NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
NOTE 1 – ORGANIZATION AND BUSINESS
3Power Energy Group, Inc. (the “Company”)
was incorporated in the State of Nevada on December 18, 2002 under the name ATM Financial Corp. On April 1, 2008, the Company changed
its name from ATM Financial Corp. to Prime Sun Power Inc. On March 30, 2011, the Company changed its name from Prime
Sun Power Inc. to 3Power Energy Group, Inc. and increased its authorized share capital to 300,000,000 shares. The Company
plans to pursue a business model producing renewable generated electrical power and other alternative energies.
The Company's primary efforts is to sell electricity
generated by solar, wind, hydro, biomass and other renewable energy resources and to develop, build and operate power plants based
on these technologies. The core approach of the Company's business is to deliver energy in markets where there is an inherent energy
gap between supply and demand or where there exists long term, stable, government back by financial support for development of
renewable energy.
On May 13, 2011, pursuant to a Stock Purchase
Agreement (the “Stock Purchase Agreement”), the Company consummated a reverse merger (“Merger”) with Seawind
Energy Limited (“Seawind Energy”), Seawind Services Limited (“Seawind Services”, and together with Seawind
Energy, the “Seawind”) and the shareholders of Seawind Energy (the “Seawind Group Shareholders” and together
with the Company, and the Seawind Companies, the “Parties”). The Seawind Companies were formed under the laws of the
United Kingdom.
In connection with the Merger, the Company
issued 40,000,000 restricted shares of the Company’s common stock to the Seawind Group Shareholders (such acquisition
is referred to herein as the “Seawind Acquisition”).
Upon completion of the Stock Purchase Agreement,
Seawind became 3Power Group, Inc.'s wholly-owned subsidiary. For accounting purposes, the acquisition has been treated as a recapitalization
of Seawind with Seawind as the acquirer (reverse acquisition). The historical financial statements prior to May 13, 2011 are those
of Seawind Energy. The Merger was accounted for as a “reverse merger”, since the stockholders of Seawind owned a majority
of the Company’s common stock immediately following the transaction and their management has assumed operational, management
and governance control.
The transaction was accounted for as a recapitalization
of Seawind pursuant to which Seawind was treated as the surviving and continuing entity. The Company did not recognize
goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial
statements are those of Seawind immediately following the consummation of the reverse merger. The accompanying consolidated financial
statements give retroactive effect to the recapitalization.
In anticipation of the closing of the Stock
Purchase Agreement, the Company changed its name to 3Power Energy Group Inc. and increased its authorized share capital to 300,000,000
shares.
On July 4, 2011, the Seawind Energy Limited
and Seawind Service Limited changed their name to 3Power Energy Limited and 3Power Project Service Limited, respectively.
Acquisition of Shala Energy sh .p .k:
On June 5, 2012, the Company and Shala Energy
sh.p.k ("Shala") executed a master acquisition agreement (the “Acquisition Agreement”) where Shala agreed
to transfer and the Company agreed to acquire 75% of the equity of Shala. Under the Acquisition Agreement (the “Acquisition”),
the closing of the acquisition is subject to the Company’s completion and satisfaction of the due diligence on Shala and
Shala’s partners with respect to their shares in Shala and upon the Company’s payment of the first year premium for
the insurance bond premium issued in favor of the Ministry of Economy, Trade and Energy of Republic of Albania in replacement of
the then existing bank guarantee issued in favor of Ministry of Economy, Trade and Energy of Republic of Albania for the Shala
River Concession Agreement, in the amount of 7,230,315 Euro (the “Required Insurance Bond Premium”). Shala is a firm
specializing in developing hydro-electric projects, owning and operating sustainable energy projects in the hydro, wind and solar
power sectors in Albania.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
On August 10, 2012, after the conclusion of
the due diligence efforts, the Company made the first year payment of required Insurance Bond Premium in the amount of 164,851
Euro ($211,972), and as such the Acquisition closed. The acquisition resulted in the Company acquiring 75% of the interest in a
hydro-electrical project of a total installed power of 127.6 MW of Shala River in Albania. The Shala River project finalization
is in process with the Ministry of Albania.
In connection the acquisition of Shala, the
Company is obligated for an aggregate of 4% of the total project costs as facilitator fees in either cash or the Company's common
stock to Capital Trust Holding AG, as advisor for the Shala acquisition transaction. During the year ended March 31, 2013, the
Company accrued $600,000 due to the facilitator fees for feasibility studies in process and recorded as expenses. In December
2013, the Company issued to Capital Trust Holding AG and its affiliates, 15,000,000 shares of its common stock, valued at
$0.04 per share in settlement of the facilitator fees for feasibility studies.
