UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 20152016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________.___________.
Commission file number 000-25753
NUSTATE ENERGY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida | 87-0449667 | |
(State of Incorporation) | (IRS Employer Identification No.) |
401 E. LAS OLAS BOULEVARD, SUITE 1400
FORT LAUDERDALE, FL 33301
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (954) 712-7487
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:Common Stock, par value $0.0001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | ||
Non-accelerated filer [ ] | Smaller reporting company [X] | ||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on December 31, 20142015 was $746,757, at a share price of $0.0005$0.75 on that date. For purposes of this calculation, an aggregate of xxx995,676 shares of Common Stock were held by non-affiliates of the registrant on December 31, 20142015 and have been included in the number of shares of Common Stock held by affiliates.
The number of the registrant’s shares of Common Stock outstanding as of April 5,October 13, 2016: 7,717,954,80232,654,179
In this Annual Report on Form 10-K, the terms the “Company,” “NuState,” “we,” “us” or “our” refers to Nustate Energy Holdings, Inc., unless the context indicates otherwise.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS ANNUAL REPORT CONTAIN OR MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED UTILIZING NUMEROUS ASSUMPTIONS AND OTHER FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, OUR ABILITY TO IMPLEMENT OUR BUSINESS MODEL, RAISE SUFFICIENT CAPITAL TO FUND OUR OPERATING LOSSES AND PAY OUR ONGOING OBLIGATIONS, ECONOMIC AND MARKET CONDITIONS AND FLUCTUATIONS, GOVERNMENT AND INDUSTRY REGULATION, COMPETITION, AND OTHER FACTORS. MOST OF THESE FACTORS ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. YOU SHOULD CONSIDER THE AREAS OF RISK DESCRIBED IN CONNECTION WITH ANY FORWARD-LOOKING STATEMENTS THAT MAY BE MADE HEREIN. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS AND READERS SHOULD CAREFULLY REVIEW THIS ANNUAL REPORT IN ITS ENTIRETY, INCLUDING THE RISKS DESCRIBED IN PART I. DESCRIPTION OF BUSINESS - RISK FACTORS. EXCEPT FOR OUR ONGOING OBLIGATIONS TO DISCLOSE MATERIAL INFORMATION UNDER THE FEDERAL SECURITIES LAWS, WE UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS, TO REPORT EVENTS OR TO REPORT THE OCCURRENCE OF UNANTICIPATED EVENTS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS ANNUAL REPORT, AND YOU SHOULD NOT RELY ON THESE STATEMENTS WITHOUT ALSO CONSIDERING THE RISKS AND UNCERTAINTIES ASSOCIATED WITH THESE STATEMENTS AND OUR BUSINESS.
NUSTATE ENERGY HOLDINGS, INC.
20152016 ANNUAL REPORT ON FORM 10-K
Table of Contents
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Overview
NuState Energy Holdings, Inc. is a technology company specializing in providing pertinent, real-time information to the worldwide transportation and security industries. NuState’s proprietary software, GPSTrax, is built on an Open Architecture platform for the logistics and telematics industries.
We believe there are many opportunities to leverage and monetize our software technology by licensing it to companies that provide green technology solutions to medium and large logistics companies. In November 2014, NuState Energy Holdings, Inc. signed a definitive agreement with The Ronn Motor Group, with offices in Dalian, China and the United States, to license and market GPSTrax in China and other international markets.
NuState is launching a new GPSTrax Value-Added Reseller (VAR) Program, focusing on opportunities in consumer-based solutions such as asset tracking. The VAR Program will increase awareness, availability and support of the GPSTrax solution at a time when a growing number of companies are looking to update and optimize their solutions. We expect to generate revenues from this Program during fiscal 2016.2017.
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.
Through our existing relationships in the country of Suriname, NuState is evaluating several projects in the alternative renewable energy market in Suriname. NuState has been in discussions with AMPS, NV (“AMPS”), based in Paramaribo, Suriname, to enter into a license agreement with its partner, The Ronn Motor Group, in relation to the purchase of GPSTrax© for their multi-million dollarmulti-million-dollar alternative energy projects. AMPS focuses on providing engineering, procurement and construction management (EPC) services, Power Transmission & Distribution, Renewable and Conventional Energy as well as Power Management Systems to Suriname and its fellow Caribbean Community members.
Employees
At April 8,September 30, 2016, we had 2 full time employees.
Our principal offices are located at 401 E. Las Olas Boulevard, Suite 1400, Fort Lauderdale, FL 33301. Our telephone number is (954) 712-7487.
Our common stock is quoted on the OTC Pink under the symbol “NSEH”.
The common shares of our Company are considered speculative. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our Company and our business before purchasing our common shares. Our business, operating or financial condition could be harmed due to any of the following risks:
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring net losses which losses caused an accumulated deficit of approximately $42.2$41.5 million as of June 30, 2015.2016. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We currently have a working capital deficit and negative cash flow from operations, and are uncertain if and when we will be able to pay our current liabilities.
Our working capital deficit was approximately $5.9$4.5 million as of June 30, 2015.2016. This deficit consists of $6,130$1,806 in current assets, offset by $5,891,396$4,500,863 in current liabilities. In addition, we had negative cash flow from operations for the year ended June 30, 2015 and2016 of approximately $179,000 and $129,000, respectively.$424,000. We do not have any liquid or other assets that can be liquidated to pay our current liabilities while we continue to incur additional liabilities to our officer and certain service providers who are working to prepare the documents required to be filed with the Securities and Exchange Commission to enable our common shares to be registered for trading. Since we currently have limited operations, the only ways we have of paying our current liabilities are to issue our common or preferred shares to our creditors or to issue unsecured promissory notes which may include certain features such as convertibility into common or preferred shares or warrants to purchase additional common or preferred shares in the future.
We currently do not have sufficient capital to finance the anticipated recurring costs of being a publicly-traded company.
As of February 28,September 30, 2016, we had minimal cash on hand. We anticipate incurring incremental annual costs of approximately $180,000 related to being a publicly-traded company. We will need to raise additional capital to support our public-company-related activities.
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We had $4,812,946$3,232,885 of convertible notes, notes payable, settlements due, and accrued interest payable as of June 30, 2015,2016, of which of this amount $1,661,227$2,892,885 currently past due, and do not have the funds necessary to pay these obligations.
