NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
1: ORGANIZATION, DESCRIPTION OF BUSINESS, GOING CONCERN AND BASIS OF PRESENTATION
NuState
Energy Holdings, Inc.
,
or
the Company, currently is a Florida corporation that was incorporated in Nevada in October
1987. It was formerly known as Jaguar Investments, Inc. between October 1987 and May 2003, Power2Ship, Inc. between May 2003 and
November 2006, and Fittipaldi Logistics, Inc. between November 2006 and December 2007.
The
accompanying financial statements have been prepared on a going concern basis. The Company had net cash used in operating activities
of $203,080 during the six months ended December 31, 2015 and had a working capital deficit of approximately $5.0 million at December
31, 2015. These matters raise substantial doubt about the Company’s ability 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, to fund possible future acquisitions, and
to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by continuing
to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no
assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating
results. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
of Presentation
The
unaudited interim financial information furnished herein reflects all adjustments, consisting only of normal recurring items,
which in the opinion of management are necessary to fairly state NuState Energy Holdings, Inc.’s (the “Company”
or “we”, “us” or “our”) financial position, results of operations and cash flows for the dates
and periods presented and to make such information not misleading. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”), nevertheless,
management of the Company believes that the disclosures herein are adequate to make the information presented not misleading.
These
unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year
ended June 30, 2015, contained in the Company’s Annual Report on Form 10-K filed with the SEC on April 11, 2016. The results
of operations for the six months ended December 31, 2015, are not necessarily indicative of results to be expected for any other
interim period or the fiscal year ending June 30, 2016.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses
during the reported period. Actual results will differ from those estimates. Included in these estimates are assumptions about
recovery of assets from discontinued operations and assumptions used in Black-Scholes valuation methods, such as expected volatility,
risk-free interest rate, and expected dividend rate.
Cash
and Cash Equivalents
The
Company considers all highly liquid, temporary, cash equivalents with an original maturity of three months or less when purchased,
to be cash equivalents. The Company had no cash equivalents during the six months ended December 31, 2015 and 2014.
Concentration
of Credit Risks
The
Company is subject to a concentration of credit risk from cash.
The
Company’s cash account is held at a financial institution and is insured by the Federal Deposit Insurance Corporation, or
FDIC, up to $250,000. During the six months ended December 31, 2015 and 2014, the Company had not reached a bank balance exceeding
the FDIC insurance limit.
Derivative
Liabilities
The
Company assessed the classification of its derivative financial instruments as of December 31, 2015 and 2014, which consist of
convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the
criteria for liability classification under ASC 815.
ASC
815 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 subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
During
the six months ended December 31, 2015 and 2014, 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-Merton), the expected volatility,
the implied risk free interest rate, as well as the expected dividend rate, if any.
Fair
Value of Financial Instruments
The
Company accounts, for assets and liabilities measured at fair value on a recurring basis, in accordance with ASC Topic 820, Fair
Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities.
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data.
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The
Company’s derivative liability at December 31, 2015 and 2014 is classified as Level 3 financial instrument.
Additional
Disclosures Regarding Fair Value Measurements
The
carrying value of cash and cash equivalents, other receivable, accounts payable and accrued expenses, accrued compensation, note
and convertible promissory notes payable, and liabilities from discontinued operations approximate their fair value due to the
short maturity of these items.
Convertible
Instruments
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 ASC 470-20, Debt with Conversion and Other Options. 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 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, Contracts in Entity’s own Equity, generally provides that, among other things, if an event is not within the entity’s
control, such contract could require net cash settlement and shall be classified as an asset or a liability.
The
Company determines whether the instruments issued in the transactions are considered indexed to the Company’s own stock.
During the fiscal year 2014 the Company issued convertible securities with variable conversion provisions that resulted in derivative
liabilities.