During the year ended March 31, 2016, Shala
began operations, acquiring assets and incurring costs. As such, its activity is including in the consolidated balance sheet and
statement of operations for the current period.
Liquidation/winding up of international
subsidiaries:
On October 8, 2012, the High Court of Justice
in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of 3Power Project Services Limited,
a wholly owned subsidiary of the Company’s Subsidiary, 3Power Energy Limited.
By the letter of The Insolvency Service dated
October 12, 2012, the Company was required to provide information relating to 3Power Project Services Limited to the Official Receiver’s
Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s
Office to review the prospect of recovering the assets of 3Power Project Services Limited for the benefit of creditors.
The Company was also required to deliver to
the Official Receiver’s Office certain assets (cash or cheque) and accounting records that are still in its possession or
control. The Company has attended the interview and delivered all the available accounting records to the Officer Receiver’s
Office. No order confirming a plan of reorganization, arrangement or liquidation has been entered as of this filing.
The major classes of liabilities of 3Power
Project Services Limited as of March 31, 2016 are as follows:
Current liabilities
|
|
$
|
1,583,816
|
|
On January 17, 2013, the Company filed a Strike
off application with the Registrar of Companies in the United Kingdom to dissolve 3Power Energy Limited, a wholly owned subsidiary
of the Company. Such strike-off application has yet to be approved as of the date of this report. 3Power Energy Limited had liabilities
as of March 31, 2016 as below:
Current liabilities
|
|
$
|
167,388
|
|
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include
the accounts of the Company and its wholly and majority owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria
(3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
ASC 605-10 incorporates Accounting Standards
Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements
that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing
605-25 on the Company's financial position and results of operations was not significant.
Use of estimates
The preparation of financial statements in
accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Comprehensive Income (Loss)
The Company applies Statement of Accounting
Standards Codification subtopic 220-10, Comprehensive Income (“ASC 220-10”). ASC 220-10 establishes standards for the
reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of
a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes
in equity during a period except those resulting from investments by owners and distributions to owners. ASC 220-10 requires other
comprehensive income (loss) to include foreign currency translation adjustments and unrealized gains and losses on available for
sale securities.
Fair Values
The Company adopted the provisions of Accounting
Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines
fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels
of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for
identical assets or liabilities.
Level 2 - Observable inputs other than Level
1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived
principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation
methodology that are significant to the measurement of fair value of assets or liabilities.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
Functional currency
The accompanying consolidated financial statements
are presented in U.S. dollars ("USD"). The Company's functional currencies are British pounds ("GBP") and Albania
Lek (“LEK”). The consolidated financial statements are translated into USD in accordance with Codification ASC 830,
Foreign Currency Matters
. All assets and liabilities were translated at the current exchange rate, at respective balance
sheet dates, shareholders' equity is translated at the historical rates and income statement items are translated at the average
exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated
other comprehensive income in the shareholders' equity in accordance with Codification ASC 220,
Comprehensive Income
.
Translation gains and losses that arise from
exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into GBP
at the rate on the date of the transaction and included in the results of operations as incurred. There were no material transaction
gains or losses in the periods presented.
The exchange rates used to translate amounts
in GBP and LEK into USD for the purposes of preparing the consolidated financial statements were as follows:
Balance sheet:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Period-end GBP: USD exchange rate
|
|
$
|
1.43677
|
|
|
$
|
1.4834
|
|
Period-end LEK: USD exchange rate
|
|
$
|
0.00803
|
|
|
$
|
NA
|
|
Income statement:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Average Yearly GBP: USD exchange rate
|
|
$
|
1.43236
|
|
|
$
|
1.6132
|
|
Average Yearly LEK: USD exchange rate
|
|
$
|
0.00803
|
|
|
$
|
NA
|
|
Income taxes
Deferred income tax assets and liabilities
are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences
between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted
tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than
not that these deferred income tax assets will be realized.
The Company recognizes a tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a
position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
As of March 31, 2016 and 2015, the Company has not recorded any unrecognized tax benefits.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
Segment Information
Accounting Standards Codification subtopic
Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments
in annual financial statements and requires selected information for those segments to be presented in interim financial reports
issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources
and assess performance. The information disclosed herein materially represents all of the financial information related to the
Company’s principal operating segment.