In addition to funding our operating expenses, we need capital to pay various debt obligations totaling approximately $4.8$3.2 million as of June 30, 20152016 which are either currently past due or which are due in the current fiscal year. Currently, there is $1,421,730$1,442,314 principal amount of the convertible notes payable which is past due, $90,241$215,241 principal of the notes payable which is past due, and $778,462$1,235,330 of accrued interest which is past due. The interest on the past due principal amounts will continue to accrue monthly at their stated rates. Holders of past due notes do not have a security interest in our assets. In addition, there is a settlement amount due to ASC Recap, LLC of $2,372,513 and notes payable in the amount of $150,000 due to ASC Recap, LLC. The existence of these obligations provides additional challenges to us in our efforts to raise capital to fund our operations.
We have $598,400$673,200 of undeclared accumulative dividends as of June 30, 20152016 and we may not be able to settle this obligation in cash or stocks.
In addition to funding our operating expenses, we need capital to pay undeclared accumulativecumulative dividends totaling approximately $598,400$673,200 as of June 30, 2015.2016. The existence of these obligations provides additional challenges to us in our efforts to raise capital to fund our operations.
In the event we consummate a transaction with a profitable company, we may not be able to utilize our net operating loss carryover which may have a negative impact on your investment.
If we enter into a combination with a business that has operating income, we cannot assure you that we will be able to utilize all or even a portion of our existing net operating loss carryover for federal or state tax purposes following such a business combination. If we are unable to make use of our existing net operating loss carryover, the tax advantages of such a combination may be limited, which could negatively impact the price of our stock and the value of your investment. These factors will substantially increase the uncertainty, and thus the risk, of investing in our shares.
Economic conditions may affect our ability to obtain financing and to complete a merger or acquisition.
Due to general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, our management believes that there are numerous firms seeking even the limited additional capital which we will need. In the presence of these economic conditions, we may have difficulty raising sufficient capital to support the investigation of potential business opportunities, and to consummate a merger or acquisition. These factors substantially increase the uncertainty, and thus the risk, of investing in our shares.
There are a number of factors related to our common stock which may have an adverse effect on our shareholders.
Shareholders’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities. In the event that we are required to issue additional shares, enter into private placements to raise financing through the sale of equity securities or acquire business interests in the future from the issuance of shares of our common stock to acquire such interests, the interests of existing shareholders in our Company will be diluted and existing shareholders may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we do issue additional shares, it will cause a reduction in the proportionate ownership and voting power of all existing shareholders.
We have certain provisions in our Articles of Incorporation and Bylaws, and there are other provisions under Florida law, that may serve to make a takeover of our Company more difficult.
Provisions of our articles of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders. Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of Florida law also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders.
Our common stock is quoted in the over the counter market on the OTC Pink.
Our common stock is quoted on the OTC Pink. OTC Pink offers a quotation service to companies that are unable to list their securities on an exchange or for companies, such as ours, whose securities are not eligible for quotation on the OTC Bulletin Board. The requirements for quotation on the OTC Pink are considerably lower and less regulated than those of the OTC Bulletin Board or an exchange. Because our common stock is quoted on the OTC Pink, it is possible that even fewer brokers or dealers would be interested in making a market in our common stock which further adversely impacts its liquidity.
The tradability of our common stock is limited under the penny stock regulations which may cause the holders of our common stock difficulty should they wish to sell their shares.
Because the quoted price of our common stock is less than $5.00 per share, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction. SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
Item 1B. Unresolved Staff Comments.
Not applicable.
We rent our principal executive offices from an unrelated third party on a month-to-month basis for a monthly rental of $350.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common shares are quoted on the OTC Pink Quotation System under the symbol “NSEH,” but trade infrequently.
The high and low bid prices of our common stock for the periods indicated below are as follows:
Fiscal Year Ended June 30, 2015 | High | Low | ||||||
Quarter Ended September 30, 2014 | $ | 0.0019 | $ | 0.0001 | ||||
Quarter Ended December 31, 2014 | $ | 0.0029 | $ | 0.0001 | ||||
Quarter Ended March 31, 2015 | $ | 0.0006 | $ | 0.0001 | ||||
Quarter Ended June 30, 2015 | $ | 0.0002 | $ | 0.0001 |
Fiscal Year Ended June 30, 2016 | High | Low | ||||||
Quarter Ended September 30, 2015 | $ | 0.1493 | * | $ | 0.1493 | * | ||
Quarter Ended December 31, 2015 | $ | 0.1493 | * | $ | 0.0015 | * | ||
Quarter Ended March 31, 2016 | $ | 0.1493 | * | $ | 0.0015 | * | ||
Quarter Ended June 30, 2016 | $ | 0.1493 | * | $ | 0.0051 | * |
Fiscal Year Ended June 30, 2014 | High | Low | ||||||
Quarter Ended September 30, 2013 | $ | 0.0070 | $ | 0.0011 | ||||
Quarter Ended December 31, 2013 | $ | 0.0045 | $ | 0.0015 | ||||
Quarter Ended March 31, 2014 | $ | 0.0041 | $ | 0.0008 | ||||
Quarter Ended June 30, 2014 | $ | 0.0030 | $ | 0.0003 |
Fiscal Year Ended June 30, 2015 | High | Low | ||||||
Quarter Ended September 30, 2014 | $ | 2.8358 | * | $ | 0.1493 | * | ||
Quarter Ended December 31, 2014 | $ | 4.3284 | * | $ | 0.1493 | * | ||
Quarter Ended March 31, 2015 | $ | 0.8955 | * | $ | 0.1493 | * | ||
Quarter Ended June 30, 2015 | $ | 0.2985 | * | $ | 0.1490 | * |
* close price adjusted for splits
On June 16, 2016, we effected a 1:1500 common stock reverse-split for shareholders on record as of May 31, 2016.
Stockholders
As of March 18,September 30, 2016, there were 442 stockholders of record of our Common Stock.
Dividend Policy
We have not paid any cash dividends since 2008 and do not anticipate or contemplate paying dividends in the foreseeable future, with the exception of dividends on our Series B Preferred Shares. It is the present intention of management to utilize all available funds for the development of our business. The holders of Series B Preferred Stock are entitled to receive annual dividends of 10% payable in cash or shares of our common stock, at our option.
At June 30, 2015,2016, the Company’s undeclared cumulative dividends aggregated $598,400.$673,200.
Unregistered issuance of Securities
None.In June 2016 the Company issued 508,750 shares of its par value common stock pursuant to a partial conversion of a convertible note, at a price of $0.004/share.
Share Repurchases
None.
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Item 6. Selected Financial Data.
Not Applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.