Income
Taxes
The
Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires,
among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The
Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions”. When tax returns are
filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others
are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all
highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income
Taxes, continued
The
Company has adopted ASC 740-10-25,
“
Definition of Settlement”
,
which provides guidance on how an entity
should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits
and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without
being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax
benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical
merits and the statute of limitations remains open. As of December 31, 2015, the Company had not filed tax returns for the tax
years ending June 30, 2008 through 2015 and such returns, when filed, potentially will be subject to audit by the taxing authorities
for a minimum of three years beyond the filing date under the three-year statute of limitations. The Company has not accrued any
potential tax penalties associated with not filing these tax returns. Due to recurring losses, management believes such potential
tax penalties, in any, would not be material in amount.
Share-Based
Payment
The
Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under
the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the
vesting period.
The
Company has elected to use the Black-Scholes-Merton, or BSM, option-pricing model to estimate the fair value of its options, which
incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to
calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards
ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Segment
Reporting
The
Company operates in one segment, which is to search for possible acquisition targets and merge with an operating company. The
Company’s chief operating decision-maker evaluates the performance of the Company based upon expenses by functional areas
as disclosed in the Company’s statements of operations.
Recent
Accounting Pronouncements
Recent
accounting pronouncements have been issued but deemed by management to be outside the scope of relevance to the Company.
As
an emerging growth company, we have elected to use the exemption provided for in the Jumpstart Our Business Startups Act or JOBS
Act allowing us to delay the adoption of new or revised accounting standards that have different effective dates for public and
private companies until those standards apply to private companies pursuant to Section 102(b)(1) of the Act.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basic
and Diluted Earnings Per Share
Basic
earnings per share are calculated by dividing income available to stockholders by the weighted-average number of shares of Common
Stock outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares of Common
Stock and dilutive Common Stock share equivalents outstanding during the period. Dilutive Common Stock share equivalents consist
of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). Potential
common shares includable in the computation of fully-diluted per-share results are not presented in the financial statements as
their affect would be anti-dilutive.
|
|
For the Three Months ended
December 31,
|
|
|
For the Six Months ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(252,044
|
)
|
|
$
|
(91,898
|
)
|
|
$
|
(401,268
|
)
|
|
$
|
(179,494
|
)
|
Interest expense
|
|
|
(87,671
|
)
|
|
|
(81,786
|
)
|
|
|
(166,255
|
)
|
|
|
(152,463
|
)
|
Gain (loss) on debt settlement
|
|
|
0
|
|
|
|
(298,837
|
)
|
|
|
(12,135
|
)
|
|
|
(306,106
|
)
|
Gain ((loss) on change in fair value of derivative liability
|
|
|
16,549
|
|
|
|
499,019
|
|
|
|
21,755
|
|
|
|
(539,667
|
)
|
Gain (loss) on restructuring of debt
|
|
|
813,590
|
|
|
|
0
|
|
|
|
813,590
|
|
|
|
(11,928
|
)
|
Numerator for basic earnings per share- net loss from continuing operations
attributable to common stockholders-as adjusted
|
|
$
|
490,423
|
|
|
$
|
26,498
|
|
|
$
|
255,687
|
|
|
$
|
(1,189,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares
|
|
|
6,839,150,454
|
|
|
|
1,149,811,463
|
|
|
|
4,508,052,658
|
|
|
|
1,013,394,072
|
|
Effect of dilutive securities-when applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
|
7,958,801,894
|
|
|
|
173,002,684
|
|
|
|
7,958,801,894
|
|
|
|
173,002,684
|
|
Preferred Stock
|
|
|
17,466,540
|
|
|
|
66,103,200
|
|
|
|
17,466,540
|
|
|
|
66,103,200
|
|
Warrants
|
|
|
-
|
|
|
|
45,047,293
|
|
|
|
-
|
|
|
|
45,047,293
|
|
Denominator for diluted earnings per share—adjusted weighted-average
shares and assumed conversions
|
|
|
