UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2015
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: 333-14477
FUELSTREAM, INC.
(Name of Small Business Issuer in Its Charter)
| Delaware |
|
87-0561426 |
|
(State
or Other Jurisdiction
of Incorporation
or Organization) |
|
(IRS
Employer
Identification
No.) |
| |
|
|
| 510 Shotgun Road, Suite 110 |
|
|
| Fort Lauderdale, Florida |
|
33326 |
| (Address of Principal Executive Offices) |
|
(Zip Code) |
| |
(954) 423-5345 |
|
| |
(Issuer’s Telephone Number) |
|
| |
|
|
| (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
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 past 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 has 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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes [X] No []
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, 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] |
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant
has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares
outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of August 17, 2015, the
Company had outstanding 1,691,172 shares of common stock, par value $0.0001 per share.
PART
I
FINANCIAL
INFORMATION
The
Condensed Consolidated Financial Statements of the Company are prepared as of June
30, 2015.
ITEM
1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
| FUELSTREAM, INC. |
| Condensed Consolidated Balance Sheets |
| | |
| |
|
| ASSETS |
| | |
June 30, | |
December 31, |
| | |
2015 | |
2014 |
| | |
(Unaudited) | |
|
| | |
| |
|
| CURRENT ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 202,192 | | |
$ | 811 | |
| Accounts receivable, net of allowance | |
| 28,000 | | |
| 28,000 | |
| Fuel Deposits | |
| 200,000 | | |
| — | |
| | |
| | | |
| | |
| Total Current Assets | |
| 430,192 | | |
| 28,811 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 430,192 | | |
$ | 28,811 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT |
| | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| | |
| | | |
| | |
| Accounts payable | |
$ | 965,307 | | |
$ | 959,469 | |
| Due to related parties | |
| 61,973 | | |
| 52,973 | |
| Accrued expenses | |
| 1,539,444 | | |
| 1,215,086 | |
| Convertible debenture/notes payable - short term (net of | |
| | | |
| | |
| discount of $33,811 and $6,358, respectively) | |
| 656,338 | | |
| 634,141 | |
| Convertible notes payable - related parties | |
| 325,722 | | |
| 280,722 | |
| Notes payable | |
| 1,034,610 | | |
| 1,034,610 | |
| Notes payable - related parties | |
| 2,208,106 | | |
| 2,138,106 | |
| Line of Credit | |
| 401,000 | | |
| — | |
| Derivative liability | |
| 119,362 | | |
| 372,939 | |
| | |
| | | |
| | |
| Total Current Liabilities | |
| 7,311,862 | | |
| 6,688,046 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 7,311,862 | | |
| 6,688,046 | |
| | |
| | | |
| | |
| STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| | |
| | | |
| | |
| Preferred stock, $0.0001 par value; 200 shares | |
| | | |
| | |
| authorized, 200 and 200 shares issued and outstanding | |
| — | | |
| — | |
| Common stock, $0.0001 par value; 2,500,000,000 | |
| | | |
| | |
| shares authorized, 1,537,577 and 969,086 | |
| | | |
| | |
| shares issued and outstanding, respectively | |
| 154 | | |
| 97 | |
| Additional paid-in capital | |
| 52,680,264 | | |
| 52,559,736 | |
| Accumulated deficit | |
| (59,562,088 | ) | |
| (59,219,068 | ) |
| | |
| | | |
| | |
| Total Stockholders' Deficit | |
| (6,881,670 | ) | |
| (6,659,235 | ) |
| | |
| | | |
| | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | |
$ | 430,192 | | |
$ | 28,811 | |
| | |
| | | |
| | |
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| FUELSTREAM, INC. |
| Condensed Consolidated Statements of Operations |
| (Unaudited) |
| | |
| |
| |
| |
|
| | |
For the Three Months Ended | |
For the Six Months Ended |
| | |
June 30, | |
June 30, |
| | |
2015 | |
2014 | |
2015 | |
2014 |
| | |
| |
| |
| |
|
| NET SALES | |
$ | — | | |
$ | 210,174 | | |
$ | — | | |
$ | 257,588 | |
| | |
| | | |
| | | |
| | | |
| | |
| COST OF SALES | |
| — | | |
| 184,557 | | |
| — | | |
| 220,895 | |
| | |
| | | |
| | | |
| | | |
| | |
| GROSS MARGIN | |
| — | | |
| 25,617 | | |
| — | | |
| 36,693 | |
| | |
| | | |
| | | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Selling, general and administrative | |
| 169,934 | | |
| 439,789 | | |
| 288,244 | | |
| 889,922 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Operating Expenses | |
| 169,934 | | |
| 439,789 | | |
| 288,244 | | |
| 889,922 | |
| | |
| | | |
| | | |
| | | |
| | |
| LOSS FROM OPERATIONS | |
| (169,934 | ) | |
| (414,172 | ) | |
| (288,244 | ) | |
| (853,229 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| OTHER INCOME (EXPENSES) | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Gain on conversion of debt | |
| — | | |
| 64,614 | | |
| — | | |
| 64,614 | |
| Gain on change in fair value of derivative liability | |
| 305,508 | | |
| 290,743 | | |
| 312,605 | | |
| 529,123 | |
| Interest expense (including amortization of debt discount | |
| | | |
| | | |
| | | |
| | |
| of $18,718, $544,564, $55,048 and $924,585, respectively) | |
| (187,998 | ) | |
| (832,095 | ) | |
| (367,381 | ) | |
| (1,561,070 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total Other Income (Expenses) | |
| 117,510 | | |
| (476,738 | ) | |
| (54,776 | ) | |
| (967,333 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| LOSS BEFORE INCOME TAXES | |
| (52,424 | ) | |
| (890,910 | ) | |
| (343,020 | ) | |
| (1,820,562 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| INCOME TAX EXPENSE | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | |
| NET LOSS | |
$ | (52,424 | ) | |
$ | (890,910 | ) | |
$ | (343,020 | ) | |
$ | (1,820,562 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| BASIC AND DILUTED: | |
| | | |
| | | |
| | | |
| | |
| Net loss per common share | |
$ | (0.04 | ) | |
$ | (25.31 | ) | |
$ | (0.32 | ) | |
$ | (39.18 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average shares outstanding | |
| 1,182,243 | | |
| 35,200 | | |
| 1,076,253 | | |
| 46,465 | |
| | |
| | | |
| | | |
| | | |
| | |
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| FUELSTREAM, INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| | |
For the Six Months Ended |
| | |
June 30, |
| | |
2015 | |
2014 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (343,020 | ) | |
$ | (1,820,562 | ) |
| Adjustments to reconcile net loss to net | |
| | | |
| | |
| cash used in operating activities: | |
| | | |
| | |
| Gain on conversion of debt | |
| — | | |
| (64,614 | ) |
| Common stock issued for services and finance expenses | |
| — | | |
| 175,450 | |
| Stock based compensation | |
| 68,434 | | |
| 68,434 | |
| Operating expenses incurred by noteholders on behalf of the Company | |
| 32,000 | | |
| 267,511 | |
| Non-cash interest expenses | |
| 25,828 | | |
| 295,912 | |
| Change in fair value of derivative liability | |
| (312,605 | ) | |
| (529,123 | ) |
| Amortization of debt discounts | |
| 55,048 | | |
| 924,585 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Fuel deposits | |
| (200,000 | ) | |
| — | |
| Accounts receivable | |
| — | | |
| (3,062 | ) |
| Accounts payable and accrued expenses | |
| 439,196 | | |
| 514,736 | |
| Due to related parties | |
| 9,000 | | |
| (2,936 | ) |
| | |
| | | |
| | |
| Net Cash Used in Operating Activities | |
| (226,119 | ) | |
| (173,669 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| — | | |
| — | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| | |
| | | |
| | |
| Proceeds from line of credit | |
| 401,000 | | |
| — | |
| Net proceeds from convertible notes payable | |
| 20,500 | | |
| 363,450 | |
| Proceeds from notes payable - related parties | |
| 6,000 | | |
| — | |
| Payments on notes payable | |
| — | | |
| (174,000 | ) |
| | |
| | | |
| | |
| Net Cash Provided by Financing Activities | |
| 427,500 | | |
| 189,450 | |
| | |
| | | |
| | |
| NET INCREASE IN CASH AND CASH EQUIVALENTS | |
$ | 201,381 | | |
$ | 15,781 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |
| 811 | | |
| — | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | |
$ | 202,192 | | |
$ | 15,781 | |
| | |
| | | |
| | |
| SUPPLEMENTAL CASH FLOW INFORMATION | |
| | | |
| | |
| | |
| | | |
| | |
| Cash Payments For: | |
| | | |
| | |
| | |
| | | |
| | |
| Interest | |
$ | 146 | | |
$ | 1,725 | |
| Income taxes | |
$ | — | | |
$ | — | |
| | |
| | | |
| | |
| Non-cash investing and financing activity: | |
| | | |
| | |
| | |
| | | |
| | |
| Initial derivative liability on convertible note payable | |
$ | 63,329 | | |
$ | 711,413 | |
| Beneficial conversion feature on convertible note credited to additional paid in capital | |
$ | 45,000 | | |
$ | 394,452 | |
| Common stock issued for settlement of notes payable and accrued interest | |
$ | — | | |
$ | 108,000 | |
| Accrued interest converted to notes payable | |
$ | — | | |
$ | 130,603 | |
| Extinguished derivative liability on conversion of convertible note payable | |
$ | — | | |
$ | 281,127 | |
| Common stock issued for the conversion of debt and accrued interest | |
$ | 7,151 | | |
$ | 871,585 | |
| Reclassification from due to related party to note payable - related party | |
$ | 64,000 | | |
$ | — | |
| Reclassification from accounts payable to convertible note payable - related party | |