Overview
The company was incorporated in Nevada as Jaguar Investments, Inc. during October 1987. During March 2003, a wholly owned subsidiary of the Company merged with Freight Rate, Inc., a development stage company in the logistics software business. During May 2003, the Company changed its name to Power2Ship, Inc. During October 2006, the Company merged with a newly formed, wholly owned subsidiary, Fittipaldi Logistics, Inc., a Nevada corporation, with the Company surviving but its name changed to Fittipaldi Logistics, Inc. effective November 2006. During December 2007, the Company merged with a newly formed, wholly owned subsidiary, NuState Energy Holdings, Inc., a Nevada corporation, with the Company surviving but renamed NuState Energy Holdings, Inc. effective December 2007.
On February 12, 2009, the Company filed Form 15 to terminate registration of its common stock under section 12(g) of the Securities Exchange Act of 1934 and subsequently has not submitted any filings to the Securities and Exchange Commission. During the period from February 2009 through April 2010, the Company had several changes to its officers and directors and moved its offices twice. The Company’s Chairman and President since April 2010, and its Chief Executive Officer from July 2010, through July 2015, is Kevin Yates and its Chief Executive Officer since July 2015 is Kathleen Roberton.Yates. The Company’s headquarters is located at 401 E. Las Olas Boulevard, Suite 1400, Fort Lauderdale, FL 33301. Since April 2010, the Company’s current management developed, and began implementing, the following strategic plan designed to increase the Company’s shareholders’ value:
1. | Improve the Company’s balance sheet by reducing liabilities and regaining use of certain of its intellectual property and software, | |
2. | Settle litigation, | |
3. | Identify potential merger or acquisition candidates with whom the Company could enter into a transaction upon the Company achieving items 1 and 2 above, and | |
4. | License its intellectual property and software, also known as My Driver’s Seat, which it regained in April 2010. |
This strategic plan has resulted in the following material events:
Reduced Liabilities
Since filing its Form 10-Q for the quarterly period ended September 30, 2008, total liabilities have decreased by $3,796,554$5,187,087 or 39%53% from $9,687,950 on September 30, 2008 to $5,891,396$4,500,863 on June 30, 2015.2016.
In August 2012, its former subsidiaries CXT and P2SI each filed a Voluntary Bankruptcy Petition and Schedules in the United States Bankruptcy Court in the District of South Carolina. On October 19, 2012, the Company was awarded the bankruptcy and has filed the proper paperwork and as a result has reduced its liabilities by $1,875,581.
Regained Use of Intellectual Property
As part of an agreement entered into with Rentar Environmental Solutions, Inc. (“Rentar”) in April 2010, the Company agreed to share with Rentar all right, title and interest in and to intellectual properties and software, My Driver’s Seat, which it had developed for the worldwide transportation and security industries and had sold in April 2008 to Rentar Logic, a Delaware corporation and an affiliate of Rentar. The intellectual property that the Company agreed to share with Rentar included a patent titled “Dynamic and Predictive Information System and Method for Shipping Assets and Transport”.
Licensing Use of Intellectual Property
NuState Energy Holdings, Inc. signed a definitive agreement with The Ronn Motor Group, with offices in Dalian, China and the United States, to license and market NuState’s IP software, GPSTrax©, for use by Ronn Motor Group’s partners in China and other international markets. 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.
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Results of Operations
Selling, General, and Administrative Expenses
For the year ended June 30, 2015,2016, selling, general and administrative expenses were $358,656$719,868 as compared to $405,045$358,656 for the year ended June 30, 2014, a decrease2015, an increase of $46,388$361,212 or approximately 11.5%50%. For the years ended June 30, 20152016 and 20142015 selling, general and administrative expenses consisted of the following:
2015 | 2014 | Increase/(Decrease) | % Change | 2016 | 2015 | Increase/(Decrease) | % Change | |||||||||||||||||||||||||
Accounting expense | $ | 15,000 | $ | 28,850 | $ | (13,850 | ) | (48.00 | )% | $ | 100,889 | $ | 15,000 | $ | 85,889 | 85 | % | |||||||||||||||
Consulting fees | 99,841 | 110,400 | (10,559 | ) | (9.60 | )% | 195,536 | 99,841 | 95,695 | 49 | % | |||||||||||||||||||||
Legal fees | - | 20,000 | (20,000 | ) | (100.00 | )% | ||||||||||||||||||||||||||
Salaries | 240,000 | 240,000 | - | 0.00 | % | 393,025 | 240,000 | 153,025 | 39 | % | ||||||||||||||||||||||
Travel | 1,830 | 4,094 | (2,264 | ) | (55.30 | )% | - | 1,830 | (1,830 | ) | N/A | |||||||||||||||||||||
Other | 1,985 | 1,700 | 284 | 16.70 | % | 30,418 | 1,985 | 28,433 | 93 | % | ||||||||||||||||||||||
$ | 358,656 | $ | 405,045 | $ | (46,388 | ) | (11.50 | )% | $ | 719,868 | $ | 358,656 | $ | 361,212 | 50 | % |
The decreaseincrease in selling, general and administrative expenses during fiscal 2015,2016, when compared with the prior year, is primarily due to a decreasean increase in legal fees of $20,000salaries related to increased headcount and an increase in accounting expense due to less legal activity, a decrease in accounting fees of $13,850, and a decrease in general consulting fees of $10,559.costs associated with bringing our SEC filings current.
Years ended | ||||||||
June 30, | ||||||||
2015 | 2014 | |||||||
Derivative Liability expense | $ | - | $ | (204,283 | ) | |||
Gain (loss) on change in fair value of derivative liabilities | $ | 60,481 | $ | (2,006 | ) |
Derivative liability expense during fiscal 2014 resulted from the beneficial conversion features of two new convertible notes payable issued during that year that had initial derivative liabilities in excess of their principal amounts.
Years ended | ||||||||
June 30, | ||||||||
2016 | 2015 | |||||||
Gain (loss) on change in fair value of derivative liabilities | $ | 189,712 | $ | 60,481 |
Changes in fair value of derivative liabilities results from the changes in the fair value of the derivative liability due to the application of ASC 815, resulting in either income or expense, depending on the difference in fair value of the derivative liabilities between their measurement dates. The decreaseincrease in fair value of derivative liabilities recognized during fiscal 20152016 is primarily due to the decreaseincrease in the market price of our common stock. The decrease in fair value of derivative liabilities recognized during fiscal 20142015 is primarily due to an increase of our common stock quoted price between measurement dates and during such periods, respectively.