Accounting for Stock-Based Compensation
The Company accounts for stock, stock options
and warrants using the fair value method promulgated by Accounting Standards Codification subtopic 480-10, Distinguishing Liabilities
from Equity (“ASC 480-10”) which addresses the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. Therefore, results include non-cash compensation expense as a result of the issuance of stock,
stock options and warrants and we expect to record additional non-cash compensation expense in the future.
The Company follows Accounting Standards Codification
subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non-employees
be recognized in the income statement based on their fair values.
Per share data
The Company accounts for net loss per share
in accordance with Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which requires
presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations for all entities
with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS.
Basic and diluted net loss per common share
is calculated by dividing net loss, by the weighted average number of outstanding shares of common stock, adjusted to give effect
to the exchange ratio in the Share Exchange in May 2011 (see Note 1), which was accounted for as recapitalization of the Company.
The Company had no common stock equivalents as of March 31, 2016 and 2015.
Non-controlling Interests
The Company adopted the accounting standard
for non-controlling interests in the consolidated financial statements as of January 1, 2009. This standard establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. This standard also establishes reporting
requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and the
interests of the non-controlling owner.
Cash
The Company considers all highly liquid debt
instruments purchased with a maturity date of three months or less to be cash equivalents.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
Contingencies
Certain conditions may exist as of the date
the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more
future events occur or fail to occur. The Company's management and legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies relating to legal proceedings that are pending against
the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits
of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be
sought. If the assessment of the contingency indicates that it is probable that a material loss has been incurred and the amount
of the liability can be estimated, the estimated liability would be accrued in the Company's financial statements.
Recent Accounting Pronouncements
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance
on identifying performance obligations and improves the operability and understandability of licensing implementation guidance.
The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting
periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the
impact of ASU 2016-10 on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects
of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption
is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should
be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must
adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum
statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition
method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted.
Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares
to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess
tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied
prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement
of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the
impact of adopting ASU No. 2016-09 on consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a
lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic
842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement
of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right
to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact
of adopting ASU No. 2016-02 on our consolidated financial statements.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
In January 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification
and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments,
financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting
from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods
beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment
to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted
except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific
credit risk in other comprehensive income. Adoption of this new standard is not expected to have a material impact on the Company’s
consolidated financial statements.
In November 2015, the FASB issued (ASU) 2015-17,
Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current
asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires
that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent
in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning
after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter of the year
ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s
financial position, results of operations or cash flows, and did not have any effect on prior periods due to the full valuation
allowance against the Company’s net deferred tax assets
In September 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments
relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts
of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the
balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer
may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition).
The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record
these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies
for periods beginning after December 15, 2015. Adoption of this new standard is not expected to have a material impact on the Company’s
consolidated financial statements.
In August 2015, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-15, “Interest - Imputation of Interest
(Subtopic 835-30).” ASU 2015-15 provides guidance as to the presentation and subsequent measurement of debt issuance costs
associated with line of credit arrangements. We do not expect the adoption of ASU 2015-15 to have a material effect on our financial
position, results of operations or cash flows.
In August 2015, the FASB issued ASU No. 2015-14,
Revenue From Contracts With Customers (Topic 606).” The amendments in this ASU defer the effective date of ASU 2014-09. Public
business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including
interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that reporting period. We do not expect the adoption of ASU
2015-14 to have a material effect on our financial position, results of operations or cash flows.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
In July 2015, the FASB issued ASU No. 2015-11,
"Simplifying the Measurement of Inventory (Topic 330)." ASU 2015-11 simplifies the accounting for the valuation of all
inventory not accounted for using the last-in, first-out ("LIFO") method by prescribing that inventory be valued at the
lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. We do not expect the adoption of ASU
2015-11 to have a material effect on our financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU 2015-05,
"Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)." ASU 2015-05 provides guidance regarding
the accounting for a customer's fees paid in a cloud computing arrangement; specifically, about whether a cloud computing arrangement
includes a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies'
annual periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective
or retrospective basis. Early adoption is permitted. We do not expect the adoption of ASU 2015-05 to have a material effect on
our financial position, results of operations or cash flows
.
In April 2015, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs
related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected
by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein
the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance.