$ | 45,000 | | |
$ | — | |
| Reclassification from accounts payable to due to related party | |
$ | 45,000 | | |
$ | — | |
| | |
| | | |
| | |
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
FUELSTREAM, INC. AND
SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES AND NATURE OF OPERATIONS
Basis of
Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished
in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in
the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the
disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated
financial statements be read in conjunction with the Company’s audited consolidated financial statements and notes thereto
included in its Form 10-K for the year ended December 31, 2014. Operating results for the six months ended June 30, 2015 are not
necessarily indicative of the results to be expected for the year ending December 31, 2015.
Organization and Nature of Operation
Fuelstream, Inc. (the
“Company”) was incorporated under the laws of the State of Delaware on July 12, 1996 under the name of
“Durwood, Inc.” From April 6, 1999 to April 9, 2010, the Company operated as a sports marketing firm under the
name of “Sportsnuts, Inc.” On April 9, 2010, the Company changed its name to Fuelstream, Inc. and changed its
business model to become a fuel transportation and logistics company.
On April 11, 2011, the Company entered into
a joint venture agreement (“Joint Venture”) with Aviation Fuel International, Inc., a Florida corporation (“AFI”)
and a purchaser and reseller of aviation fuel for commercial and private aircraft. The Joint Venture required the Company to contribute
up to $200,000 in respect of supplying aviation fuel to various commercial aircraft via tanker trucks which were intended to be
acquired by the Joint Venture. The Company ultimately contributed $183,500 in connection with the Joint Venture. On January 18,
2012, the Joint Venture was terminated upon completion of the acquisition of AFI, which is now a wholly-owned subsidiary of the
Company (refer to note 3).
On May 10, 2012, the Company along with two
partners formed AFI South Africa LLC (“AFI SA”), immediately the Company purchased shares of the other partners to
become 100% owner of AFI SA (refer to note 3). AFI SA was effective as Limited Liability Company under the Act by the filing organization
with the office of the Secretary of State of Florida on May 11, 2012. The Company has been organized for the purpose of partnering
with Global Aviation for brokering the sale of Fuel for aircraft in South Africa.
Use of Estimates
The preparation of unaudited condensed consolidated
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria
(3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
ASC605-10 incorporates Accounting Standards
Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements
that may involve the delivery or performance of multiple products, services and/or rights to use assets.
Principles of Consolidation
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”)
and include the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Cash
The Company considers cash to consist of
cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.
Income Taxes
The Company has adopted Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns.
Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and
tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Temporary differences between taxable income reported for financial reporting purposes and income tax purposes consist primarily
of timing differences such as deferred officers’ compensation and stock based compensation accounting.
Net Loss per share
The Company complies with accounting and
disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per ordinary share is computed by dividing
net loss applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period. Common
share equivalents are excluded from the diluted earnings (loss) per share computation if their effect is anti-dilutive.
Stock based compensation
The Company follows Accounting Standards
Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees
and non-employees be recognized in the income statement based on their fair values.
Stock based compensation recorded in the
unaudited condensed consolidated financial statements for the six months ended June 30, 2015 and 2014 were $68,434 and $68,434,
respectively.
Financial Instruments
On January 1, 2008, the Company adopted FASB
ASC 820-10-50, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy
for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined
as follows:
- Level 1 inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities inactive markets.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
- Level 2 inputs to the valuation methodology
include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
- Level 3 inputs to valuation methodology
are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance
sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable
estimate of fair value because of the short period of time between the origination of such instruments and their expected realization
and their current market rate of interest.
Derivative Liabilities
The Company assessed the classification of
its derivative financial instruments as of June 30, 2015, 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.
Convertible Instruments
The Company evaluates and accounts for conversion
options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative
Instruments and Hedging Activities”.
Professional standards generally provide
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. Professional standards also provide an exception to this rule when the host instrument is deemed to be
conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.
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 professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those
professional standards pertain to “Certain Convertible Instruments.” 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.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
ASC 815-40 provides that, among other things,
generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be
classified as an asset or a liability.
Recently adopted accounting pronouncements
In April 2015, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs
related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected
by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein
the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance.
We do not expect the adoption of ASU 2015-03 to have a material effect on our financial position, results of operations or cash
flows.
In February 2015, the FASB issued ASU No.
2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation
guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized
debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation
evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In
addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards
Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest,
reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable
interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically
make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption
of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.
In January 2015, the FASB issued ASU No.
2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items.
ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A
reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect
on our financial position, results of operations or cash flows.
In November 2014, the FASB issued ASU No.
2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option
to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control
of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the
change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable.
ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position,
results of operations or cash flows.
In November 2014, the FASB issued ASU 2014-16,
“Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument
issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in,
hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position,
results of operations or cash flows.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
In August 2014, the FASB issued ASU No. 2014-15,
"Presentation of Financial Statements - Going Concern (Subtopic 205-40)". ASU 2014-15 provides guidance related to management's
responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide
related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual
periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our
financial position, results of operations or cash flows.
In June 2014, the FASB issued ASU No. 2014-12,
“Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide
That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target
that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not expect
the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects any entity using U.S. GAAP that either enters
into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless
those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We do not expect the adoption
of ASU No. 2014-09 to have a material effect on our financial position, results of operations or cash flows.