Interest Expense
Years Ended | ||||||||||||
June 30, | % | |||||||||||
2015 | 2014 | Change | ||||||||||
Interest Expense | $ | 310,864 | $ | 191,716 | 62.1 | % |
Years Ended | ||||||||||||
June 30, | % | |||||||||||
2016 | 2015 | Change | ||||||||||
Interest Expense | $ | 456,546 | $ | 310,864 | 46.9 | % |
Interest expense represents the stated interest of notes and convertible notes payable as well as the amortization of debt discount. The increase in interest expense during fiscal 20152016 is primarily due to increased amortization of debt discount of $62,328,$131,422, along with an increase in interest-bearing liabilities.
Derivative Liability Expense
Years Ended | |||||||||||
June 30, | % | ||||||||||
2016 | 2015 | Change | |||||||||
Derivative Liability Expense | $ | 265,000 | $ | 0 | N/A | % |
During fiscal 2016, the Company entered into sixteen unsecured convertible promissory note agreements totaling $265,000. These notes bear interest at rates between 8% and 14%, and are convertible into shares of common stock at a discount rate of 50% of the average 10-day closing bid price of the Company's stock. Derivative liability was recognized at the issuance dates of each note and totaled $265,000, with a corresponding charge to debt discount of $265,000 and $265,000 to derivative liability expense.
Loss on Settlement of Debt
Years Ended | % | |||||||||||
June 30, | Change | |||||||||||
2015 | 2014 | |||||||||||
Loss on settlement of debt | $ | (339,421 | ) | $ | (564,557 | ) | 44.4 | % |
Years Ended | ||||||||||||
June 30, | % | |||||||||||
2016 | 2015 | Change | ||||||||||
Loss on settlement of debt | $ | (12,135 | ) | $ | (339,421 | ) | 96.4 | % |
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 859,000,000572,667 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 dayfifteen-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 429,371,000286,247 common shares valued at $116,874.
Liquidity and Capital Resources
Balance at June 30, | ||||||||
2015 | 2014 | |||||||
Cash | $ | 6,130 | $ | 65 | ||||
Accounts payable and accrued expenses | 440,642 | 437,921 | ||||||
Accrued compensation | 342,000 | 167,000 | ||||||
Notes, convertible notes, accrued interest, and settlement payable to ASC Recap, LLC | 4,812,946 | 4,436,501 |
Balance at June 30, | ||||||||
2016 | 2015 | |||||||
Cash | $ | 1,806 | $ | 6,130 | ||||
Accounts payable and accrued expenses | 550,308 | 440,642 | ||||||
Accrued compensation | 190,325 | 342,000 | ||||||
Notes, convertible notes, accrued interest, and settlement payable to ASC Recap, LLC | 3,225,047 | 4,812,946 |
At June 30, 20152016 and 2014,2015, 100% of our total assets consisted of cash.
We do not have any material commitments for capital expenditures.
The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments and effectively implement our growth strategy. Our primary sources are financing activities such as the issuance of notes payable and convertible notes payable. In the past, we have mostly relied on debt and equity financing to provide for our operating needs.
We were unable to generate sufficient funds from operations to fund our ongoing operating requirements through June 30, 2015.2016. As of February 28,September 30, 2016 we had approximately $3,000$500 on hand. We may need to raise funds to enhance our working capital and use them for strategic purposes. If such need arises, we intend to generate proceeds from either debt or equity financing.
We intend to finance our operations using a mix of equity and debt financing. We do not anticipate incurring capital expenditures for the foreseeable future. We anticipate that we will need to raise approximately $180,000 per year in the near term to finance the recurring costs of being a publicly-traded company, and $120,000 to implement a plan of operations, with additional funding necessary to pay our outstanding obligations. In the long-term, we anticipate we will need to raise a substantial amount of capital to complete an acquisition. We are unable to quantify the resources we will need to successfully complete an acquisition. If these funds cannot be obtained, we may not be able to consummate an acquisition or merger, and our business may fail as a result.
Going Concern
The accompanying financial statements have been prepared on a going concern basis. The Company has used net cash in its operating activities of approximately $179,000$424,300 and $129,000$179,000 during the years ended June 30, 20152016 and 2014,2015, respectively, and has a working capital deficit of approximately $5.9$4.6 million and $5.4$5.9 million at June 30, 20152016 and 2014,2015, respectively. 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, once a merger with an operating company is consummated. Management plans may continue to provide for its capital requirements by issuing additional equity securities and debt and the Company will continue to find possible acquisition targets. 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.
Years Ended | ||||||||
June 30, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (960,388 | ) | $ | (1,367,607 | ) | ||
Non-cash Adjustments: | ||||||||
Loss on debt settlement | 339,421 | 564,557 | ||||||
Amortization of debt discount | 106,164 | 43,836 | ||||||
(Gain) loss on change in derivative liability | (60,481 | ) | 2,006 | |||||
Derivative liability expense | - | 204,283 | ||||||
Loss on restructuring of debt | 11,928 | - | ||||||
Changes in assets and liabilities | - | |||||||
Accrued interest | 206,700 | 147,880 | ||||||
Accrued compensation | 175,000 | 240,000 | ||||||
Accounts payable and accrued expenses | 2,721 | 36,139 | ||||||
Net cash used in continuing operations | (178,935 | ) | (128,906 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of convertible notes payable | 185,000 | 128,500 | ||||||
185,000 | 128,500 | |||||||
Net variation in cash | $ | 6,065 | $ | (406 | ) |
Years Ended | ||||||||
June 30, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 634,090 | $ | (960,388 | ) | |||
Non-cash Adjustments: | ||||||||
Loss on debt settlement | 12,135 | 339,421 | ||||||
Stock based compensation | 49,900 | - | ||||||
Amortization of debt discount | 156,250 | 106,164 | ||||||
(Gain) loss on change in derivative liability | (189,712 | ) | (60,481 | ) | ||||
Derivative liability expense | 265,000 | - | ||||||
(Gain) loss on restructuring of debt | (1,897,927 | ) | 11,928 | |||||
Changes in assets and liabilities | ||||||||
Accrued interest | 300,296 | 206,700 | ||||||
Accrued compensation | 259,573 | 175,000 | ||||||
Accounts payable and accrued expenses | (13,929 | ) | 2,721 | |||||
Net cash used in operations | (424,324 | ) | (178,935 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of preferred stock | 85,000 | - | ||||||
Repayment of note payable | (5,000 | ) | - | |||||
Proceeds from issuance of short term note payable | 25,000 | - | ||||||
Proceeds from issuance of convertible notes payable | 315,000 | 185,000 | ||||||
Net cash provided by financing activities | 420,000 | 185,000 | ||||||
Net variation in cash | $ | (4,323 | ) | $ | 6,065 |
Year ended June 30, 2016
Net cash used in operations in fiscal year 2016 increased by $245,389 or 137% from fiscal year 2015. This cash was obtained through the sale of $340,000 of convertible promissory notes and the sale of $85,000 of preferred stock.
