NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
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.
Our software technology provides validation
and verification of fuel cost consumption reporting and fuel tax credits to logistics companies. The software also is designed
to document the exact amount of reduction of harmful emissions that results from the alternative energy products. This data will
enable users in certain countries to generate emissions credits that are tradable under the protocol of the Kyoto Treaty.
We are considered to be in the development
stage as defined in the accounting standards since we have not commenced planned principal operations. Our activities since
inception include devoting substantially all of our efforts to business planning and development. Additionally, we have allocated
a substantial portion of our time and investment to the completion of our development activities to launch our marketing plan
and generate revenues and to raising capital. We have generated minimal revenue from operations. The Company’s activities
during the development stage are subject to significant risks and uncertainties.
The
accompanying financial statements have been prepared on a going concern basis. For the three months ended September 30, 2017 the
Company had a net loss of $220,400 and had net cash used in operating activities of $39,487. In addition, the Company had an accumulated
deficit and a working capital deficit of approximately $43.5 million and $5.1 million, respectively, at September 30, 2017.
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, 2017, contained in the Company’s Annual Report on Form 10-K filed with the SEC on September 28, 2017. The
results of operations for the three months ended September 30, 2017, are not necessarily indicative of results to be expected
for any other interim period or the fiscal year ending June 30, 2018.
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 the valuation of
derivative liabilities, stock-based compensation, and deferred tax asset valuation allowance.
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 three months ended September 30, 2017 and 2016.
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 three months ended September 30, 2017 and 2016, the Company had not reached a bank balance exceeding
the FDIC insurance limit.
Derivative
Liabilities
The Company assessed the potential
classification of its derivative financial instruments as of September 30, 2017 and June 30, 2016, 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.
During
the year ended June 30, 2017, the Company determined that there was no active market for the Company’s common stock, and
because of this lack of liquidity and market value, there was no derivative liability associated with these convertible notes.
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. The derivate liability
that had previously been recognized was recorded as a gain through the change in fair value of derivative liability on the statement
of operations as of June 30, 2017, and there was no derivative liability recorded as of September 30, 2017.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
|
Additional
Disclosures Regarding Fair Value Measurements
The carrying value of cash and cash
equivalents, accounts payable and accrued expenses, accrued compensation, note and convertible promissory notes payable
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.
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
SEPTEMBER
30, 2017
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 September 30, 2017, the Company had not filed tax returns for the tax
years ending June 30, 2008 through 2017 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.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
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), and
shares underlying convertible promissory notes and convertible preferred stock. 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
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(119,987
|
)
|
|
$
|
(853,311
|
)
|
Interest expense
|
|
|
(100,413
|
)
|
|
|
(84,200
|
)
|
Gain on change in fair value of derivative liability
|
|
|
-
|
|
|
|
250,548
|
|
Numerator for basic earnings per share- net loss from continuing operations attributable to common stockholders-as adjusted
|
|
$
|
(220,400
|
)
|
|
$
|
(686,964
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares
|
|
|
1,908,223,525
|
|
|
|
19,509,598
|
|
Effect of dilutive securities-when applicable:
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
|
6,946,712,499
|
|
|
|
49,837,385
|
|
Preferred Stock
|
|
|
13,754
|
|
|
|
13,754
|
|
Denominator for diluted earnings per share—adjusted weighted-average shares and assumed conversions
|
|
|
8,854,949,778
|
|
|
|
69,360,742
|
|
The
weighted-average potentially dilutive common share equivalents outstanding for the three months ended September 30, 2017 and 2016
are as follows:
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Series A Preferred Stock
|
|
|
9,324
|
|
|
|
9,324
|
|
Series B Preferred Stock
|
|
|
4,430
|
|
|
|
4,430
|
|
Convertible notes payable
|
|
|
6,946,712,499
|
|
|
|
49,837,385
|
|
Total
|
|
|
6,946,726,253
|
|
|
|
49,851,144
|
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
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 September 30, 2017 and June 30, 2017 amounted to $0 and $0, respectively. For the three months ended September
30, 2017 and 2016, the Company recorded a gain related to the change in fair value of the derivative liability amounting to $0
and $250,548, respectively. Management had a change in accounting estimate during the year ended June 30, 2017.
