NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
1: ORGANIZATION, GOING CONCERN AND BASIS OF PRESENTATION
Organization
NuState
Energy Holdings, Inc.
,
or the Company, currently is a Florida corporation that was incorporated in Nevada in October 1987.
It was formerly known as Jaguar Investments, Inc. between October 1987 and May 2003, Power2Ship, Inc. between May 2003 and November
2006, and Fittipaldi Logistics, Inc. between November 2006 and December 2007.
Going
Concern
The accompanying financial statements have
been prepared on a going concern basis.
For the six months ended December 31, 2017 we
incurred a net loss of $385,226,
had a use of cash in operating activities of $39,470, and had negative
working capital of approximately $5.2 million These matters raise substantial doubt about the Company’s ability to continue
as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary
financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund
possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for the Company’s
capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted
at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan
or generate positive operating results. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Management
is seeking to identify an operating company and engage in a merger or business combination of some kind, or acquire assets or
shares of an entity actively engaged in a business that generates sustained revenues. We are considering several potential acquisitions
and are investigating various candidates to determine whether they would have the potential to add value to us for the benefit
of our stockholders.
We
do not intend to restrict our consideration to any particular business or industry segment, and we may consider, among other businesses,
finance, brokerage, insurance, transportation, communications, services, natural resources, manufacturing or technology. Because
we have limited resources, the scope and number of suitable candidates to merge with is relatively limited. Because we may participate
in a business opportunity with a newly formed firm, a firm that is in the development stage, or a firm that is entering a new
phase of growth, we may incur further risk due to the inability of the target’s management to have proven its abilities
or effectiveness, or the lack of an established market for the target’s products or services, or the inability to reach
profitability in the next few years.
Any
business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present
stockholders. As it is expected that the closing of such a transaction will result in a change in control, such transaction is
expected to be accounted for as a reverse merger, with the operating company being considered the legal acquiree and accounting
acquirer, and we would be considered the legal acquirer and the accounting acquiree. As a result, at and subsequent to closing
of any such transaction, the financial statements of the operating company would become our financial statements for all periods
presented.
Basis
of Presentation
The
unaudited interim financial information furnished herein reflects all adjustments, consisting only of normal recurring items,
which in the opinion of management are necessary to fairly state NuState Energy Holdings, Inc.’s (the “Company”
or “we”, “us” or “our”) financial position, results of operations and cash flows for the dates
and periods presented and to make such information not misleading. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”), nevertheless,
management of the Company believes that the disclosures herein are adequate to make the information presented not misleading.
These
unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year
ended June 30, 2017, contained in the Company’s Annual Report on Form 10-K filed with the SEC on September 28, 2017. The
results of operations for the six months ended December 31, 2017, are not necessarily indicative of results to be expected for
any other interim period or the fiscal year ending June 30, 2018.
NUSTATE ENERGY HOLDINGS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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 valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Cash
and Cash Equivalents
The
Company considers all highly liquid, temporary, cash equivalents with an original maturity of three months or less when purchased,
to be cash equivalents. The Company had no cash equivalents during the six months ended December 31, 2017 and 2016.
Concentration
of Credit Risks
The
Company is subject to a concentration of credit risk from cash.
The
Company’s cash account is held at a financial institution and is insured by the Federal Deposit Insurance Corporation,
or FDIC, up to $250,000. At December 31, 2017 and June 30, 2017, the Company had not reached a bank balance
exceeding the FDIC insurance limit.
Derivative
Liabilities
The
Company assessed the potential classification of its derivative financial instruments as of December 31, 2017 and June 30, 2017,
which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives
meet the criteria for liability classification under ASC 815.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
During
the year ended June 30, 2017, the Company determined that there was no active market for the Company’s common stock, and
because of this lack of liquidity and market value, there was no derivative liability associated with these convertible notes.
The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance
sheet thereafter and in determining which valuation method is most appropriate for the instrument (e.g., Black-Scholes-Merton),
the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. The derivate liability
that had previously been recognized was recorded as a gain through the change in fair value of derivative liability on the statement
of operations as of June 30, 2017, and there was no derivative liability recorded as of December 31, 2017.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Fair
Value of Financial Instruments
The
Company accounts, for assets and liabilities measured at fair value on a recurring basis, in accordance with ASC Topic 820, Fair
Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities.
|
|
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data.
|
|
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
Additional
Disclosures Regarding Fair Value Measurements
The
carrying value of cash and cash equivalents, accounts payable and accrued expenses, accrued compensation, note and convertible
promissory notes payable, approximate their fair value due to the short maturity of these items.
Convertible
Instruments
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with ASC 470-20, Debt with Conversion and Other Options. Accordingly, the Company records,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based
upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and
the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the
related debt to their earliest date of redemption. The Company also records deemed dividends for the intrinsic value of conversion
options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note.
ASC
815-40, Contracts in Entity’s own Equity, generally provides that, among other things, if an event is not within the entity’s
control, such contract could require net cash settlement and shall be classified as an asset or a liability.