9 |
Year ended June 30, 2015
Net cash used in operations in fiscal year 2015 increased by $50,029 or 38.8% from fiscal year 2014. This cash was obtained through the sale of $185,000 of convertible promissory notes.
Year ended June 30, 2014
Net cash used in operations in fiscal 2014 decreased by $15,633 or 10.8% from fiscal year 2013. This cash was obtained through the sale of $128,500 of convertible promissory notes.
The decreaseincrease in cash flows used in operating activities during fiscal 2014,2016, when compared to the prior year period, is primarily due to a decreasean increase in operating expenses and interest expense during fiscal 2014.2016.
Capital Raising Transactions
Issuance of Convertible Notes Payable
We generated proceeds of $185,000$340,000 and $128,500$185,000 during fiscal 20152016 and 2014,2015, respectively, from the issuance of convertible notes payable and promissory notes.
Other outstanding obligations at June 30, 20152016
Obligations to ASC Recap
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.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 paymentthe 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.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;$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.
The carrying amount of the Company’s liability to ASC, exclusive of the convertible notes payable and which is reported in the accompanying balance sheet as settlement payable to ASC Recap, LLC, is $2,372,513 and represents the $2,531,565 originally awarded, less payments/adjustments of $159,052,. The Company also recorded a loss on debt settlement in the accompanying statement of operations of $564,557 as a result of these transactions.
The Company ceased issuing shares upon discovering that ASC failed to make its first payment to the creditors on time, did not give verifiable reports to the creditors, or make regular monthly payments as specified in the Claim Purchase Agreement. A provision in each Claim Purchase Agreement stipulated that the “Purchaser (ASC) shall not be obligated to pay any portion of the purchase price in the event of a Default by the Company.” On August 13, 2015 ASC servedRecap, LLC issued the Company with a Noticeletter of Default,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 peris detailed in the Agreement, returnstable at the unpaid balance owedend of Note 6. These balances reflect the payments made by ASC to creditors prior to the creditorsdefault.
An analysis of the Company.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 June 20, 2016 | $ | - |
The transfer of liability due to ASC Recap consisted of the following:
Notes payable | $ | 902,146 | ||
Accounts payable and accrued liabilities | 90,360 | |||
Accrued salaries | 702,924 | |||
Loss on settlement of ASC liability | (12,135 | ) | ||
Accrued interest payable | 689,218 | |||
$ | 2,372,513 |
Convertible Notes Payable
The Company had convertible promissory notes aggregating approximately $1.4$1.6 million and $1.1$1.4 million outstanding at June 30, 20152016 and 2014,2015, respectively. The accrued interest amounted to approximately $754,000$1,037,000 and $711,000$754,000 at June 30, 20152016 and 2014,2015, respectively. The Convertible Notes Payable bear interest at rates ranging between 10% and 18% per annum. Interest is generally payable monthly. The Convertible Notes Payable are generally convertible at rates ranging between $0.00125$1.875 and $0.0005$0.75 per share, at the holders’ option. At June 30, 2015,2016, all convertible promissory notes have matured.
Balance at | Balance at | |||||||
June 30, 2016 | June 30, 2015 | |||||||
Convertible Notes Payable | $ | 1,609,349 | $ | 1,421,730 | ||||
Discount on convertible notes | (108,750 | ) | - | |||||
Notes Payable, net of discount | $ | 1,500,599 | $ | 1,421,730 |
Additionally, upon conversion, the holders of $192,000 of convertible promissory notes are also entitled to 19,200,00012,800,000 warrants, exercisable at a rate of $0.025.$37.50. The warrants expire 3 years from the date of issuance.
Notes Payable
The Company had promissory notes aggregating approximately $240,000 at June 30, 2016 and $90,000 at June 30, 2015 and $40,000 at June 30, 2014.2015. The related accrued interest amounted to approximately $24,500$199,590 and $19,000$24,500 at June 30, 20152016 and 2014,2015, respectively. The notes payable bear interest at rates ranging between 8% and 16% per annum. Interest is generally payable monthly. All promissory notes have matured as of June 30, 2015.2016.
Warrants
As of June 30, 2015,2016, we had no outstanding warrants.
Derivative Liability
The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. As of June 30, 20152016 the Company had $150,000$452,965 in notes that are convertible into the Company’s common stock, and which contained certain ratchet provisions that reduce the conversion price of the notes. In accordance with ASC 815 the Company determined that the note the conversion features with provisions that reduce the exercise price of the notes did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company’s stock.
Derivatives are required to be recorded on the balance sheet at fair value (see Note 12)3). These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Critical Accounting Policies
The Company’s critical accounting policies are as follows:
Convertible Instruments - The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with 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 in accordance with EITF 00-19. 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 that term is described).
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 the provisions of ASC 470 20 “Debt with Conversion 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 when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
The Company believes the certain conversion features embedded in convertible notes payable are not clearly and closely related to the economic characteristics of the Company’s stock price. Accordingly, the Company has recognized derivative liabilities in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter. The Company uses judgment in determining which valuation is most appropriate for the instrument (e.g., Black Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is included in Item 15 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer, who at June 30, 20152016 was also our principal executive and financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our Chief Executive Officer concluded that, as of June 30, 2015,2016, our disclosure controls and procedures were not effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2015.2016. In making this assessment, our management used criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Over Financial Reporting – Guidance for Smaller Public Companies.
During our assessment of the design and the effectiveness of internal control over financial reporting as of June 30, 2015,2016, management identified the following material weaknesses:
● | While we have processes in place, there are no formal written policies and procedures related to certain financial reporting processes; | |
● | There is no formal documentation in which management specified financial reporting objectives to enable the identification of risks, including fraud risks; | |
● | Our Board of Directors consisted of only one member and we lack the resources and personnel to implement proper segregation of duties or other risk mitigation systems. |
A material weakness is “a significant deficiency, or a combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected by us in a timely manner.” A significant deficiency, is a deficiency or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.