In April 2014, the FASB issued ASU No. 2014-08,
"Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 amends the definition for what types of asset
disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations
and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on
or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations
or cash flows.
Recent accounting pronouncements issued by
the FASB and the SEC did not or are not believed by management to have a material impact on the Company's present or future unaudited
condensed consolidated financial statements.
Reclassification
Certain reclassifications have been made
to prior periods' data to conform to the current period's presentation. These reclassifications had no effect on reported income
or losses.
NOTE 2 -
GOING CONCERN CONSIDERATIONS
The accompanying unaudited
condensed consolidated financial statements have been prepared using generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
As reported in its Annual Report on Form 10-K for the year ended December 31, 2014, the Company has an accumulated deficit
of $59,219,068 from inception of the Company through December 31, 2014. It should be noted that prior to the acquisition of
AFI as discussed in Note 3, the Company had an accumulated deficit of $32,105,264 as reported in its Annual Report on Form
10-K for the year ended December 31, 2011. The accumulated deficit as of June 30, 2015 was $59,562,088 and the
total stockholders’ deficit at June 30, 2015 was $6,881,670 and had working capital deficit (current liabilities minus
current assets) of $6,881,670, continued losses and negative cash flows from operations. These factors combined, raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address and
alleviate these concerns are as follows:
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The Company’s management continues
to develop a strategy of exploring all options available to it so that it can develop successful operations and have sufficient
funds, therefore, as to be able to operate over the next twelve months. The Company is attempting to improve these conditions by
way of financial assistance through issuances of additional equity and by generating revenues by brokering the sale of aircraft
fuel. No assurance can be given that funds will be available, or, if available, that it will be on terms deemed satisfactory to
management.
The ability of the Company to continue as
a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that
might result from the outcome of these uncertainties.
NOTE 3 - ACQUISITION
On January 18, 2012 the Company
completed the acquisition of 100% of the equity of Aviation Fuel International, Inc., a Florida corporation
(“AFI”). AFI is a purchaser and reseller of aviation fuel for commercial and private aircraft. The consideration
for the acquisition of AFI consisted of 7,400,000 shares of restricted common stock, loan receivable adjusted for $183,500
and a note payable in the amount of $1,000,000. As part of the acquisition, the Company recorded goodwill in the amount of
$6,000,410 on June 25, 2013. The Company disaffirmed the note payable of $1,000,000. However, until the Company receives a
judicially approved release, the note payable will remain on the financial statements and is included in the balance sheet as
of June 30, 2015 under Notes payable-related parties. Prior to the acquisition, AFI had accumulated notes payable of
$1,356,300 and accounts payable of $536,610. These liabilities have been recorded in the condensed consolidated balance
sheet. These liabilities are due from AFI and were not incurred or guaranteed by the parent company, Fuelstream, Inc.
NOTE 4 - LOSS CONTINGENCIES
The Company is involved with various legal
proceedings as described in Part II Item I of this Form 10-Q. The Company has evaluated these contingencies per the requirements
of ASC 450-20 (previously SFAS 5, “Accounting for Contingencies”) and determined that the likelihood of loss from these
proceedings are remote.
NOTE 5 -
ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 2015 and
December 31, 2014 are as follow:
| | |
June 30,
2015 | |
December 31, 2014 |
| Accounts receivable | |
$ | 698,000 | | |
$ | 698,000 | |
| | |
| 698,000 | | |
| 698,000 | |
| Less: allowance on accounts receivable | |
| (670,000 | ) | |
| (670,000 | ) |
| Accounts receivable, net | |
$ | 28,000 | | |
| 28,000 | |
The Company is involved in disputes with
$698,000 of the above accounts receivable and has filed a lawsuit.
NOTE 6 - FUEL DEPOSITS
During the six months ended June 30, 2015,
the Company deposited funds with a fuel vendor in order to establish a “prepay” account that is used for the purchase
of fuel. The balance in these fuel deposits at June 30, 2015 was $200,000.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
The accounts payable of $965,307, as of June
30, 2015, includes two parties who are seeking motion for entry for final garnishment judgment. The Company has assumed these two
accounts payable with the acquisition of AFI (refer to note 3). Per court order interest is calculated at rate of 6% per annum
on $325,138 on one of the accounts payable and 18% on $192,061 (principal amount) of the second accounts payable. Accrued interest
on accounts payable balance as of June 30, 2015 and December 31, 2014 is $210,149 and $183,108, respectively. Interest expense
of $27,040 was charged to expenses during the six months ended June 30, 2015.
NOTE 8 - NOTES PAYABLE
| Notes payable consisted of the following: | |
| |
|
| | |
June 30,
2015 | |
December 31,
2014 |
| Notes payable, issued on May 6, 2011, unsecured, interest at 10% per annum, due on demand. | |
$ | 59,500 | | |
$ | 59,500 | |
| Notes payable, issued on August 25, 2010, unsecured, interest at 10% per annum, due on demand. | |
| 172,500 | | |
| 172,500 | |
| Notes payable issued on October 18, 2010 to individual, unsecured, interest at 15% per annum, due on demand(1) | |
| 786,300 | | |
| 786,300 | |
| Notes payable issued on October 4, 2013, January 16, 2014, and January 22, 2014 to a company, unsecured, interest at 8% per annum, due on demand. | |
| 8,000 | | |
| 8,000 | |
| Notes payable issued on March 5, 2013 to individual, unsecured, interest at 8% per annum, due on demand. | |
| 7,500 | | |
| 7,500 | |
| Notes payable issued on July 1, 2013 to company, unsecured, interest at 8% per annum, due on demand | |
| 810 | | |
| 810 | |
| Total notes payable | |
| 1,034,610 | | |
| 1,034,610 | |
| Less: current portion | |
| (1,034,610 | ) | |
| (1,034,610 | ) |
| Long-term notes payable | |
$ | — | | |
$ | — | |
| Maturities of notes payable are as follows: | |
| | | |
| | |
Year Ending June 30, | |
| | | |
| Amount | |
| 2016 | |
| | | |
$ | 1,034,610 | |
| Total | |
| | | |
$ | 1,034,610 | |
Accrued interest on notes payable as of
June 30, 2015 was $578,532 and as of December 31, 2014 was $505,482. Interest expense of $36,844 and $73,284 has been charged
to expenses for the three and six months ended June 30, 2015, respectively.