14,815,398,888
|
|
|
|
1,433,964,640
|
|
|
|
12,484,301,092
|
|
|
|
1,297,547,249
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share-basic
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share-diluted
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basic
and Diluted Earnings Per Share
The
weighted-average potentially dilutive common share equivalents outstanding at December 31, 2015 and 2014 are as follows:
|
|
2015
|
|
|
2014
|
|
Series A Preferred Stock
|
|
|
11,308,340
|
|
|
|
-
|
|
Series B Preferred Stock
|
|
|
6,138,200
|
|
|
|
2,992,000
|
|
Series C Preferred Stock
|
|
|
-
|
|
|
|
33,200
|
|
Series D Preferred Stock
|
|
|
-
|
|
|
|
19,000,000
|
|
Series F Preferred Stock
|
|
|
-
|
|
|
|
25,695,000
|
|
Series H Preferred Stock
|
|
|
-
|
|
|
|
2,796,000
|
|
Series I Preferred Stock
|
|
|
-
|
|
|
|
15,000,000
|
|
Series J Preferred Stock
|
|
|
-
|
|
|
|
500,000
|
|
Series Y Preferred Stock
|
|
|
-
|
|
|
|
87,000
|
|
Convertible notes payable
|
|
|
7,958,801,894
|
|
|
|
173,002,684
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
Warrants
|
|
|
-
|
|
|
|
45,047,293
|
|
Total
|
|
|
7,976,248,434
|
|
|
|
284,153,377
|
|
NOTE
3: DERIVATIVE LIABILITY
The
Company accounts for the embedded conversion features included in its convertible instruments as derivative liabilities. The aggregate
fair value of derivative liabilities at December 31, 2015 and June 30, 2015 amounted to $274,052 and $295,808, respectively. For
the six months ended December 31, 2015 and 2014, the Company recorded a gain related to the change in fair value of the derivative
liability amounting to $21,755 and a loss of $539,667, respectively. At each measurement date, the fair value of the embedded
conversion features was based on the Black-Scholes-Merton method using the following assumptions:
|
|
Six Months Ended December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Effective Exercise price
|
|
$
|
0.00005
|
|
|
$
|
0.0001
|
|
Effective Market price
|
|
$
|
0.0001
|
|
|
$
|
0.0006
|
|
Volatility
|
|
|
401
|
%
|
|
|
505
|
%
|
Risk-free interest
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Terms
|
|
|
365
days
|
|
|
|
365
days
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Changes
in the derivative liabilities during the six months ended December 31, 2015 and 2014 are as follows:
Derivative liability at June 30, 2015
|
|
$
|
295,808
|
|
Gain on change in fair value of derivative liability, recognized as other
expense
|
|
|
(21,755
|
)
|
Derivative liability at December 31, 2015
|
|
$
|
274,052
|
|
Derivative liability at June 30, 2014
|
|
$
|
356,289
|
|
Loss on change in fair value of derivative liability, recognized as other
income
|
|
|
539,667
|
|
Derivative liability at December 31, 2014
|
|
$
|
896,956
|
|
NOTE
4: ACCRUED INTEREST PAYABLE
Changes
in accrued interest payable during the six months ended December 31, 2015 and 2014 are as follows:
Accrued interest payable at June 30, 2015
|
|
$
|
778,462
|
|
Return of accrued interest from liability due to ASC Recap
|
|
|
689,218
|
|
Interest expense for the six months ended December 31, 2015
|
|
|
166,255
|
|
Accrued interest exchanged for preferred stock
|
|
|
(73,788
|
)
|
Accrued interest payable at December 31, 2015
|
|
$
|
1,560,147
|
|
Accrued interest payable at June 30, 2014
|
|
$
|
729,853
|
|
Reduction of accrued interest related to restructured notes payable
|
|
|
(162,159
|
)
|
Interest expense for the six months ended December 31, 2014, excluding
amortization of debt discount of $53,082
|
|
|
99,381
|
|
Accrued interest payable at December 31, 2014
|
|
$
|
667,075
|
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
Convertible
Notes Payable
At
December 31, 2015 and June 30, 2015 convertible debentures consisted of the following:
|
|
December 31, 2015
|
|
|
June 30, 2015
|
|
Convertible notes payable
|
|
$
|
2,086,849
|
|
|
$
|
1,421,730
|
|
Convertible notes payable to ASC Recap
|
|
|
150,000
|
|
|
|
150,000
|
|
Unamortized debt discount
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
2,236,849
|
|
|
$
|
1,571,730
|
|
The
Company had convertible promissory notes aggregating approximately 2.2 million and $1.6 million at December 31, 2015 and June
30, 2015, respectively. The accrued interest amounted to approximately $1,269,000 and $759,000 at December 31, 2015 and June 30,
2015, respectively. The Convertible Notes Payable bear interest at rates ranging between 8% and 18% per annum. Interest is generally
payable monthly. The Convertible Notes Payable are generally convertible at rates ranging from $0.00125 to $0.0005 per share,
at the holders’ option. At December 31, 2015, approximately $0.8 million of convertible promissory notes had matured, are
in default, and remain unpaid.