We intend to gradually improve our internal control over financial reporting to the extent that we can allocate resources to such improvements. We intend to prioritize the design of our internal control over financial reporting starting with our control environment and risk assessments and ending with control activities, information and communication activities, and monitoring activities. Although we believe the time to adapt in the next year will help position us to provide improved internal control functions into the future, in the interim, these changes caused control deficiencies, which in the aggregate resulted in a material weakness. Due to the existence of these material weaknesses, our management, including our Chief Executive Officer, concluded that our internal control over financial reporting was not effective as of June 30, 2015.2016.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit smaller reporting companies to provide only the management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fiscal quarter ended June 30, 2015,2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
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Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names, ages and principal position of our executive officers and directors as of June 30, 2014:2016:
Name | Age | Position | ||
Kevin Yates | Chairman of the Board and Chief Executive Officer | |||
Kathleen Roberton | 57 | Former Chief Executive Officer (resigned on July 8, 2016) |
Business Experience
Mr. Kevin Yates has served as Chairman of the Company’s Board of Directors since April 2010 and as the Company’s Chief Executive Officer, Treasurer and Secretary since July 2010. Mr. Yates formally served as Chief Operating Officer of the company in 2006-2007.
For the past nine years, Mr. Yates has served as President and Director of PocketMD. Mr. Yates has also served as Director of Mobile Software Team, LLC from August 2008 through July 2012, and C3I Services, LLC from July 2012 to present.
Mr. Yates’ devotes approximately 90% of his time to the business and affairs of our company. Mr. Yates experience in working with public companies’ operational strategy and market plan makes him an asset to the Company.
There are no family relationships among our directors or executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such executive officers, directors and ten percent stockholders are also required by the SEC rules to furnish to us copies of all Section 16(a) reports that they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons that they were not required to file a Form 5, we believe that, during the fiscal year ended June 30, 2013, our executive officers, directors and ten percent stockholders complied with all Section 16(a) filing requirements applicable to such persons.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct to provide guiding principles to our principal executive officer, principal financial officer, and principal accounting officer or controller of our company in the performance of their duties. Our Code of Ethics and Business Conduct also strongly recommends that all directors and employees of our company comply with the code in the performance of their duties. Our Code of Ethics and Business Conduct provides that the basic principle that governs all of our officers, directors and employees is that our business should be carried on with loyalty to the interest of our stockholders, customers, suppliers, fellow employees, strategic partners and other business associates. We believe that the philosophy and operating style of our management are essential to the establishment of a proper corporate environment for the conduct of our business.
Generally, our Code of Ethics and Business Conduct provides guidelines regarding:
conflicts of interest, | ||
financial reporting responsibilities, | ||
insider trading, | ||
inappropriate and irregular conduct, | ||
political contributions, and | ||
compliance with laws. |
A copy of our Code of Ethics has been filed with the Securities and Exchange Commission as an exhibit to this annual report. We will provide a copy, without charge, to any person desiring a copy of the Code of Ethics, by written request to us at our principal offices.
Committees of the Board of Directors
Our Board of Directors has not yet established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee. We plan to expand our Board in the future and we will seek to establish an Audit Committee and a Compensation Committee, but this will depend on our ability to attract and retain new directors. The typical functions of such committees are currently being undertaken by the entire Board as a whole. Our Board currently consists of only one member, Mr. Yates.
14 |
Audit Committee Financial Expert
Currently no member of our Board is an audit committee financial expert. We do not currently have the resources to recruit a Board member who would also be a financial expert. We may start our recruiting process for such Board member during fiscal 2016 if our financial position improves.
Item 11. Executive Compensation.
The following table sets forth, for the last two completed fiscal years, all compensation paid, distributed or accrued for services rendered to us by (i) all individuals serving as our principal executive officer or acting in a similar capacity during the last completed fiscal year, regardless of compensation level; (ii) our two most highly compensated executive officers other than the principal executive officer who were serving as executive officers at the end of the last completed fiscal year and whose total compensation exceeded $100,000; and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to (ii) above but for the fact that the individual was not serving as our executive officer at the end of the last completed fiscal year:
Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) | Non- Qualified Deferred Compensation Earnings | All Other Compensation ($)(1) | Total ($) | |||||||||||||||||||||||||||
Kevin Yates, Chief | 2015 | 240,000 | - | - | - | - | - | 97,841 | 337,841 | |||||||||||||||||||||||||||
Executive Officer | 2014 | 240,000 | - | - | - | - | - | 110,400 | 350,400 |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings | All Other Compensation ($)(1) (2) | Total ($) | |||||||||||||||||||||||||||
Kevin Yates, | 2016 | 240,000 | - | - | - | - | - | 105,050 | 345,050 | |||||||||||||||||||||||||||
Chief Financial Officer | 2015 | 240,000 | - | - | - | - | - | 97,841 | 337,841 | |||||||||||||||||||||||||||
Kathleen Roberton | 2016 | 103,125 | - | 49,900 | - | - | - | 42,500 | 195,525 | |||||||||||||||||||||||||||
Chief Executive Officer | 2015 | - | - | - | - | - | - | - | - |
(1) | Other compensation for Mr. Yates during fiscal | |
(2) | Other compensation for Ms. Roberton during fiscal 2016 represented funds paid to Hippocrates Management, LLC, a related party by means of common ownership and management to the Company. The related party provided assistance to Ms. Roberton in her duties. |
Employment Agreements
Kevin Yates’ employment agreement
On May 6, 2010, we entered in an executive employment agreement with Kevin Yates, as our President. The agreement provides for the following, among other things:
● | Base annual salary of $240,000; | |
● | Base salary may increase from time to time with the approval of our Compensation Committee; | |
● | Grant of options convertible in 60,000,000 shares of our common stock and exercisable at $0.0025 per share; | |
● | Termination clause: upon death, retirement or permanent disability of Kevin Yates, or at any time by us, or upon thirty-day notice by Kevin Yates | |
● | If the employment is terminated by Kevin Yates for good reason, as defined, or by us, other than for cause, as defined, death, retirement or permanent disability of Kevin Yates, Kevin Yates is entitled to two years base salary (currently, the equivalent of $480,000) and unpaid bonuses or incentive compensation, if any. |
On June 3, 2010, Kevin Yates and the Company suspended the employment agreement for lack of corporate activity. On October 30, 2010, the employment agreement was reinstated. On April 30, 2010, we entered in a consulting agreement with Mobile Software Team, LLC (‘Mobile Software”). Kevin Yates, our Chairman of the Board, also is managing member of Mobile Software. The agreement provides for the following, among other things:
On April 1, 2012, we entered in a consulting agreement with C3I Services, LLC (‘C3I Services”). Kevin Yates, our Chairman of the Board is also a managing member of C3i Services, LLC. The agreement provides for the following, among other things:
● | Base annual consulting fee of $120,000; | |
● | Termination clause: the earliest of July 1, 2013 the date we become a reporting company, or upon |
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our Board in the future.