Income
Taxes
The
Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires,
among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The
Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions”. When tax returns are
filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others
are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all
highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income
Taxes, continued
The
Company has adopted ASC 740-10-25,
“
Definition of Settlement”
,
which provides guidance on how an entity
should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits
and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without
being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax
benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical
merits and the statute of limitations remains open. As of December 31, 2017, the Company had not filed tax returns for the tax
years ending June 30, 2008 through 2016 and such returns, when filed, potentially will be subject to audit by the taxing authorities
for a minimum of three years beyond the filing date under the three-year statute of limitations. The Company has not accrued any
potential tax penalties associated with not filing these tax returns. Due to recurring losses, management believes such potential
tax penalties, in any, would not be material in amount.
Share-Based
Payment
The
Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under
the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the
vesting period.
The
Company has elected to use the Black-Scholes-Merton, or BSM, option-pricing model to estimate the fair value of its options, which
incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to
calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards
ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Recent
Accounting Pronouncements
Recent
accounting pronouncements have been issued but deemed by management to be outside the scope of relevance to the Company.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basic
and Diluted Earnings Per Share
Basic
earnings per share are calculated by dividing income available to stockholders by the weighted-average number of shares of Common
Stock outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares of Common
Stock and dilutive Common Stock share equivalents outstanding during the period. Dilutive Common Stock share equivalents consist
of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). Potential
common shares includable in the computation of fully-diluted per-share results are not presented in the financial statements as
their affect would be anti-dilutive.
|
|
For
the Three Months ended December 31,
|
|
|
For
the Six Months ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(91,082
|
)
|
|
$
|
(164,135
|
)
|
|
$
|
(211,070
|
)
|
|
$
|
(1,017,446
|
)
|
Interest expense
|
|
|
(73,744
|
)
|
|
|
(84,223
|
)
|
|
|
(174,156
|
)
|
|
|
(168,423
|
)
|
Derivative liability
expense
|
|
|
-
|
|
|
|
(98,317
|
)
|
|
|
-
|
|
|
|
(98,317
|
)
|
Numerator for
basic earnings per share- net income (loss)
|
|
$
|
(164,826
|
)
|
|
$
|
(720,470
|
)
|
|
$
|
(385,226
|
)
|
|
$
|
(1,407,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted
average shares
|
|
|
2,333,679,247
|
|
|
|
44,529,855
|
|
|
|
2,119,728,978
|
|
|
|
31,981,269
|
|
Effect of dilutive securities-when applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
|
7,437,524,809
|
|
|
|
73,565,588
|
|
|
|
7,437,524,809
|
|
|
|
73,565,588
|
|
Preferred Stock
|
|
|
13,754
|
|
|
|
13,754
|
|
|
|
13,754
|
|
|
|
13,754
|
|
Denominator for
diluted earnings per share—adjusted weighted-average shares and assumed conversions
|
|
|
9,771,217,810
|
|
|
|
118,109,197
|
|
|
|
9,557,267,541
|
|
|
|
105,560,611
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) per share-basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) per share-diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basic
and Diluted Earnings Per Share
The
weighted-average potentially dilutive common share equivalents outstanding at December 31, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Series A Preferred Stock
|
|
|
9,324
|
|
|
|
9,324
|
|
Series B Preferred Stock
|
|
|
4,430
|
|
|
|
4,430
|
|
Convertible notes
payable
|
|
|
7,437,524,809
|
|
|
|
73,565,588
|
|
Total
|
|
|
7,437,538,563
|
|
|
|
73,579,342
|
|
NOTE
3: DERIVATIVE LIABILITY
The
Company accounts for the embedded conversion features included in its convertible instruments as derivative liabilities. The aggregate
fair value of derivative liabilities at December 31, 2017 and June 30, 2017 amounted to $0 and $0, respectively. For the six months
ended December 31, 2017 and 2016, the Company recorded a gain related to the change in fair value of the derivative liability
amounting to $0 and s loss of $123,247, respectively. Management had a change in accounting estimate during the year ended June
30, 2017. The Company determined that all of the underlying convertible notes were past due and in default, and that there was
no active market for the Company’s common stock. Because of this lack of liquidity and market value, there was no derivative
liability associated with these convertible notes. At each measurement date, the fair value of the embedded conversion features
was based on the Black-Scholes-Merton method using the following assumptions:
|
|
Six
Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Effective
Exercise price
|
|
|
|
|
|
$
|
0.001875
|
|
Effective
Market price
|
|
|
|
|
|
$
|
0.0042
|
|
Volatility
|
|
|
|
%
|
|
|
488
|
%
|
Risk-free
interest
|
|
|
|
%
|
|
|
0.13
|
%
|
Terms
|
|
|
|
|
|
|
90
days
|
|
Expected
dividend rate
|
|
|
|
%
|
|
|
0
|
%
|
During
fiscal 2017, the Company’s management had a change in accounting estimate related to the accounting for derivative liabilities.
Due to the Company’s current share price and lack of trading liquidity in the Company’s common stock, the convertible
notes were determined to have no basis for applying a derivative liability to the conversion of these notes. As a result, there
is no derivative liability at December 31, 2017.