| 1) | This Note payable was assumed on the acquisition of AFI. The Company
is negotiating a settlement agreement for $786,300, inclusive of all interest on the date of settlement. |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
NOTE 9 -
CONVERTIBLE DEBENTURE/NOTES PAYABLE
| | |
June 30,
2015 | |
December 31,
2014 |
| Convertible note issued on February 20, 2014, unsecured, zero interest if paid on or before 90 days otherwise one time interest charge of 12%, due on February 20, 2016. Unamortized debt discount of $1,328 and $2,352, respectively. | |
$ | 2,792 | | |
$ | 1,768 | |
| Convertible note issued on October 2013, unsecured, interest at 6%, due on October 13, 2014 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 9,912 | | |
| 9,912 | |
| Convertible note issued in January 2014, unsecured, interest at 8%, due on January 30, 2015. Unamortized debt discount of $-0- and $-0-, respectively. | |
| 112,150 | | |
| 115,000 | |
| Convertible note issued on January 2, 2014, unsecured, interest at 10%, due on June 2, 2014 (in default), convertible into common stock at 60% of the bid price on the date of conversion. Unamortized debt discount of $-0- and $-0-, respectively. | |
| 11,209 | | |
| 11,209 | |
| Convertible note issued on March 10, 2014, unsecured, interest at 10%, due on April 10, 2014 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 6,669 | | |
| 6,669 | |
| Convertible note issued on April 9, 2014, unsecured, interest at 10%, due on May 4, 2014 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 2,679 | | |
| 2,679 | |
| Convertible note issued on March 31, 2014, unsecured, interest at 8%, due on January 2, 2015. Unamortized debt discount of $-0- and $580, respectively. | |
| 73,310 | | |
| 72,730 | |
| Convertible note issued on April 1, 2014, unsecured, interest at 10%, due on September 1, 2014 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 93,000 | | |
| 93,000 | |
| Convertible note issued on June 4, 2014, unsecured, interest at 16%, due on April 1, 2000 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 25,000 | | |
| 25,000 | |
| Convertible note issued on June 1, 2014, unsecured, interest at 10%, due on December 1, 2014. Unamortized debt discount of $-0- and $-0-, respectively. | |
| 25,000 | | |
| 25,000 | |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
| Convertible note issued on April 1, 2014, unsecured, interest at 10%, due on December 1, 2014. Unamortized debt discount of $-0- and $-0-, respectively. | |
| 25,000 | | |
| 25,000 | |
| Convertible note issued on May 16, 2014, unsecured, interest at 8%, due on November 16, 2014 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 1,975 | | |
| 1,975 | |
| Convertible note issued on June 30, 2014, unsecured, interest at 8%, due on December 30, 2014. Unamortized debt discount of $-0- and $-0-, respectively. | |
| 1,929 | | |
| 1,929 | |
| Convertible note issued on July 9, 2014, unsecured, interest at 10%, due on February 9, 2015. Unamortized debt discount of $-0- and $827, respectively. | |
| 4,556 | | |
| 3,730 | |
| Convertible note issued on August 29, 2014, unsecured, interest at 12%, due on November 1, 2014 (in default). Unamortized debt discount of $-0- and $-0-, respectively. | |
| 1,890 | | |
| 1,890 | |
| Convertible note issued on October 1, 2014, unsecured, interest at 12%, due on January 1, 2015 (in default). Unamortized debt discount of $-0- and $978, respectively. | |
| 90,000 | | |
| 89,022 | |
| Convertible note issued on October 1, 2014, unsecured, interest at 12%, due on January 1, 2015 (in default). Unamortized debt discount of $-0- and $978, respectively. | |
| 90,000 | | |
| 89,022 | |
| Convertible note issued on October 1, 2014, unsecured, interest at 12%, due on January 1, 2015 (in default). Unamortized debt discount of $-0- and $155, respectively. | |
| 14,250 | | |
| 14,095 | |
| Convertible note issued on October 1, 2014, unsecured, interest at 12%, due on January 1, 2015 (in default). Unamortized debt discount of $-0- and $489, respectively. | |
| 45,000 | | |
| 44,511 | |
| Convertible note issued on January 6, 2015, unsecured, interest at 8%, due on October 10, 2015. Unamortized debt discount of $2,188 and $-0-, respectively. | |
| 3,812 | | |
| — | |
| Convertible note issued on May 20, 2015, unsecured, interest at 10%, due on demand. Unamortized debt discount of $-0- and $-0-, respectively. | |
| 15,000 | | |
| — | |
| Convertible note issued on June 16, 2015, unsecured, interest at 8%, due on June 16, 2016. Unamortized debt discount of $30,295 and $-0-, respectively. | |
| 1,205 | | |
| — | |
| Total notes payable | |
| 656,338 | | |
| 634,141 | |
| Less: current portion | |
| (656,338 | ) | |
| (634,141 | ) |
| Long-term convertible debenture/notes payable | |
$ | — | | |
$ | — | |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Convertible debenture February 20, 2014
On February 20, 2014, the Company issued
a $25,000 Convertible Promissory Note which bears interest at a rate of 12%, due on February 20, 2016 and is convertible into the
Company’s common stock at the holder’s option, at the conversion rate of 60% of the lowest three day trading price
for ten trading days immediately preceding the date of conversion. Any amount of principal or interest on this Note which is not
paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is
paid (“Default Interest”) and the note also has prepayment penalty clause.
The Company identified embedded
derivatives related to the Convertible Promissory Note entered into in February 2014. These embedded derivatives included
certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record
the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as
of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair
value of $39,722 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial
Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 270.02 | % |
| Risk free rate: | |
| 0.34 | % |
The
initial fair value of the embedded debt derivative of $39,722 was allocated as a debt discount up to the proceeds of the note
($25,000) with the remainder ($14,722) charged to current period operations as interest expense for the year ended December 31,
2014. The outstanding balance as of June 30, 2015 is $4,120.
Convertible debenture October 13, 2013:
On October 13, 2013, the Company issued a
$30,000 Convertible Promissory Note which bears interest at a rate of 6%, due on October 13, 2014 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the lowest five prior trading days immediately preceding
the date of conversion. Default rate of interest is 24% per annum.
The Company received a net of $26,100 from
the convertible note holder; $1,500 was paid towards the legal expenses and $2,400 toward third party fees.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into in October 2013. These embedded derivatives included certain conversion
features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives
as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.
At the inception of the Convertible Promissory Note, the Company determined a fair value of $57,750 of the embedded derivative.
The fair value of the embedded derivative was determined using the Binomial Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 277 | % |
| Risk free rate: | |
| 0.02 | % |
The initial fair value of the embedded debt
derivative of $57,750 was allocated as a debt discount up to the proceeds of the note($30,000) with the remainder ($27,750) charged
to current period operations as non-cash interest expense for the year ended December 31, 2013.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
During the year 2014 the Company issued 15,261,282
shares for of common stock to convert note amount of $20,087. The outstanding balance as of June 30, 2015 is $9,912.
Convertible debenture December 2013 and
January 2014
During the year ended December 31, 2014,
the Company issued two notes for a total of $228,500 Convertible Promissory Note which bears interest at a rate of 8%, due on July
20, 2014 and January 30, 2015 and is convertible into the Company’s common stock at the holder’s option, at the conversion
rate of 60% of the lowest three day trading price for ten trading days immediately preceding the date of conversion. Any amount
of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per
annum from the due date thereof until the same is paid (“Default Interest”) and the note also has prepayment penalty
clause.
The Company identified embedded
derivatives related to the Convertible Promissory Note entered into in January 2014. These embedded derivatives included
certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record
the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as
of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair
value of $383,457 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial
Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % | |
| Volatility | |
| 267.19%-268.98 | % | |
| Risk free rate: | |
| 0.07%-0.10 | % | |
The
initial fair value of the embedded debt derivative of $383,457 was allocated as a debt discount up to the proceeds of the note
($228,500) with the remainder ($154,957) charged to current period operations as interest expense for the year ended December
31, 2014. The outstanding balance as of June 30, 2015 is $112,150.
Convertible
debenture January 2, 2014
On January 2, 2014 the Company issued a $11,209
Convertible Promissory Note which bears interest at a rate of 8%, due on June 2, 2014 and is convertible into the Company’s
common stock at the maker’s option, at the conversion rate of 40% of the lowest three day trading price for ten trading days
immediately preceding the date of conversion. Any amount of principal or interest on this Note which is not paid when due shall
bear interest at the lesser of i) 10 percent (10%) per annum or ii) the maximum rate allowed under the applicable law until paid
in full or until the Note is reinstated.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $7,473 and was recorded as debt discount. The outstanding balance as of June 30, 2015 is $11,209.