Outstanding Equity Awards at Fiscal Year-End
There are no outstanding equity awards held as of June 30, 20152016 by our Executive Officers and Directors.
Director Compensation
Our Board of Directors is comprised of Mr. Yates, who is also an executive officer of our company, and does not receive any compensation specifically for his Board services.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
At February 29,October 13, 2016 we had 7,717,954,80232,654,179 shares of our Common Stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our Common Stock as of February 29,September 30, 2016 by:
● | each person known by us to be the beneficial owner of more than 5% of our Common Stock; |
● | our director; |
● | each of our executive officers named in the compensation tables in Item 11; and |
● |
COMMON STOCK | COMMON STOCK | |||||||||||||||||||||||
AMOUNT OF BENEFICIAL | % OF | % OF VOTING | AMOUNT OF BENEFICIAL | % OF | % OF VOTING | |||||||||||||||||||
NAME | OWNERSHIP | CLASS | CONTROL (1) | OWNERSHIP | CLASS | CONTROL (1) | ||||||||||||||||||
Kevin Yates | 115,000,000 | 1.49 | % | 1.71 | % | 23,410,000 | 71.7 | % | 71.7 | % |
(1) | Percent of Voting Control is based upon the number of issued and outstanding shares of our common stock |
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholder as of June 30, 2015.2016.
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||||||||||||||||
Equity compensation plans approved by security holders | ||||||||||||||||||||||||
2012 Employee Stock Compensation Plan | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total | 0 | 0 | 0 | 0 | 0 | 0 |
Item 13. Certain Relationship and Related Party Transactions, and Director Independence.
Other than compensation arrangements, we describe below, transactions during our last fiscal year, to which we were a party, in which:
● | The amounts involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and | |
● | Any of our directors, executive officers, or holders of more than 5% of our common stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. |
WarrantsCommon Stock
During fiscal 2015 and 20142016 we issued no warrants to purchase shares of our common stock.
During fiscal 2013 we issued warrants to purchase 2,000,000 shares of our common stock with an exercise price of $0.025 per share and expiring in March 2015 in connection with the sale of common stock.as follows:
At June 30, 2015 we had no warrants outstanding.
● | On October 14, 2015, Ms. Roberton was issued 332,667 shares of common stock valued at $49,900, or $0.15 per share as a performance bonus pursuant to her employment agreement. |
● | On October 9, 2015, we issued 3,333,333 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 consideration for his forgiveness of $633,000 in accrued compensation. Subsequently, in October 2015, these Series F and Series H preferred shares were exchanged for 532,000 shares of Series A preferred stock. Holders of 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. |
Convertible Notes PayablePreferred Stock
During fiscal 2015 we issued $185,000 of 18% convertible promissory notes with a term of one year. The convertible notes are convertible into shares of our common stock. The conversion price per share in effect on any conversion date shall be equal to the lesser of a) $0.0025 or b) the average closing price of the Company’s shares for the ten days immediately prior to the conversion date, with a floor of $0.00125. As of June 30, 2015, the applicable conversion price based on these terms was the floor price of $0.00125 per share. As of June 30, 2015, $185,000 of principal and $14,282 of accrued interest is outstanding on these convertible notes.
● | On February 18, 2016 a holder of a short term note was issued 220,000 shares of Series A preferred stock valued based on the as-converted market price of $22, in exchange for principal in the amount of $100,000, and accrued interest in the amount of $103,022. The exchange resulted in a gain on extinguishment of debt of $203,000. | |
● | 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, resulting in a gain on extinguishment of debt of $396,075. 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. |
During fiscal 2014 we issued convertible notes totaling $128,500. The convertible notes payable matured in September 2015 and are currently past due. The convertible notes bear interest at a rate of 12% per annum, payable upon conversion. The convertible notes are convertible into shares of our common stock at $0.005 per share. The convertible note also bears warrants to purchase our common stock at a price of $0.025 per share upon conversion. The number of warrants to be received by the note holder is equal to one half of the number of common shares issued upon conversion. As of June 30, 2015, $26,927 of principal and accrued interest is outstanding on this convertible note.
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 |
Common Stock
● | 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. | |
● | In February, 2016, a former employee was issued 20,000 of Series A Preferred stock, valued at $2, in consideration for his forgiveness of $75,715 in accrued compensation, resulting in a gain on extinguishment of debt of $75,713. |
During fiscal 2015 we issued shares of our common stock as follows:
On October 9, 2014, we 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
● | In July of 2014, the Company issued 55,320 shares of common stock with an aggregate value of $24,894 to ASC Recap. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
● | On October 9, 2014, we 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 572,667 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 286,247 common shares valued at $116,874.
Director Independence
Our sole director is not considered “independent” within the meaning of meaning of Rule 5605 of the NASDAQ Marketplace Rules.
Item 14. Principal Accountant Fees and Services
The following table summarizes the fees of D’Arelli Pruzansky, P.A., our independent registered public accounting firm billed for each of the last two fiscal years for audit services and other services:
(1) Consists of fees for professional services rendered in connection with the financial statements included in our Annual Report on Form
(2) Consists of fees relating to any tax compliance and tax planning.
We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy.
Item 15. Exhibits and Financial Statement Schedules
a. Index to Financial Statements and Financial Statement Schedules
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.
b.Exhibits
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NUSTATE ENERGY HOLDINGS, INC.
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
NuState Energy Holdings, Inc.
We have audited the accompanying balance sheets of NuState Energy Holdings, Inc. as of June 30,
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NuState Energy Holdings, Inc. as of June 30,
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had a
Coconut Creek, Florida
5489 Wiles Road, Suite 303 Coconut Creek, FL 33073 Phone 754 205.6417 Fax 754 205.6419 NUSTATE ENERGY HOLDINGS, INC.
* Common stock figures reflect the 1:1500 reverse common stock split effective June 16, 2016 on a retroactive basis.
See accompanying notes to financial statements.
NUSTATE ENERGY HOLDINGS, INC.