Changes
in convertible notes payable during the six months ended December 31, 2015 was as follows:
Convertible notes payable @ 06/30/2015
|
|
$
|
1,571,730
|
|
Notes payable issued for cash
|
|
|
210,000
|
|
Cash payments on convertible notes payable
|
|
|
(5,000
|
)
|
ASC returned in exchange for convertible notes payable
|
|
|
677,146
|
|
Exchange of notes payable for Series B preferred stock
|
|
|
(217,027
|
)
|
Balance of convertible notes payable @ 12/31/2015
|
|
$
|
2,236,849
|
|
Notes
Payable
The
Company had promissory notes aggregating $315,241 and $90,241 at December 31, 2015 and June 30, 2015, respectively. The related
accrued interest amounted to approximately $291,000 and $19,000 at December 31, 2015 and June 30, 2015, respectively. The notes
payable bear interest at rates ranging from 12.5% to 16% per annum which is payable monthly. All promissory notes outstanding
as of December 31, 2015 have matured, are in default, and remain unpaid.
Transactions
During
the six months ended December 31, 2015, the Company issued twelve convertible notes totaling $200,000, with interest rates ranging
from 8% to 14%.
In
December 2015, three existing note holders exchanged an aggregate of $217,027 of their outstanding convertible notes and accrued
interest thereon into 1,127,640 shares of Series B preferred stock, par value $0.001, valued on an “as-converted”
basis at $1,127 (See also Note 7). This transaction was accounted for as an extinguishment of debt, and the gain of $215,900 was
included in the accompanying statement of operations as gain on restructuring of debt. The number of shares of newly designated
Series B preferred stock issued to each note holder was calculated by dividing their total principal and accrued interest thereon
as of November 30, 2015 by $0.25. The holders of the Series B preferred shares are restricted from converting their shares to
common stock for two years (the “Lock-Up Period”). After the Lock-Up Period, they may convert up to one percent of
their Series A preferred shares into common shares on a one for five basis each month for four years (the “Leak-Out Period”).
However, the conversion price automatically reduces by 30% to $0.035 per share if the price of our common stock is below $0.10
per share on a conversion date. At the end of the Leak-Out Period, up to all of the remaining Series A preferred shares may be
converted to common stock at the shareholders’ discretion.
The
Company recognized interest expense of $166,255 and $152,463 during the six-month periods ended December 31, 2015 and 2014, respectively
which included debt discount amortization of $0 and $53,082 during the six month period ended December 31, 2015 and 2014, respectively.