We do not expect the adoption of ASU 2015-03 to have a material effect on our financial position, results of operations or cash
flows.
There were various updates recently issued
by the Financial Accounting Standards Board, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
NOTE 3 - GOING CONCERN
AND MANAGEMENT’S LIQUIDITY PLANS
The accompanying consolidated financial statements
have been prepared on a basis that assumes the Company will continue as a going concern. As of March 31, 2016, the Company
has a deficit of $18,635,088 applicable to controlling interest compared with deficit of $17,774,305 applicable to controlling
interest for the year ended March 31, 2015, and has incurred significant operating losses and negative cash flows. For
the year ended March 31, 2016, the Company sustained a net loss attributable to the Company of $860,783 compared to a net loss
of $1,111,111 for the year ended March 31, 2015.
The Company's primary
source of operating funds has been cash proceeds from related party loans. The Company intends to raise additional capital
through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms
acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain
operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further
extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support
further operations. There can be no assurance that such a plan will be successful.
Accordingly, the accompanying
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the realization of
assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented
in the financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial
statements do not include any adjustment that might result from the outcome of this uncertainty.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2016 and 2015 summarized
as follows:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Furniture and equipment
|
|
$
|
14,382
|
|
|
$
|
-
|
|
IT and other equipment
|
|
|
27,192
|
|
|
|
-
|
|
|
|
|
41,574
|
|
|
|
-
|
|
Less accumulated depreciation
|
|
|
(3,749
|
)
|
|
|
-
|
|
|
|
$
|
37,825
|
|
|
$
|
-
|
|
Property and equipment are recorded on the
basis of cost. For financial statement purposes, property, plant and equipment are depreciated using the straight-line method over
their estimated useful lives.
Expenditures for repair and maintenance which
do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold
or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting
gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment
in accordance with the guidance for impairment of long lived assets.
During the year ended March 31, 2016 and 2015,
the Company charged to operations depreciation expense of $3,749 and $-0-, respectively.
NOTE 5 - NOTES PAYABLE
On March 2, 2010, the Company issued an unsecured
Senior Promissory Note ("Note") for 470,000 Euros ($533,699 at March 31, 2016) initially due on December 31, 2010 including
interest at 7.5% per annum. Upon default by the Company on January 1, 2011, the interest rate of 15% per annum applies. The Note
has not been paid by the Company. As of March 31, 2016 and 2015, accrued interest on this note was $670,655 and $519,625 respectively.
During the year ended March 31, 2016 and 2015, the Company recognized a loss of $23,749 and gain of $143,444 respectively, on foreign
currency translation due to the change in exchange rates between the Euro and the USD.
On November 14, 2012, CRG Finance AG (“CRG”)
filed a complaint in the District Court for Southern District of New York for allegedly beaching a promissory note. However, the
Company’s contention is that the promissory note was satisfied by a third party, Rudana Investment Group AG.
On January 17, 2013, the Company filed a motion
to compel arbitration and on May 23, 2013, the Court granted the Company’s Motion to Compel and ordered that CRG file its
claims as a AAA arbitration. On June 5, 2013, CRG filed its statement of claim with the AAA in the International Center for Disputed
Resolution division. The Company filed its statement answer on July 8, 2013. The Company denies the allegations in the complaint
and claims it is without merit. In defense of the action, the Company’s counsel vigorously sought documents from Rudana in
an effort to establish the Company’s defense. However, due to the fact that Rudana was in the midst of a bankruptcy action
in the Swiss Bankruptcy Court, the Company’s counsel sought an order from the AAA Arbitrator authorizing the Swiss Bankruptcy
Court to provide documents establishing Rudana’s satisfaction of the debt. On or about December 13, 2013, the AAA Arbitrator
entered such an order and the Company’s counsel requested the documents. However, after the Company’s counsel made
several requests to postpone the arbitration to allow time to receive the requested documents, the Company was not able to obtain
the necessary documents from the Swiss Bankruptcy Court.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
The Final Hearing in the AAA arbitration took
place on February 27, 2014, wherein the Company was not able to establish its defense due to the lack of evidence from Rudana.