* Common stock figures reflect the 1:1500 reverse common stock split effective June 16, 2016 on a retroactive basis. See accompanying notes to financial statements. NUSTATE ENERGY HOLDINGS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
* Common stock figures reflect the 1:1500 reverse common stock split effective June 16, 2016 on a retroactive basis.
See accompanying notes to financial statements.
NUSTATE ENERGY HOLDINGS, INC. STATEMENTS OF
See accompanying notes to financial statements.
JUNE 30,
NOTE 1: ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN
NuState Energy Holdings, Inc.,
The accompanying financial statements have been prepared on a going concern basis. The Company had a
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 used in Black-Scholes-Merton derivative liability valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate and in the valuation allowance of deferred tax assets.
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 years ended June 30,
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 years ended June 30,
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of June 30,
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 FINANCIAL STATEMENTS JUNE 30,
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
During the year ended June 30,
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:
The Company’s derivative liability is classified as Level 3 financial instrument.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of cash, accounts payable and accrued expenses, accrued compensation, notes payable and convertible promissory notes payable, approximate their fair value due to the short maturity of these items or the use of market interest rates.
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.
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 FINANCIAL STATEMENTS JUNE 30,
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 June 30,
Share-Based Payments
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation”. 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 business segment which technologies are providing pertinent, real-time information to the worldwide transportation and security industries.
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.
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 the 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 conversion of other securities such as convertible debt or convertible preferred stock. Potential common shares includable in the computation of fully-diluted per-share results are not presented in the financial statements for the year ended June 30,
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basic and Diluted Earnings Per Share, continued
The weighted-average potentially dilutive common share equivalents outstanding at June 30,
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 June 30,
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 3: DERIVATIVE LIABILITY, continued
Changes in the derivative liabilities during the years ended June 30,
NOTE 4: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
Convertible Notes Payable
At June 30,
The Company had convertible promissory notes aggregating approximately $1.6 million and
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
Notes Payable The Company had promissory notes aggregating
Transactions The Company generated proceeds of $315,000 from the issuance of convertible promissory notes with interest rates of 18% during fiscal 2016, and $25,000 from the issuance of a short term note payable, with an interest rate of 0% during fiscal 2016.
The Company generated proceeds of $185,000 from the issuance of convertible promissory notes with interest rates of 18% during fiscal 2015.
The Company
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 5: 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
An analysis of the settlement liability due to ASC is as follows:
The transfer of liability due to ASC Recap consisted of the
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 5: OBLIGATIONS TO ASC RECAP, LLC, continued
The Company ceased issuing shares upon discovering that ASC had failed to make its first payment to the creditors on time, did not give verifiable reports to the creditors, or make regular monthly payments as specified in the Claim Purchase Agreement. A provision in each Claim Purchase Agreement stipulated that the “Purchaser (ASC) shall not be obligated to pay any portion of the purchase price in the event of a Default by the Company.” On August 13, 2015 ASC served the Company with a Notice of Default, which per the Agreement, returns the unpaid balance owed to the creditors of the Company.
NOTE 6: SETTLEMENT WITH IBC FUNDS, LLC
On October 9, 2014, we 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 accounts payable and accrued expenses (the “IBC Claim Amount”) by issuing IBC
NOTE 7: STOCKHOLDERS’ DEFICIT
Common Stock
At June 30,
A summary of the issuance of shares of Common Stock, related consideration and fair value of transaction, for the year ended June 30, 2015 was as follows:
Issuances of Common Stock During 2016 During fiscal 2016 we issued shares of our common stock as follows:
Preferred Stock
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.
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. 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
Series C Preferred Stock
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 7: STOCKHOLDERS’ DEFICIT, continued
Preferred Stock, continued
Series D Preferred Stock
Series F Preferred Stock
Series H Preferred Stock
Series I Preferred Stock
Series J Preferred Stock
Series Y Preferred Stock
Warrants
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 7: STOCKHOLDERS’ DEFICIT, continued
Options
In January 2001, The Company adopted the 2001 Employee Compensation Plan, or the Plan. The Plan provided for stock compensation through awards of shares of the Company’s common stock.
The Company’s board of directors may appoint a Compensation Committee to administer the Plan. In the absence of such appointment, the board of directors is responsible for the administration of the Plan. The Company did not appoint a Compensation Committee to administer the Plan. The board of directors has the sole power to award shares of common stock under the Plan, as well as determine those individuals eligible to receive an award of Plan shares. Awards of shares under the Plan may be made as compensation for services rendered, directly or in lieu of other compensation payable, as a bonus in recognition of past services or performance or may be sold to an employee.
The maximum number of shares which may be awarded under the plan is 5,000,000. Awards were generally granted to:
Grants to employees may be made for cash, property, services rendered or other forms of payment constituting lawful consideration under applicable law. Shares awarded, other than for services rendered, may not be sold at less than the fair value of our common stock on the date of grant.
The plan terminated in January 2011. The board of directors has absolute discretion to amend the plan with the exception that the board had no authority to extend the term of the plan, to increase the number of shares subject to award under the plan or to amend the definition of “Employee” under the plan.
The Company generally recognizes its share-based payments over the vesting period for which such payments are made.
The Company had no outstanding options or option activity between July 1, 2013 and June 30,
The total compensation cost related to non-vested awards not yet recognized amounted to $0 at June 30,
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 8: INCOME TAXES
The Company has not filed its corporate tax returns since fiscal 2007.
Due to recurring losses, the Company’s tax provision for the years ended June 30,
A summary of our deferred tax is as follows:
As of June 30,
The Company’s ability to offset future taxable income, if any, with tax net operating loss carryforwards may be limited due to the non-filing of tax returns and the impact of the statute of limitations on the Company’s ability to claim such benefits. Furthermore, changes in ownership may result in limitations under Internal Revenue Code Section 382. Due to these limitations, and other considerations, management has established full valuation allowances on deferred tax assets relating to net operating loss carryforward, as the realization of any future benefits from these assets is uncertain.
The valuation allowance at June 30, 2016 and 2015 was $10,364,300 and
The table below summarizes the differences between our effective tax rate and the statutory federal rate as follows for fiscal
NOTE 9: RELATED PARTY TRANSACTIONS
During fiscal
NUSTATE ENERGY HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30,
NOTE 10: SUBSEQUENT EVENTS
On July On July 8, 2016 Mr. Kevin Yates, the current Chairman of the Board,
On
On
On
On August 15, 2016 the Company issued 5,000,000 shares of its
On
|