On
October 9, 2014, the Company entered into a Settlement Agreement with IBC Funds, LLC (“IBC’). This agreement was approved
by the Manatee County, Florida Court on October 10, 2014. Pursuant to the Settlement Agreement, the Company agreed to settle approximately
$259,000 of outstanding liabilities (the “IBC Claim Amount”) by issuing IBC 859,000,000 shares of its common stock
at a price per share equal to fifty percent of the lowest sales price of the common stock during the fifteen day trading period
preceding the request of payment. In the event the Company was delinquent on issuance of the Company’s shares upon request
by IBC, the discount would be increased by five percent and by an additional five percent for each additional delinquency until
all settlement shares had been received. At no time could IBC and its affiliates collectively own more than 4.99% of the outstanding
shares of common stock. During October 2014, IBC paid an aggregate of $66,000 to various Company creditors. On February 12, 2015
IBC issued a letter of default to the Company. The Company issued to IBC an additional 429,371,000 common shares valued at $116,874.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
6: OBLIGATIONS TO ASC RECAP, LLC
In
July, 2013, certain of the Company’s creditors showed interest in selling their claims against the Company to ASC Recap,
LLC (“ASC”); this group also included both current and past management of the Company. This led to the Company signing
a Liability Purchase Agreement with ASC on July 23, 2013. This Agreement required the Company to issue common shares within five
business days of each purchase at a 25% discount from the market price to ASC in amounts equal to the claims purchased from the
Company’s creditors. In addition, under the terms of the Agreement, the Company issued a $25,000 non-interest bearing convertible
promissory note to ASC, as described in Note 4.
ASC
signed a series of Claim Purchase Agreements with certain creditors of the Company to purchase their claims against the Company
totaling $2,531,565. These claims consisted of notes payable, convertible notes payable, vendor payables and accrued compensation
to the Company’s CEO and to a related party. The Claim Purchase Agreements required ASC to settle the creditors’ claims
against the Company for a total of $1,305,996. Each Claim Purchase Agreement stipulated that ASC would pay each creditor the agreed-upon
amount in up to twelve (12) monthly installments.
In
January, 2014, the Company had not issued any shares to ASC as required by the agreement. As a result, ASC filed a complaint in
Leon County, Florida demanding the prescribed issuance of shares from the Company for the purchased claims. A settlement agreement
was reached on February 6, 2014, and on March 12, 2014 ASC Recap filed a motion in Leon County, Florida which forced the Company
to comply. ASC Recap was awarded a $2,531,565 judgement which was to be paid by issuing free trading common stock at a 25% discount
from the market price
.
In addition, on May 6, 2014, the Company issued a $125,000 non-interest bearing convertible
promissory note to ASC, as described in Note 4. Between April and June of 2014, the Company issued to ASC 322,220,000 shares of
common stock with an aggregate market value of $365,308, which reduced the recorded liability by $273,981; in July of 2014, the
Company issued 82,980,000 shares of common stock with an aggregate market value of $24,894 (see Note 6).
On
August 13, 2015 ASC Recap, LLC issued the Company a letter of default related to its agreement to settle outstanding liabilities
and related accrued interest and returned approximately $2,373,000 of liabilities to their original holders, which is detailed
in the table at the end of Note 6. These balances reflect the payments made by ASC to creditors prior to the default.