The AAA Arbitrator entered an award of Euro 470,000 plus interest at the annual rate of 7.5% against the Company. As of March 31,
2014, the total award against the Company is Euro 728,241 ($1,012,401). On or about April 4, 2014, in an effort to perfect this
award against the Company, CRG filed a petition with the Southern District of New York seeking to confirm the award. In addition,
the Company accrued total of $56,835 as reimbursement of attorney fees and cost incurred by CRG and $15,500 as administrative fees
and compensation to the Arbitrator. On July 8, 2014, a judgment has been entered against 3Power in the Southern District of New
York in the amount of $1,086,186. That judgment remains unpaid.
NOTE 6 - COMMON STOCK
The Company is authorized to issue 300,000,000
shares of $0.0001 par value common stock. As of March 31, 2016 and 2015, 249,949,923 shares were issued and outstanding.
In June 2014, the Company issued 20,330,996
shares of its common stock in settlement of $357,825 loan from a related party.
In September 2014, the Company issued 10,977,908
shares of its common stock in settlement of $384,227 loan from a related party.
In December 2014, the Company issued 15,079,068
shares of its common stock in settlement of $331,739 loan from a related party.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company’s current and former officers
and stockholders have advanced funds on a non-interest bearing basis to the Company for travel related and working capital purposes.
The Company has not entered into any agreement on the repayment terms for these advances. As of March 31, 2016 and 2015, there
were $845,129 and $168,404 advances outstanding, respectively.
As of March 31, 2016 and 2015, the Company
owed approximately £117,918 ($169,421) and £117,918 ($174,920), respectively, to Seawind Marine Limited, a company
controlled by the former directors, Mr. T P G Adams and Mr. J R Wilson.
As of March 31, 2016 and 2015, the Company
owed approximately £177,548 ($255,096) and £177,548 ($263,375), respectively to Seawind International Limited, a company
controlled by the former directors, Mr. T P G Adams and Mr. J R Wilson.
As of March 31, 2016 and 2015, the Company
owed approximately £88,753 ($127,518) and £88,753 ($131,656), respectively to Power Products Ltd (Enerserve Limited
f/k/a), a company under the control of Mr. T P G Adams and Mr. J R Wilson, former directors of the Company.
As of March 31, 2016 and 2015, the company
owed Mr. J R Wilson (ex-Director) £1,144 ($1,644) and £1,144 ($1,697), respectively.
During the year ended March 31, 2016 and 2015,
the Company charged to operation $180,000 and $180,000 as salary to Board members, respectively.
During the year ended March 31, 2016 and 2015,
the Company charged to operation $15,000 and $180,000 as consulting fees to a significant shareholder for services provided, respectively.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
NOTE 8 - LOSS PER SHARE
The following table presents the computation of basic and diluted
loss per share:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Net loss available for common shareholders
|
|
$
|
(860,783
|
)
|
|
$
|
(1,111,111
|
)
|
Basic net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average common shares outstanding-basic
|
|
|
249,949,923
|
|
|
|
229,162,235
|
|
Diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average common shares outstanding-diluted
|
|
|
249,949,923
|
|
|
|
229,162,235
|
|
NOTE 9 - NON CONTROLLING INTEREST
The Company has a 50% interest in American
Seawind Energy LLC, a company registered in the State of Texas, United States of America and as of March 31, 2015, 75% interest
in Shala Energy sh pk, a Company registered in the Republic of Albania. American Seawind Energy LLC was inactive as of March 31,
2016.
A reconciliation of the non-controlling loss
attributable to the Company:
Net loss Attributable to the Company and transfers
(to) from non-controlling interest for the year ended March 31, 2016:
|
|
American
|
|
|
Shala
|
|
|
|
Seawind
|
|
|
Energy
|
|
|
|
Energy LLC
|
|
|
sh pk
|
|
Net loss
|
|
$
|
-
|
|
|
$
|
325,691
|
|
Average Non-controlling interest percentage
|
|
|
50.0
|
%
|
|
|
25.0
|
%
|
Net loss attributable to the non-controlling interest
|
|
$
|
-
|
|
|
$
|
81,423
|
|
Net loss Attributable to the Company and transfers
(to) from non-controlling interest for the year ended March 31, 2015:
|
|
American
|
|
|
Shala
|
|
|
|
Seawind
|
|
|
Energy
|
|
|
|
Energy LLC
|
|
|
sh pk
|
|
Net loss
|
|
$
|
-
|
|
|
$
|
-
|
|
Average Non-controlling interest percentage
|
|
|
50.0
|
%
|
|
|
25.0
|
%
|
Net loss attributable to the non-controlling interest
|
|
$
|
-
|
|
|
$
|
-
|
|
The following table summarizes the changes
in Non-controlling Interest from April 1, 2014 through March 31, 2016:
|
|
American
|
|
|
|
|
|
|
|
|
|
Seawind
|
|
|
Shala
|
|
|
|
|
|
|
Energy LLC
|
|
|
Energy sh pk
|
|
|
Total
|
|
Balance, April 1, 2014
|
|
$
|
608
|
|
|
$
|
(202,993
|
)
|
|
$
|
(202,385
|
)
|
Net loss attributable to the non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance, March 31, 2015
|
|
|
608
|
|
|
|
(202,993
|
)
|
|
|
(202,385
|
)
|
Net loss attributable to the non-controlling interest
|
|
|
-
|
|
|
|
(81,423
|
)
|
|
|
(81,423
|
)
|
Balance, March 31, 2016
|
|
$
|
608
|
|
|
$
|
(284,416
|
)
|
|
$
|
(283,808
|
)
|
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
NOTE 10 - INCOME TAXES
The Company utilizes ASC 740 “Income
Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the consolidated financial statement or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse.