Convertible debentures March 10, 2014
and April 9, 2014:
During the year ended December 31, 2014,
the Company issued Convertible notes of$6,669 and $2,679 for expenses incurred. The Convertible Promissory Notes which bears interest
at a rate of 10%, due on April 10, 2014 and May 9, 2014 respectively, are convertible into the Company’s common stock at
the holder’s option, at the conversion rate of 60% of the average of the lowest three day trading price for ten trading days
immediately preceding the date of conversion.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The Company identified Debt discounts of
$6,629 and $1,182 related to the Convertible Promissory Note issued on March 10, 2014 and April 9, 2014 respectively. The accounting
treatment of debt discount financial instruments requires that the Company record the Debt discount on notes as of the inception
date of the Convertible Promissory note and amortized it over the period of note. The Company has fully amortized $6,629 and $1,182
and charged to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $6,669 and $2,679.
Convertible debentures March 31, 2014:
On March 31, 2014, the Company issued a
$83,500 Convertible Promissory Note which bears interest at a rate of 8%, due on January 2, 2015 and is convertible into the
Company’s common stock at the holder’s option, at the conversion rate of 60% of the average of the lowest three
day trading price for ten trading days immediately preceding the date of conversion.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on March 31, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $157,749 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 266.94 | % |
| Risk free rate: | |
| 0.10 | % |
The
initial fair value of the embedded debt derivative of $157,749 was allocated as a debt discount up to the proceeds of the note
($83,500) with the remainder ($74,249) charged to current period operations as interest expense for the year ended December 31,
2014.
The
outstanding balance as of June 30, 2015 is $73,310.
Convertible debentures April 1, 2014:
On April 1, 2014, the Company issued a $93,000
Convertible Promissory Note for expenses incurred. The note bears interest at a rate of 10%, due on September 9, 2014 and is convertible
into the Company’s common stock at the holder’s option, at the conversion rate of 75% of the average of the lowest
three day trading price for ten trading days immediately preceding the date of conversion.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on April 1, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $111,104 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 266.94 | % |
| Risk free rate: | |
| 0.05 | % |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The initial fair value of the embedded debt
derivative of $111,104 was allocated as a debt discount up to the proceeds of the note ($93,000) with the remainder ($18,104) charged
to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $93,000.
Convertible debentures April 1, 2014 June
1, 2014 and June 4, 2014:
During the year ended December 31, 2014,
the Company issued three convertible notes of $25,000 each, $50,000 for expenses incurred and $25,000 transfer of loan. One Convertible
promissory note bears interest at 16% and the other two notes bears interest rate at 10%. The notes of $25,000 each which are due
September 9, 2014 and December 1, 2014 are convertible into the Company’s common stock at the holder’s option at conversion
price of $0.05, and the note of $25,000 which is due on demand is convertible at the conversion rate of 75% of the average of the
lowest trading price for five trading days immediately preceding the date of conversion.
The Company identified Debt discount of
$25,000 each related to the Convertible Promissory Note issued on April 1, 2014 and June 6, 2014. The accounting treatment of
debt discount financial instruments requires that the Company record the Debt discount on note as of the inception date of
the Convertible Promissory Note and amortized it over the period of note. The Company has fully amortized $50,000 and charged
to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance for these three convertible
notes payable as of June 30, 2015 is $25,000 each.
Convertible debentures May 16, 2014:
On May 16, 2014, the Company issued a Convertible
note of $1,975 for expenses incurred. The Convertible Promissory Note which bears interest at a rate of 8%, due on November 16,
2014 is convertible into the Company’s common stock at the holder’s option, at the conversion rate of 60% of the average
of the lowest three day trading price for ten trading days immediately preceding the date of conversion.
The Company identified Debt discount of
$1,391 related to the Convertible Promissory Note issued on May 16, 2014. The accounting treatment of debt discount financial
instruments requires that the Company record the Debt discount on notes as of the inception date of the Convertible
Promissory note and amortized it over the period of note. The Company has fully amortized $1,391 and charged to current
period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $1,975.
Convertible debentures June 30, 2014:
On June 30, 2014, the Company issued a Convertible
note of $1,929 for expenses incurred. The Convertible Promissory Note which bears interest at a rate of 8%, due on December 30,
2014 is convertible into the Company’s common stock at the holder’s option, at the conversion rate of 60% of the average
of the lowest three day trading price for ten trading days immediately preceding the date of conversion.
The Company identified Debt discount of $1,417
related to the Convertible Promissory Note issued on June 30, 2014. The accounting treatment of debt discount financial instruments
requires that the Company record the Debt discount on notes as of the inception date of the Convertible Promissory note and amortized
it over the period of note. The Company has fully amortized $1,417 and charged to current period operations as interest expense
for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $1,929.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Convertible debentures July 9, 2014:
On July 9, 2014, the Company issued a
Convertible note of $16,056 through transfer of convertible note, accrued interest and miscellaneous loans payable. The
Convertible Promissory Note which bears interest at a rate of 10%, due on February 9, 2015 and is convertible into the
Company’s common stock at the holder’s option, at the conversion rate of 60% of the average of the lowest three
day trading price for ten trading days immediately preceding the date of conversion.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on July 9, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $20,585 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 294.57 | % |
| Risk free rate: | |
| 0.07 | % |
The initial fair value of the embedded debt
derivative of $20,585 was allocated as a debt discount up to the proceeds of the note ($16,056) with the remainder ($4,529) charged
to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $4,556 after $11,500 converted to shares of common stock during the year ended December 31, 2014.
Convertible debentures August 29, 2014:
On August 29, 2014, the Company issued
a Convertible note of$1,890 for expenses incurred. The Convertible Promissory Note which bears interest at a rate of 8%, due
on December 30, 2014 and is convertible into the Company’s common stock at the holder’s option, at the conversion
rate of 60% of the average of the lowest three day trading price for ten trading days immediately preceding the date of
conversion.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on August 29, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $3,150 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 305.21 | % |
| Risk free rate: | |
| 0.03 | % |
The initial fair value of the embedded debt
derivative of $3,150 was allocated as a debt discount up to the proceeds of the note ($1,890) with the remainder ($1,260) charged
to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $1,890.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Convertible debentures October 1, 2014:
On October 1, 2014, the Company issued a
$90,000 Convertible Promissory Note which bears interest at a rate of 12%, due on January 1, 2015 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the lowest trading price for ten trading days immediately
preceding the date of conversion.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on October 1, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $150,000 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 309.19 | % |
| Risk free rate: | |
| 0.02 | % |
The initial fair value of the embedded debt
derivative of $150,000 was allocated as a debt discount up to the proceeds of the note ($90,000) with the remainder ($60,000) charged
to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $90,000.
Convertible debentures October 1, 2014:
On October 1, 2014, the Company issued a
$90,000 Convertible Promissory Note which bears interest at a rate of 12%, due on January 1, 2015 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the lowest trading price for ten trading days immediately
preceding the date of conversion.
The
Company identified embedded derivatives related to the Convertible Promissory Note issued on October 1, 2014. These embedded
derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that
the Company record the fair value of these derivatives as of the inception date of the Convertible Promissory Note and to
adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the
Company determined a fair value of $150,000 of the embedded derivative. The fair value of the embedded derivative was
determined using the Binomial Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 309.19 | % |
| Risk free rate: | |
| 0.02 | % |
The initial fair value of the embedded debt
derivative of $150,000 was allocated as a debt discount up to the proceeds of the note ($90,000) with the remainder ($60,000) charged
to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $90,000.