An
analysis of the settlement liability due to ASC is as follows:
Total creditor claims purchased by ASC - as ratified by the settlement agreement
dated February 6, 2014
|
|
|
|
|
|
$
|
2,531,565
|
|
Reduction of liability by shares issued between April and June 2014:
|
|
|
|
|
|
|
|
|
Market value of 322,220,000 common shares issued
|
|
$
|
365,308
|
|
|
|
|
|
Less 25% discount as per settlement agreement
|
|
|
(91,327
|
)
|
|
|
(273,981
|
)
|
|
|
|
|
|
|
|
|
|
Cash Payments and adjustments
|
|
|
|
|
|
|
(50,599
|
)
|
|
|
|
|
|
|
|
|
|
Liability after issuances of shares, cash payments, and adjustments
|
|
|
|
|
|
|
2,206,985
|
|
|
|
|
|
|
|
|
|
|
Add back the previous reduction of liability by shares issued in consideration
of ASC waiving its right to additional shares under the settlement agreement
|
|
|
|
|
|
|
273,981
|
|
|
|
|
|
|
|
|
|
|
Liability as of June 30, 2014 agreed to by the Company and ASC
|
|
|
|
|
|
|
2,480,966
|
|
|
|
|
|
|
|
|
|
|
Increase in recorded liability by the market value of 82,980,000 common
shares issued during July 2014
|
|
|
|
|
|
|
24,894
|
|
|
|
|
|
|
|
|
|
|
Carrying value of settlement liability due to ASC at June 30, 2014
|
|
|
|
|
|
|
2,505,860
|
|
|
|
|
|
|
|
|
|
|
Reduction of liability by shares issued in September 2014:
|
|
|
|
|
|
|
|
|
Cash payments and adjustments
|
|
|
|
|
|
|
(133,347
|
)
|
Carrying value of settlement liability due to ASC at June 30, 2015
|
|
|
|
|
|
$
|
2,372,513
|
|
|
|
|
|
|
|
|
|
|
Transfer of liability due to ASC to Original debt-holders
|
|
|
|
|
|
|
(2,372,513
|
)
|
Carrying value of settlement liability due to ASC at December 30, 2015
|
|
|
|
|
|
$
|
-
|
|
The
transfer of liability due to ASC Recap consisted of the following:
Notes payable
|
|
$
|
907,500
|
|
Accounts payable and accrued liabilities
|
|
|
85,006
|
|
Accrued salaries
|
|
|
702,895
|
|
Loss on settlement of ASC liability
|
|
|
(12,135
|
)
|
Accrued interest payable
|
|
|
689,247
|
|
|
|
$
|
2,372,513
|
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
7: STOCKHOLDERS’ DEFICIT
Common
Stock
The
Company’s certificate of incorporation was amended on July 23, 2014 to increase the number of authorized shares of common
stock by one billion common shares bringing total authorized common shares to one billion seven hundred fifty million common shares.
On October 5, 2015 the Company increased its authorized common shares to 10,000,000,000 and on April 21, 2016 the Company increased
its authorized common shares to 20,000,000,000 at $0.0001 par value per share.
On
October 29, 2015, we dissolved the corporation in Nevada and simultaneously incorporated it in Florida. The Florida Articles of
Incorporation, as amended, authorize the Company to issue twenty billion one hundred million shares of stock of which twenty billion
may be shares of its common stock, par value $0.0001 per share, and one hundred million may be shares of its preferred stock,
par value $0.001 per share.
Transactions
On
October 9, 2015, we issued five billion shares of our common stock, twenty-six shares of Series F preferred stock, with a stated
value of $5,000 and a par value of $0.001 per share, and three shares of Series H Preferred Stock, with a stated value of $1,000
and a par value of $0.001 per share, to the Company’s current Chairman of the Board in exchange for $633,000 in accrued
compensation. Subsequently, in October 2015, these Series F and Series H shares were exchanged for 532,000 shares of Series A
preferred stock.
During
the six months ended December 31, 2015, the Company issued 499,000,000 shares of common stock to its CEO as compensation, valued
at $49,900, or $0.0001 per share, based on the quoted market price..
Preferred
Stock
All
issued and outstanding shares of the Company’s preferred stock have a par value of $0.001 per share and rank prior to any
class or series of the Company’s common stock as to the distribution of assets upon liquidation, dissolution or winding
up of the Company or as to the payment of dividends, except for Series Y Preferred Stock. The Series B, C, D, F, H, I, J, and
Y preferred shares were exchanged in full for shares of Series A preferred stock in October, 2015, and those series of preferred
stock, along with Series E and G, which have had no stock issuances, were subsequently cancelled by the Company.
The
Series B shares exchanged, along with the other series of preferred shares exchanged, were designated during the Company’s
incorporation in Nevada. Upon incorporation in Florida, the Company designated a new Series A class of preferred stock, along
with a new Series B class of preferred stock.
