILITY

The Company accounts for the embedded conversion features included in its convertible instruments as derivative liabilities. In connection with a convertible promissory note dated February 11, 2016, the Company recorded a derivative liability of $45,311. For the three and nine months ended February 29, 2016, the Company recorded a gain on the change in fair value of the derivative liability of $49, included in other income (expenses) on the unaudited consolidated statements of operations and comprehensive income.

At the measurement date, February 29, 2016, the fair value of the embedded conversion feature was based on the Black-Scholes method using the following assumptions:

The following is a summary of the change in fair value of the derivative liability for the nine months ended February 29, 2016:

NOTE 10 - STOCKHOLDERS’ EQUITY

Preferred Stock

Of the 10,000,000 shares of the Company's authorized Preferred Stock, $0.001 par value per share, 9,500,000 shares are designated as Series A Preferred Stock. As part of the Credit Agreement (Note 8), the Company has designated TCA as the owner of all the Series A Preferred Stock (the “Holder”). The Company may elect, at its option, to repay the Advisory Fee through the issuance of Series A preferred shares, convertible into common shares, or monthly cash installments. Although the Series A shares have been designated to TCA, the shares are not issued for financial statements purposes as the Company may repay the Advisory Fee in cash payments rather than stock. Upon the commencement of the Advisory Fee monthly payment starting in August 2016, the Company will issue Series A shares if it elects to repay in stock.

The Series A Preferred Stock ranks senior to all classes or series of the Company’s capital stock except for those classes or series, if any, which specifically provide that such class or series will rank senior in preference or priority to the Series A Preferred Stock. Holders of shares of the Series A Preferred Stock are not entitled to vote on any matter unless and until the Series A Preferred Stock has been converted into shares of common stock. Each share of the Series A Preferred Stock may be converted into common stock at a conversion rate equal to one divided by the average of the volume weighted average price of the Company’s common stock for the five business days immediately prior to the date that a conversion notice is provided. Any fractional shares of common stock that result from a conversion of the Series A Preferred Stock shall be rounded up to the next whole share. The Holder of the Series A Preferred Stock will not be entitled to participate with the holders of common stock in any dividends or distributions.

Upon any liquidation, dissolution or winding up of the Company, the Holder will be entitled to be paid the Liquidation Preference, in preference to any distributions to the holders of the junior securities, including, without limitation, the common stock. The Liquidation Preference shall be defined and calculated as follows: (i) $5,000,000 in the aggregate (not on a per share basis); less (ii) any and all cash proceeds previously received by Holder from the sale of the Series A Preferred Stock and/or Conversion Shares; and less (iii) any payments previously received by the Holder in redemption of shares of Series A Preferred Stock or Conversion Shares.

Common Stock

On June 12, 2015, the Company repurchased 10,000,000 shares of the Company’s outstanding common stock in connection with the sale of China Metal. Refer to Note 11 for further discussion.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINAAL STATEMENTS

FEBRUARY 29, 2016

During the nine months ended February 29, 2016, the Company issued 135,162 common shares pursuant to consulting agreements for a total value of $77,400. The fair value of the stock was determined using the closing trading prices on the issuance dates. The amounts are included in professional fees in the unaudited consolidated statements of operations and comprehensive income.

On November 30, 2015, the Company issued 500,000 common shares to the members of the Board of Directors as compensation for being board members for a total value of $290,000, or $0.58 per share. The fair value of the stock was determined using the closing trading price on the issuance date. The amounts are included in salaries and compensation in the unaudited consolidated statements of operations and comprehensive income.

On January 4, 2016, the Company issued 100,000 common shares pursuant to an employment agreement.

On January 12, 2016, the Company issued 1,000,000 common shares to NOVOsol Power Company, Corp. in connection with the formation of the Tarsier Novosol Energy joint venture. The total value of the shares issued was $580,000 and is included in professional fees in the unaudited consolidated statements of operations and comprehensive income.

As of February 29, 2016 and May 31, 2015, the Company had 28,921,403 and 34,325,241 common shares issued and outstanding, respectively.

Options

During the nine months ended February 29, 2016, the Company issued options to employees pursuant to employment agreements entered into.

The Company utilizes the Black-Scholes option pricing model to determine the fair value of the employee stock options. Management is required to make certain assumptions with respect to selected model inputs. Expected volatility is based on comparable publicly traded companies’ stock movements. The expected life of the options represents the period of time that the options are expected to be outstanding. The risk free interest rate is based on the U.S treasury yield curve in effect at the time of grant. The fair value and assumptions used for options granted in the nine months ended February 29, 2016 are as follows:

The following summarizes activity for stock options for the nine months ended February 29, 2016:

As of February 29, 2016, total unrecognized compensation expense related to the unvested stock options was $1,964,120 which is expected to be recognized over a weighted average period of 5.94 years.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2016

Warrants

During the nine months ended February 29, 2016, the Company issued warrants to consultants for certain services performed.

The Company utilizes the Black-Scholes option pricing model to determine the fair value of the warrants. Management is required to make certain assumptions with respect to selected model inputs. Expected volatility is based on comparable publicly traded companies’ stock movements. The expected life of the warrants represents the period of time that the warrants are expected to be outstanding. The risk free interest rate is based on the U.S treasury yield curve in effect at the time of grant. The fair value and assumptions used for warrants granted in the nine months ended February 29, 2016 are as follows:

The following summarizes activity for warrants for the nine months ended February 29, 2016:

As of February 29, 2016, total unrecognized compensation expense related to the unvested warrants was $217,904, which is expected to be recognized over a weighted average period of 5.25 years.

NOTE 11 – RELATED PARTY TRANSACTIONS

An individual or entity is considered to be a related party if the person or the entity has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. An individual or entity is also considered to be related if the person or the entity is subject to common control or common significant influence.

On June 12, 2015, the Company sold 100% of its China Metal subsidiary to Mr. Shudong Pan, an officer and director of China Metal and Changzhou Huayue. As part of the sale, the Company repurchased 10,000,000 of the outstanding common shares held by Mr. Pan. The repurchase of common shares was recorded at cost of $598,573 as additional paid-in capital, which represented the value of China Metal’s net assets at the time of the sale.

During the nine months ended February 29, 2016, Sutton Global Associates Inc. (“Sutton Global”), a company controlled by the chief executive officer, paid certain expenses on behalf of the Company. The balance owed to Sutton Global is included as due to shareholder on the unaudited consolidated balance sheet.

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2016

On April 27, 2015, the Company entered into an employment agreement with Isaac H. Sutton to serve as Chief Executive Officer of the Company. The agreement provides for an initial term of three years and will terminate on April 27, 2018. The employment agreement will be extended automatically for successive one-year periods thereafter unless the Company or Mr. Sutton gives written notice to the other to allow the employment agreement to expire. Mr. Sutton will be paid an initial annual base salary of $120,000. Amounts owed to Mr. Sutton per the employment contract are included in the table above. At February 29, 2016, accrued salary owed to Mr. Sutton is included in due to shareholder per the unaudited consolidated balance sheet.