Convertible debentures October 1, 2014:
On October 1, 2014, the Company issued a
$14,250 Convertible Promissory Note which bears interest at a rate of 12%, due on January 1, 2015 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the lowest trading price for ten trading days immediately
preceding the date of conversion.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The Company identified
embedded derivatives related to the Convertible Promissory Note issued on October 1, 2014. These embedded derivatives
included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company
record the fair value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair
value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a
fair value of $23,750 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial
Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 309.19 | % |
| Risk free rate: | |
| 0.02 | % |
The initial fair value of the embedded
debt derivative of $23,750 was allocated as a debt discount up to the proceeds of the note ($14,250) with the remainder
($9,500) charged to current period operations as interest expense for the year ended December 31, 2014.
The outstanding balance as of June 30, 2015
is $14,250.
Convertible debentures October 1, 2014:
On October 1, 2014, the Company issued a
$45,000 Convertible Promissory Note which bears interest at a rate of 12%, due on January 1, 2015 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the lowest trading price for ten trading days immediately
preceding the date of conversion.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on October 1, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $75,000of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 309.19 | % |
| Risk free rate: | |
| 0.02 | % |
The
initial fair value of the embedded debt derivative of $75,000 was allocated as a debt discount up to the proceeds of the note
($45,000) with the remainder ($30,000) charged to current period operations as interest expense for the year ended December 31,
2014.
The
outstanding balance as of June 30, 2015 is $45,000.
Convertible debentures January 6, 2015:
On January 6, 2015, the Company issued a
$6,000 Convertible Promissory Note which bears interest at a rate of 8%, due on October 10, 2015 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 50% of the average of the lowest three day trading price for
twenty trading days immediately preceding the date of conversion.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The Company identified embedded derivatives
related to the Convertible Promissory Note issued on January 6, 2015. These embedded derivatives included certain conversion features.
The accounting treatment of derivative financial instruments requires that the Company record the fair value of these derivatives
as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.
At the inception of the Convertible Promissory Note, the Company determined a fair value of $11,520 of the embedded derivative.
The fair value of the embedded derivative was determined using the Binomial Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 443.15 | % |
| Risk free rate: | |
| 0.18 | % |
The
initial fair value of the embedded debt derivative of $11,520 was allocated as a debt discount up to the proceeds of the note
($6,000) with the remainder ($5,520) charged to current period operations as interest expense for the three months ended March
31, 2015.
The
outstanding balance as of June 30, 2015 is $6,000.
Convertible
debenture May 20, 2015
On May 20, 2015 the Company issued a $15,000
Convertible Promissory Note which bears interest at a rate of 10%, due on November 20, 2015 and is convertible into the Company’s
common stock at the maker’s option, at the conversion rate of 60% of the lowest trading price in the five days immediately
preceding the date of conversion. Any amount of principal or interest on this Note which is not paid when due shall bear interest
at the lesser of i) 10 percent (10%) per annum or ii) the maximum rate allowed under the applicable law until paid in full or until
the Note is reinstated.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $15,000 and was recorded as debt discount. The outstanding balance as of June 30, 2015 is $15,000.
Convertible debentures June 16, 2015:
On June 16, 2015, the Company issued a $31,500
Convertible Promissory Note which bears interest at a rate of 8%, due on June 16, 2016 and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the average of the lowest three day trading price for
ten trading days immediately preceding the date of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note issued on June 16, 2015. These embedded derivatives included certain conversion features.
The accounting treatment of derivative financial instruments requires that the Company record the fair value of these derivatives
as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.
At the inception of the Convertible Promissory Note, the Company determined a fair value of $51,809 of the embedded derivative.
The fair value of the embedded derivative was determined using the Binomial Lattice Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 563.68 | % |
| Risk free rate: | |
| 0.28 | % |
The initial fair value of the embedded debt
derivative of $51,809 was allocated as a debt discount up to the proceeds of the note ($31,500) with the remainder ($20,309) charged
to current period operations as interest expense for the six months ended June 30, 2015.
The outstanding balance as of June 30, 2015
is $31,500.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
At June 30, 2015, the Company adjusted the
recorded fair value of the derivative liability to market on the notes resulting in noncash, non-operating gain of $312,122 for
the six months ended June 30, 2015.
During the six months ended June 30, 2015
and 2014 the Company amortized $25,048 and $924,585, respectively and $18,718 and $589,564, for the three months ended June 30,
2015 and 2014, respectively, of beneficial debt discount to the operations as interest expense.
Accrued interest on convertible notes payable
for the six months ended June 30, 2015 was $79,433. Interest expense of $18,539 and $33,642 has been charged to expenses for the
three and six months ended June 30, 2015, respectively.
NOTE 10 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible Notes payable - related parties
consist of the following
| | |
| |
|
| | |
June 30,
2015 | |
December 31,
2014 |
| Convertible note issued in October 2013, unsecured, interest at 8%, due on demand. | |
$ | 1,710 | | |
$ | 1,710 | |
| Convertible note issued in October 2013, unsecured, interest at 8%, due on demand. | |
| 42,470 | | |
| 42,470 | |
| Convertible note issued in January 2014, unsecured, interest at 10%, due on demand. | |
| 45,000 | | |
| 45,000 | |
| Convertible note issued on April 3, 2014, unsecured, interest at 10%, due on demand. | |
| 14,000 | | |
| 14,000 | |
| Convertible note issued on April 1, 2014, unsecured, interest at 10%, due on demand. | |
| 45,000 | | |
| 45,000 | |
| Convertible note issued on May 21, 2014, unsecured, interest at 10%, due on demand. | |
| 4,000 | | |
| 4,000 | |
| Convertible note issued on June 4, 2014, unsecured, interest at 16%, due on April 1, 2000. | |
| 30,542 | | |
| 30,542 | |
| Convertible note issued on July 1, 2014, unsecured, interest at 10%, due on demand. | |
| 45,000 | | |
| 45,000 | |
| Convertible note issued on November 5, 2014, unsecured, interest at 10%, due on demand. | |
| 4,000 | | |
| 4,000 | |
| Convertible note issued on November 5, 2014, unsecured, interest at 10%, due on demand. | |
| 45,000 | | |
| 45,000 | |
| Convertible note issued on December 1, 2014, unsecured, interest at 10%, due on demand. | |
| 4,000 | | |
| 4,000 | |
| Convertible note issued on January 1, 2015, unsecured, interest at 10%, due on demand. | |
| 45,000 | | |
| — | |
| Total convertible notes payable - related parties | |
| 325,722 | | |
| 280,722 | |
| Less: current portion | |
| (325,722 | ) | |
| (280,722 | ) |
| Long-term convertible notes payable - related parties | |
$ | — | | |
$ | — | |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Convertible debenture October 1, 2013
On October 1, 2013 the Company issued a $17,000
Convertible Promissory Note against the accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $15,692 and was recorded as debt discount. During the year ended December 31, 2013, debt discount
of $15,692 was amortized.
During the year 2014, the Company issued
15,035,714 shares for the Conversion of note of $15,290. The outstanding balance as of June 30, 2015 is $1,710.
Convertible debenture October 1, 2013
On October 1, 2013 the Company issued a $194,254
Convertible Promissory Note against the account payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $179,312 and was recorded as debt discount. During the year ended December 31, 2013, debt discount
of $179,312 was amortized.
During the year 2014, the Company issued
340,906,979 shares for the conversion of note of $151,784. The outstanding balance as of June 30, 2015 is $42,470.