Series
A Preferred Stock
The
Series A Preferred Stock has a stated value of $0.25 per share. Each one share of Series A Preferred Stock is convertible into
one (1) share of Common Stock. In the event the Common Stock price per share is lower than $0.10 (ten cents) per share then the
Conversion shall be set at $0.035 per share. The Common Stock shares are governed by Lock-Up/Leak-Out Agreements.
Series
B Preferred Stock
At
December 31, 2015, the Series B Preferred Stock issued under the Florida incorporation has a stated value of $0.25 cents per share.
Each share of Series B preferred Stock is convertible in 5 shares of the Company’s common stock. In the event the Common
Stock price per share is lower than $0.10 (ten cents) per share then the Conversion shall be set at $0.035 per share. The Common
Stock shares are governed by a Lock-Up/Leak-Out Agreement.
Prior
to October 28, 2015, the Series B preferred stock issued under the prior Nevada incorporation had a stated value of $5.00 per
share. Each share of Series B preferred stock was convertible into 20 shares of the Company’s common stock. In addition,
the holders of Series B preferred stock were entitled to receive cumulative annual dividends of 10% payable in cash or shares
of the Company’s common stock, at the Company’s option. These dividends, which totaled $617,000 at October 28, 2015,
were forfeited upon the cancellation of the series of preferred stock.
Series
C Preferred Stock
Prior
to October 28, 2015, the Series C Preferred Stock had a stated value of $30.00 per share. Each share of Series C Preferred Stock
was convertible in 100 shares of the Company’s common stock.
Series
D Preferred Stock
Prior
to October 28, 2015, the Series D Preferred Stock had a stated value of $25,000 per share. Each share of the Series D preferred
Stock was convertible in 1,000,000 shares of the Company’s common stock. In addition, the holders of the Series D Preferred
Stock were entitled to receive a participation interest in the annual net profits generated from any future business activities
undertaken by the Company in Brazil.
Series
F Preferred Stock
Prior
to October 28, 2015, the Series F Preferred Stock had a stated value of $5,000 per share. Each share of Series F Preferred Stock
was convertible in 200,000 shares of the Company’s common stock.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
7: STOCKHOLDERS’ DEFICIT, continued
Series
H Preferred Stock
Prior
to October 28, 2015, the Series H Preferred Stock had a stated value of $1,000 per share. Each share of Series H Preferred Stock
was convertible in 1,000,000 shares of the Company’s common stock.
Series
I Preferred Stock
Prior
to October 28, 2015, the Series I Preferred Stock had a stated value of $10.00 per share. Each share of Series I Preferred Stock
was convertible into 500 shares of the Company’s common stock.
Series
J Preferred Stock
Prior
to October 28, 2015, the Series J Preferred Stock had a stated value of $2,500 per share. Each share of the Series J Preferred
Stock was convertible into the Company’s common shares using a conversion price equal to 50% of the average closing price
of the Company’s common stock for the ten trading days immediately preceding the conversion date, although in no instance
less than $0.01 per share or greater than $0.03 per share.
Series
Y Preferred Stock
Prior
to October 28, 2015, the Series Y Preferred Stock had a stated value of $0.01 and had no liquidity preference. Each share of Series
Y Preferred Stock had 200 votes per share and had the right to vote with the common shareholders in all matters.
Transactions
On
October 14, 2015 a former Chairman of the Board of the Company was issued 80 shares of Series F preferred stock with a stated
value of $5,000 and a par value $0.001 per share, and 12 shares of Series H preferred stock, with a stated value of $1,000 and
a par value $0.001 per share in consideration for his forgiveness of $412,000 in accrued compensation. Subsequently, in October
2015, these Series F and Series H shares were exchanged for 1,648,000 shares of Series A preferred stock.