For the years ended March 31, 2016 and 2015,
the Company had available for U.S federal income tax purposes net operating loss carryovers of approximately $4,870,000 and $4,005,000
respectively, which expire beginning in 2033. The net operating loss carryovers may be subject to limitations under Internal Revenue
Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against
the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the
Company it is more likely than not that the benefits will not be realized.
For the years ended March 31, 2016 and 2015,
the Company had available for UK income tax purposes net operating loss carryovers of approximately $2,228,000 and $2,228,000,
respectively, which can be carried forward indefinitely. The Company has provided a full valuation allowance against the amount
of UK unused net operating loss benefit, since management believes that, based upon the earnings history of the Company,
it is more likely than not that the benefits will not be realized.
The income tax provision (benefit) consists
of the following:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
413,000
|
|
|
|
487,000
|
|
|
|
|
413,000
|
|
|
|
487,000
|
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(413,000
|
)
|
|
|
(487,000
|
)
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
Following tax rates were used to calculate
deferred taxes for the years ended March 31, 2016 and 2015:
For US Entity:
|
|
|
|
|
Statutory federal income tax rate
|
|
|
35.00
|
%
|
State income taxes rate
|
|
|
8.84
|
%
|
|
|
|
|
|
Effective tax rate
|
|
|
43.84
|
%
|
For UK Entity:
|
|
|
|
|
Statutory federal income tax rate
|
|
|
24.00
|
%
|
The Company has filed its tax returns through
March 31, 2015.
3POWER ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
The provisions of ASC 740 require companies
to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained
upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740
also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.
Management does not believe that the Company
has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly,
the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s
policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.
All tax years for the Company remain subject
to future examinations by the applicable taxing authorities.
NOTE 11- COMMITMENTS AND CONTINGENCIES
Wuersch Settlement
In November 2011, the Company entered into
a Settlement Agreement (the “Wuersch Agreement”) with Wuersch & Gering LLP (“Wuersch”). The Wuersch
Agreement provided that Wuersch will accept a cash payment of $50,000, payable in five equal installments, and 2,000,000 options
to purchase shares of our common stock at $0.54 per share as full satisfaction of debt obligations to Wuersch of $518,359. The
five cash payment installments of $10,000 were due on the 15th calendar day of each month beginning November 15, 2011 and ending
on March 15, 2012. Two installment payments were made to Wuersch. The total outstanding balance as of March 31, 2016 and 2015 is
$504,518.
Hellenic Settlement
On November 15, 2011, the Company entered into
a Settlement Agreement (the “Hellenic Agreement”) with Hellenic Technologies (“Hellenic”). The Hellenic
Agreement provided that Hellenic will accept cash payments of $70,000, payable in five equal installments, and 1,260,000 shares
of common stock as full satisfaction of debt obligations to Hellenic of $700,000. The five cash payment installments of $14,000
were due beginning November 14, 2011 and continuing on the 15th calendar day of each month thereafter until paid in full. Two installments
were paid as of March 31, 2012. The Company has also issued 1,260,000 of Common stock valued at $630,000 during the year ended
March 31, 2012. The outstanding balance as of March 31, 2016 and 2015 is $28,000.
Litigation
The Company is subject to certain legal proceedings
and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur,
the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position,
results of operations or liquidity.
NOTE 12 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events
through, the date the consolidated financial statements are available to be issued. There are no subsequent events.