Changes
in the derivative liabilities during the six months ended December 31, 2017 and 2016 are as follows:
Derivative liability at June 30, 2017
|
|
$
|
-
|
|
Gain on change
in fair value of derivative liability, recognized as other expense
|
|
|
-
|
|
Derivative liability at December
31, 2017
|
|
$
|
-
|
|
NOTE
4: ACCRUED INTEREST PAYABLE
Changes
in accrued interest payable during the six months ended December 31, 2017 and 2016 are as follows:
Accrued interest payable
at June 30, 2017
|
|
$
|
1,493,014
|
|
Interest expense
for the six months ended December 31, 2017, excluding amortization of debt discount of $27,083
|
|
|
147,073
|
|
Accrued interest
payable at December 31, 2017
|
|
$
|
1,640,087
|
|
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
5: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
Convertible
Notes Payable
At
December 31, 2017 and June 30, 2017 convertible debentures consisted of the following:
|
|
December
31, 2017
|
|
|
June
30, 2017
|
|
Convertible notes payable
|
|
$
|
2,187,484
|
|
|
$
|
2,201,914
|
|
Unamortized debt
discount
|
|
|
-
|
|
|
|
(27,083
|
)
|
Total
|
|
$
|
2,187,484
|
|
|
$
|
2,174,831
|
|
The
Company had convertible promissory notes aggregating approximately $2.2 million and $2.2 million at December 31, 2017 and June
30, 2017, respectively. The accrued interest amounted to approximately $1,640,000 and $1,493,000 at December 31, 2017 and June
30, 2017, respectively. The Convertible Notes Payable bear interest at rates ranging between 0% and 18% per annum. Interest is
generally payable monthly. The Convertible Notes Payable are generally convertible at rates ranging from $0.00125 to $0.0003 per
share, at the holders’ option. At December 31, 2017, approximately $2.2 million of convertible promissory notes had matured,
are in default, and remain unpaid.
Notes
Payable
The
Company had promissory notes aggregating $270,241 at December 31, 2017 and June 30, 2017, respectively. The related accrued interest
amounted to approximately $234,000 and $222,400 at December 31, 2017 and June 30, 2017, respectively. The notes payable bear interest
at rates ranging from 8% to 16% per annum which is payable monthly. All promissory notes outstanding as of December 31, 2017 have
matured, are in default, and remain unpaid.
Transactions
During
the six months ended December 31, 2017 we issued convertible notes to three investors, totaling $37,500. The notes bear interest
at 12% and have a term of sixty days.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
7: STOCKHOLDERS’ DEFICIT
Common
Stock
At
December 31, 2017, the Company had 10,000,000,000 authorized common shares.
During
the six months ended December 31, 2017 the Company issued 849,300,335 shares of its common stock related to the conversion of
$51,930 of principal of its convertible notes payable, at an average contract conversion price of $0.000061.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
7: STOCKHOLDERS’ DEFICIT, continued
Preferred
Stock
Series
A and B issued and outstanding shares of the Company’s preferred stock have a par value of $0.001. All classes rank(ed)
prior to any class or series of the Company’s common stock as to the distribution of assets upon liquidation, dissolution
or winding up of the Company or as to the payment of dividends. All preferred stock shall have no voting rights except if the
subject of such vote would reduce the amount payable to the holders of preferred stock upon liquidation or dissolution of the
company and cancel and modify the conversion rights of the holders of preferred stock as defined in the certificate of designations
of the respective series of preferred stock.
Series
A Preferred Stock
The
Series A Preferred Stock has a stated value of $0.25 per share. Each one share of Series A Preferred Stock is convertible into
one (1) share of Common Stock. In the event the Common Stock price per share is lower than $0.10 (ten cents) per share then the
Conversion shall be set at $0.035 per share. The Common Stock shares are governed by Lock-Up/Leak-Out Agreements.
Series
B Preferred Stock
Prior
to cancellation, the Series B Preferred Stock had a stated value of $5.00 per share. Each share of Series B Preferred Stock was
convertible into 20 shares of the Company’s common stock. In addition, the holders of the preferred stock were entitled
to receive annual cumulative dividends of 10% payable in cash or shares of the Company’s common stock, at the Company’s
option. At December 31, 2017, the Company had not declared the payment of cumulative dividends aggregating approximately $673,200.
Thirty
million (30,000,000) shares of preferred stock were designated as a new Series B Preferred stock in April, 2016. This new Series
B Preferred Stock has a $0.001 par value, and each 300 shares is convertible into one share of the Company’s common stock,
with a stated value of $375 per share.
NUSTATE
ENERGY HOLDINGS, INC.
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER
31, 2017
NOTE
8: RELATED PARTY TRANSACTIONS
The
Company has entered into a consulting agreement with an entity owned by our Chairman of the Board and Chief Executive Officer.
During the six months ended December 31, 2017 and 2016 the Company had incurred consulting fees and related expense reimbursements
of $8,500 and $24,000, respectively.
NOTE
9: SUBSEQUENT EVENTS
None.