On
October 28, 2015, preferred shareholders representing a majority of each series of our outstanding preferred stock, voted to cancel
all their shares of preferred stock in exchange for 11,181,340 shares of newly designated Series A preferred stock. The number
of shares of newly issued Series A preferred stock issued to each preferred shareholder was calculated by dividing the total stated
value of their preferred shares by $0.25. The holders of the Series A preferred shares are restricted from converting their shares
to common stock for two years (the “Lock-Up Period”). After the Lock-Up Period, they may convert up to one percent
of their Series A preferred shares into common shares on a one for one basis each month for four years (the “Leak-Out Period”).
However, the conversion price automatically reduces by 86% to $0.035 per share if our common stock is below $0.10 per share. At
the end of the Leak-Out Period, up to all of the remaining Series A preferred shares may be converted to common stock at the shareholders’
discretion.
Class
|
|
Shares Cancelled
|
|
|
Shares of Series A Issued
|
|
Series B
|
|
|
(149,600
|
)
|
|
|
2,992,000
|
|
Series C
|
|
|
(332
|
)
|
|
|
39,840
|
|
Series D
|
|
|
(19
|
)
|
|
|
1,900,000
|
|
Series F
|
|
|
(234
|
)
|
|
|
4,689,500
|
|
Series H
|
|
|
(85
|
)
|
|
|
340,000
|
|
Series I
|
|
|
(30,000
|
)
|
|
|
1,200,000
|
|
Series J
|
|
|
(2
|
)
|
|
|
20,000
|
|
Total
|
|
|
|
|
|
|
11,181,340
|
|
On
October 28, 2015 the 87,000 shares of Series Y preferred stock, owned by the Company’s former Chairman of the Board, were
exchanged for 87,000 shares of Series A preferred stock. These shares of Series A preferred stock were valued at their fair market
value of $8.70.
In
November, 2015, we sold 40,000 shares of Series A preferred stock to one investor for $10,000 and sold 100,000 shares of Series
B preferred stock to another investor for $25,000.
See
Note 5 for Series B preferred stock issued in exchange for convertible notes payable and accrued interest.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2015
NOTE
8: RELATED PARTY TRANSACTIONS
On
September 9, 2015, the Company entered into a one-year consulting agreement with Hippocrates Management Company, Inc. for general
business consulting services. The consultant is a related party to Kathy Roberton, our Chief Executive Officer. The contractual
payments to the consultant include a payment of $5,000 in cash per month.
The
Company has entered into a consulting agreement with a related party by means of common ownership and management with the Company
as compensation to our Chairman of the Board and Chief Financial Officer. During the six months ended December 31, 2015 and 2014
the Company had incurred consulting fees and related expense reimbursements of $88,500 and $55,400, respectively.
NOTE
9: SUBSEQUENT EVENTS
In
February 2016, we settled $757,060 of convertible promissory note principal and interest in exchange for 2,064,000 shares of Series
A convertible preferred stock, value at $206. The transaction result in a gain on debt settlement of $756,853 that will be recorded
in our third quarter of fiscal 2016 results of operations.
In
February 2016, we settled $75,715 of accrued payroll due to a former employee in exchange for 20,000 shares of Series A convertible
preferred stock, value at $2. The transaction result in a gain on debt settlement of $75,713 that will be recorded in our third
quarter of fiscal 2016 results of operations.
On
February 26, 2016, we agreed to suspend the definitive agreement with Ronn Motor Group as Ronn Motor Group is going through a
corporate restructuring.
On
February 26, 2016 we entered into a Binding Letter of Intent with MK Technologies LLC (a related party to Ronn Motor Group), in
relation to the purchase of its Fuel Enhancement Technologies and all its Assets, for total consideration of $2,000,000. $1,000,000
will be paid at closing, with the balance of the purchase price paid out in accordance with a mutually approved royalty agreement
and paid consulting agreement, and $1,000,000 to be paid in stock, cash, or a combination on a mutually agreed schedule.
In
March 2016, we issued a $25,000 convertible promissory note to one investor. The conversion price of this note is $0.0002 per
share and, unless our Board of Directors adjusts this conversion price, it will remain unchanged upon any changes to the authorized
shares of the company.