Convertible debenture January 1, 2014
On January 1, 2014 the Company issued a $45,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
floor price for the exercise can't go below
$0.00004. If these notes are converted at this rate, the number of shares issued would be in excess of the authorized limit of
share issuance. If the Borrower is unable to issue any shares under this provision due to the fact that there is an insufficient
number of authorized and unissued shares available, the Holder promises not to force the Borrower to issue these shares or trigger
an Event of Default, provided that Borrower takes immediate steps required to get the appropriate level of approval from shareholders
or the board of directors, where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the
event of default the Company has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment
penalty clause.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $45,000 and was recorded as debt discount. During the year ended December 31, 2014, debt discount
of $45,000 was amortized. The outstanding balance as of June 30, 2015 is $45,000.
Convertible debenture April 1, 2014
On April 1, 2014 the Company issued a $45,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $30,000 and was recorded as debt discount. During the year ended December 31, 2014, debt discount
of $30,000 was amortized. The outstanding balance as of June 30, 2015 is $45,000.
Convertible debenture April 3, 2014
On April 3, 2014 the Company issued a $14,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The Company analyzed the convertible
debts for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that
derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial conversion
feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The intrinsic
value of the beneficial conversion feature was determined to be $9,333 and was recorded as debt discount. During the year
ended December 31, 2014, debt discount of $9,333 was amortized. The outstanding balance as of June 30, 2015 is $14,000.
Convertible debenture May 21, 2014
On May 21, 2014 the Company issued a $4,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible
debts for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that
derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial conversion
feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The intrinsic
value of the beneficial conversion feature was determined to be $4,000 and was recorded as debt discount. During the year
ended December 31, 2014, debt discount of $4,000 was amortized. The outstanding balance as of June 30, 2015 is $4,000.
Convertible debenture June 4, 2014
On June 4, 2014 the Company issued a $50,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company identified embedded
derivatives related to the Convertible Promissory Note issued on June 4, 2014. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair
value of these derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of
each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $46,875 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
| Dividend yield: | |
| -0- | % |
| Volatility | |
| 290.02 | % |
| Risk free rate: | |
| 0.00 | % |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The initial fair value of the embedded debt
derivative of $46,875 was allocated as a debt discount for the year ended December 31, 2014. During the year ended December 31,
2014, debt discount of $46,875 was amortized.
During the year 2014, the Company issued
19,458,498 shares for the conversion of note of $19,458. The outstanding balance as of June 30, 2015 is $30,542.
Convertible debenture July 1, 2014
On July 1, 2014 the Company issued a $45,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible
debts for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that
derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial conversion
feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The intrinsic
value of the beneficial conversion feature was determined to be $30,000 and was recorded as debt discount. During the year
ended December 31, 2014, debt discount of $30,000 was amortized. The outstanding balance as of June 30, 2015 is $45,000.
Convertible debenture November 5, 2014
On November 5, 2014 the Company issued a
$4,000 Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible
debts for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that
derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial conversion
feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The intrinsic
value of the beneficial conversion feature was determined to be $2,667 and was recorded as debt discount. During the year
ended December 31, 2014, debt discount of $2,667 was amortized. The outstanding balance as of June 30, 2015 is $4,000.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Convertible debenture November 5, 2014
On November 5, 2014 the Company issued a
$45,000 Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $30,000 and was recorded as debt discount. During the year ended December 31, 2014, debt discount
of $30,000 was amortized. The outstanding balance as of June 30, 2015 is $45,000.
Convertible debenture December 1, 2014
On December 1, 2014 the Company issued a
$4,000 Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors,
where applicable to raise the number of authorized shares to satisfy the Notice of Conversion. In the event of default the Company
has to pay 150% time the sum of outstanding principal and accrued interest. The note also has prepayment penalty clause.
The Company analyzed the convertible
debts for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that
derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial conversion
feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The intrinsic
value of the beneficial conversion feature was determined to be $2,667 and was recorded as debt discount. During the year
ended December 31, 2014, debt discount of $2,667 was amortized. The outstanding balance as of June 30, 2015 is $4,000.
Convertible debenture January 1, 2015
On January 1, 2015 the Company issued a $45,000
Convertible Promissory Note against accounts payable, which bears interest at a rate of 10%, payable on demand and is convertible
into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price in five days prior
to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below $0.00004. If these notes
are converted at this rate, the number of shares issued would be in excess of the authorized limit of share issuance. If the Borrower
is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued
shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
immediate steps required to get the appropriate
level of approval from shareholders or the board of directors, where applicable to raise the number of authorized shares to satisfy
the Notice of Conversion. In the event of default the Company has to pay 150% time the sum of outstanding principal and accrued
interest. The note also has prepayment penalty clause.
The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $30,000 and was recorded as debt discount. During the three and six months ended June 30, 2015, debt
discount of $0 and $30,000, respectively, was amortized. The outstanding balance as of June 30, 2015 is $45,000.
For the three and six months ended June 30,
2015 interest expenses charged on the above notes is $8,578 and $17,049, respectively. Accrued interest on convertible notes payable
– related parties as of June 30, 2015 and December 31, 2014 was $55,951 and $38,933, respectively.
NOTE 11 - NOTES PAYABLE - RELATED PARTIES
| Notes payable - related parties consist of the following: | |
| |
|
| | |
June 30,
2015 | |
December 31,
2014 |
| Note payable to a related individual, secured by tangible and intangible assets of the Company, interest at 16% per annum, principal and interest due April 1, 2000, past due. Note is convertible into common stock of the Company at $0.10 per share. Note is in default. (2) | |
$ | 1,080,973 | | |
$ | 1,080,973 | |
| Note payable to a related individual, interest at 8% per annum,past due. Note is in default. (1) | |
| 1,000,000 | | |
| 1,000,000 | |
| Notes payable to related individuals, unsecured, interest at 10%, due on demand. (3) | |
| 28,500 | | |
| 28,500 | |
| Notes payable to related individual, unsecured, interest at 12%, due on demand. (4) | |
| 92,633 | | |
| 28,633 | |
| Notes payable to related individual, unsecured, interest at 24%, due on demand. (5) | |
| 6,000 | | |
| — | |
| Total notes payable - related parties | |
| 2,208,106 | | |
| 2,138,106 | |
| Less: current portion | |
| (2,208,106 | ) | |
| (2,138,106 | ) |
| Long-term notes payable - related parties | |
$ | — | | |
$ | — | |
| Maturities of notes payable - related parties are as follows: | |
| | | |
| | |
| Year Ending June 30, | |
| | | |
| Amount | |
| 2016 | |
| | | |
$ | 2,208,106 | |
| Total | |
| | | |
$ | 2,208,106 | |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Accrued interest on notes payable –
related parties as of June 30, 2015 and December 31, 2014 was $510,464 and $380,080, respectively. During the three and six months
ended June 30, 2015, total interest expense to related party was $66,173 and $130,096, respectively.
| 1) | This note was issued for the acquisition
of AFI on January 28, 2012. As of June 30, 2015 and December 31, 2014, the Company had accrued interest on the note in the amount
of $273,534 and $233,863, respectively. |
| 2) | This note was originally issued for
$450,000. During the year ended December 31, 2013, the principle value of $450,000 along with accrued interest of $837,369
was converted to two new notes for $1,087,370 and $200,000. During the year 2013 the Company issued 2,100,000 shares of the
common stock against settlement of the new note of $200,000. In the year 2014, the Company issued 3,500,000 shares of common
stock for Note value of $35,000 and accrued interest of $6,650. The Balance note along with the balance accrued interest of
$130,603 was transferred to another note holder-related party for $1,080,973 and $102,000 transfer to another note holder.