The Company determined that all of the underlying convertible notes were past due and in default, and that there was no active
market for the Company’s common stock. Because of this lack of liquidity and market value, there was no derivative liability
associated with these convertible notes. At each measurement date, the fair value of the embedded conversion features was
based on the Black-Scholes-Merton method using the following assumptions:
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Effective Exercise price
|
|
|
-
|
|
|
$
|
.00015
|
|
Effective Market price
|
|
|
-
|
|
|
$
|
.0014
|
|
Volatility
|
|
|
-
|
|
|
|
503
|
%
|
Risk-free interest
|
|
|
-
|
|
|
|
0.1
|
%
|
Terms
|
|
|
-
|
|
|
|
365 days
|
|
Expected dividend rate
|
|
|
|
|
|
|
0
|
%
|
Changes in the derivative liabilities during
the three months ended September 30, 2017 is follows:
Derivative
liability at June 30, 2017
|
|
$
|
-
|
|
Gain
on change in fair value of derivative liability, recognized as other income
|
|
|
-
|
|
Derivative
liability at September 30, 2017
|
|
$
|
-
|
|
NOTE
4: ACCRUED INTEREST PAYABLE
Changes in accrued interest payable during
the three months ended September 30, is as follows:
Accrued interest payable at June 30, 2017
|
|
$
|
1,493,014
|
|
Interest expense for the three months ended September 30, 2017, net of amortization of debt discount of $26,541
|
|
|
73,871
|
|
Accrued interest payable at September 30, 2017
|
|
$
|
1,566,885
|
|
NOTE
5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
Convertible
Notes Payable
The Company had convertible promissory
notes aggregating approximately $2.2 million and $2.2 million at September 30, 2017 and June 30, 2017, respectively. The related
accrued interest amounted to approximately $1,339,000 and $1,271,000 million at September 30, 2017 and June 30, 2017, respectively.
The convertible notes payable bear interest at rates ranging from 0% to 18% per annum. The convertible notes are generally convertible,
at the holders’ option, at rates ranging from $0.00005 to $0.0267 per share. At September 30, 2017, approximately $1.7 million
of convertible promissory notes had matured, are in default, and remain unpaid.
On July 22, 2013 and May 6, 2014, the Company
issued to ASC Recap LLC (“ASC”), in connection with the Company’s settlement with ASC of up to approximately
$2.5 million in liabilities of the Company, two convertible promissory notes with principal amounts of $25,000 and $125,000, respectively.
The July 22, 2013 note matured on March 31, 2014 and remains unpaid and in default. The May 6, 2014 note matured on May 6, 2016,
is in default, and remains unpaid. The notes are convertible into the common stock of the Company at any time at a conversion
price equal to 50% of the lowest closing bid price of our common stock for the twenty days prior to conversion.
At
September 30, 2017 and June 30, 2017 convertible debentures consisted of the following:
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
Convertible notes payable
|
|
$
|
2,199,384
|
|
|
$
|
2,201,914
|
|
Unamortized debt discount
|
|
|
(542
|
)
|
|
|
(27,083
|
)
|
Total
|
|
$
|
2,198,842
|
|
|
$
|
2,174,831
|
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
NOTE
5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE, continued
Notes
Payable
The
Company had promissory notes aggregating $270,241 at September 30, 2017 and June 30, 2017, respectively. The related accrued interest
amounted to approximately $228,000 and $222,000 at September 30, 2017 and June 30, 2017, 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 September
30, 2017 have matured, are in default, and remain unpaid.
Transactions
During
the three months ended September 30, 2017 we issued convertible notes to three investors, totaling $37,500. The notes bear interest
at 0% and have a term of sixty days.
The
Company recognized interest expense of $100,412 and $78,584 during the three-month periods ended September 30, 2017 and
2016, respectively which included debt discount amortization of $24,167 and $0 during the three-month period ended September 30,
2017 and 2016, respectively.
NOTE
6: STOCKHOLDERS’ DEFICIT
Common
Stock
At
September 30, 2017, the Company had 10,000,000,000 authorized common shares.
During
the three months ended September 30, 2017 the Company issued 611,300,335 shares of its common stock related to the conversion
of $40,030 of principal of its convertible notes payable, at an average contract conversion price of $0.000065.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
NOTE
6: STOCKHOLDERS’ DEFICIT, continued
Preferred
Stock
Series
A and B issued and outstanding shares of the Company’s preferred stock have a par value of $0.001. All classes rank(ed)
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. All preferred stock shall have no voting rights except if the
subject of such vote would reduce the amount payable to the holders of preferred stock upon liquidation or dissolution of the
company and cancel and modify the conversion rights of the holders of preferred stock as defined in the certificate of designations
of the respective series 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.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
NOTE
6: STOCKHOLDERS’ DEFICIT, continued
Series
B Preferred Stock
Prior
to cancellation, the Series B Preferred Stock 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 the preferred stock were entitled
to receive annual cumulative dividends of 10% payable in cash or shares of the Company’s common stock, at the Company’s
option. At June 30, 2017, the Company had not declared the payment of cumulative dividends aggregating approximately $673,200.
Thirty
million (30,000,000) shares of preferred stock were designated as a new Series B Preferred stock in April, 2016. This new Series
B Preferred Stock has a $0.001 par value, and each 300 shares is convertible into one share of the Company’s common stock,
with a stated value of $375 per share.
NOTE
7: RELATED PARTY TRANSACTIONS
The
Company has entered into a consulting agreement with an entity owned by our Chairman of the Board and Chief Executive Officer.
During the three months ended September 30, 2017 and 2016 the Company had incurred consulting fees and related expense reimbursements
of $1,500 and $55,000, respectively.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
NOTE
8: SUBSEQUENT EVENTS
During October, 2017 the Company issued
238,000,000 shares of its common stock related to the conversion of $11,900 of principal of its convertible notes payable, at
an average contract conversion price of $0.00005.