The accrued interest as of June 30, 2015 is $220,145. |
| 3) | During the year ended December 31, 2013,
one of the note holder for $15,000 along with accrued interest of $13,300 transferred its loan to a non- related party. During
the year 2013 the Company issued 1,800,000 shares of the common stock to settle$28,300 of note of non- related party. |
| 4) | During the year 2014, the Company issued
the note value of $26,000 in cash and $2,632 for expense incurred. During the six months ended June 30, 2015 $64,000 was reclassified
from accounts payable. |
| 5) | During the six months ended June 30, 2015
the Company issued the note value of $6,000 in cash. |
NOTE 12 – LINE OF CREDIT
On April 20, 2015, Fuelstream, Inc.
(the “Company”) announced that it had entered into that certain Revolving Senior Secured Participating Line of
Credit Agreement and exhibits thereto (collectively, the “Credit Facility”) with NuVenture Fund I, LLC
(“NuVenture”), in respect of a revolving credit line in the principal amount of $2,000,000 (the “Revolving
Note”). The Revolving Note matures (a) one (1) year from the date of the Credit Facility unless extended by the
NuVenture, in its sole and absolute discretion, for two additional periods of up to one (1) year each, or (b) at the sole
discretion of NuVenture, upon the occurrence of an Event of Default, as defined in the Revolving Note, that remains uncured
for fifteen (15) days. The Revolving Note bears interest at the rate of 24% per annum and, in the alternative, entitles
NuVenture to receive a fee equal to 3.5% of any advance made under the Revolving Note. The Credit Facility contains
representations, warranties, conditions, restrictions, and covenants of the Company that are customary in such transactions
with similar companies. The balance due on the line of credit as of June 30, 2015 was $401,000. Accrued interest on the line
of credit as of June 30, 2015 was $8,242.
NOTE 13 – FAIR VALUE OF FINANCIAL INSTRUMENTS
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 (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs
can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on
the observability of those inputs.
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
The following tables set forth by level within
the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of June
30, 2015 and December 31, 2014. As required by ASC 820, a financial instrument’s level within the fair value hierarchy is
based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance
of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities
and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for the
periods ended June 30, 2015 and December 31, 2014.
The carrying amounts reported in the balance
sheets for cash, accounts receivable, loans payable, and accounts payable and accrued expenses, approximate their fair market value
based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and
recognized at fair value as of March 31, 2015 on a recurring basis:
Assets and liabilities at fair value on a
recurring basis at June 30, 2015:
| | |
Level 1 | |
Level 2 | |
Level 3 | |
Total |
| Liabilities | |
| | | |
| | | |
| | | |
| | |
| Derivative liability | |
| — | | |
| — | | |
$ | 119,362 | | |
$ | 119,362 | |
| Total | |
| — | | |
| — | | |
$ | 119,362 | | |
$ | 119,362 | |
The following table provides a summary of changes in fair value
of the Company’s Level 3 financial liabilities as of June 30, 2015:
| | |
Debt Derivative
Liability |
| Balance, December 31, 2014 | |
$ | 372,939 | |
| Initial fair value of debt derivatives at note issuances | |
| 63,329 | |
| Extinguished derivative liability | |
| (4,301 | ) |
| Mark-to-market at June 30, 2015 - Embedded debt derivatives | |
| (312,605 | ) |
| Balance, June 30, 2015 | |
$ | 119,362 | |
| | |
| | |
| Net gain for the period included in earnings relating to the liabilities held at June 30, 2015 | |
$ | 312,605 | |
The carrying value of short term financial
instruments including cash, accounts payable, accrued expenses and short-term borrowings approximate fair value due to the short
period of maturity for these instruments. The long-term debentures payable approximates fair value since the related rates of
interest approximate current market rates.
NOTE 14 - COMMON AND PREFERRED STOCK TRANSACTIONS
Preferred Stock
The Company is authorized to issue 200
preferred shares of $0.0001 par value. As of June 30, 2015 and December 31, 2014 the Company has 200 shares of preferred
stock issued and outstanding. Although the preferred stock carries no dividend, distribution, liquidation or conversion
rights, each share of preferred stock carries ten million (10,000,000) votes and holders of our preferred stock are able to
vote together with our common stockholders on all matters. Consequently, the holder of our preferred stock is able to
unilaterally control the election of our board of directors and, ultimately, the direction of our Company.
Common stock
The Company is authorized to issue 2,500,000,000
shares of $0.0001 par value of common stock. As of June 30, 2015 and December 31, 2014 the Company had 1,537,577 and 969,086 shares
of common stock as issued and outstanding.
On December 8, 2014, our board of directors
and the holder of a majority in interest of our voting capital stock approved a 1-for-2,000 reverse split of our common shares
(“Reverse Split”). The Reverse Split became effective on April 6, 2015. As a result of the Reverse Split, each shareholder
of record received one (1) share of common stock for each two thousand (2,000) shares of common stock they held prior to the Reverse
Split, provided however, that fractions of a share were
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
rounded up to the nearest whole share and
any registered shareholder who would have otherwise held less than 200 shares following the Reverse Split was rounded up to 200
shares. Consequently, none of our registered shareholders as of the record date held less than 200 shares following the Reverse
Split. This rounding up to 200 shares resulted in an additional 197,892 shares issued. These financial statements have been retroactively
restated for this change in capital structure.
On June 22, 2015, the Company converted into
111,608 shares of common stock, $1,000 a portion of a certain convertible promissory note originally issued by the Company on January
21, 2014.
On June 26, 2015, the Company converted into
124,070 shares of common stock, $1,000 a portion of a certain convertible promissory note originally issued by the Company on January
21, 2014.
On June 30, 2015, the Company converted into
134,921 shares of common stock, $850 a portion of a certain convertible promissory note originally issued by the Company on January
21, 2014.
Due to rounding of adjustment for reverse
stock split the Company issued 197,892 shares of common stock during the six months ended June 30, 2015.
NOTE 15 - OPTIONS
The Company has adopted FASB ASC 718, “Share-Based
Payments” (“ASC 718”) to account for its stock options. The Company estimates the fair value of each stock award
at the grant date by using the Black-Scholes option pricing model. The assumptions used to calculate the fair value of options
granted are evaluated and revised, as necessary, to reflect market conditions and our experience. Compensation expense is recognized
only for those options expect to vest, with forfeitures estimated at the date of grant based on our historical experience and future
expectations.
The following table summarizes the changes
in options outstanding issued to employees of the Company:
| | |
Number of
Shares | |
Weighted Average
Exercise Price |
| | Outstanding as of January 1, 2015 | | |
| 370,000 | | |
$ | 1.34 | |
| | Granted | | |
| — | | |
| — | |
| | Exercised | | |
| — | | |
| — | |
| | Cancelled | | |
| — | | |
| — | |
| | Outstanding at June 30, 2015 | | |
| 370,000 | | |
$ | 1.34 | |
Common stock options outstanding and exercisable as of
June 30, 2015 are:
| | |
Options Outstanding | |
Options Exercisable |
Expiration
Date | |
Exercise
Price | |
Number
shares
outstanding | |
Weighted
Average
Contractual
Life (Years) | |
Number
Exercisable | |
Weighted
Average
Exercise
Price |
| | |
| |
| |
| |
| |
|
| October 1, 2018 | |
$ | 0.01 | | |
| 70,000 | | |
| 3.25 | | |
| 68,306 | | |
$ | 0.01 | |
| January 2, 2019 | |
| 1.65 | | |
| 300,000 | | |
| 3.50 | | |
| 255,822 | | |
| 1.65 | |
| Total | |
| | | |
| 370,000 | | |
| | | |
| 324,128 | | |
| | |
FUELSTREAM, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
During the year ended December 31, 2013,
the Company granted 300,000 stock options with an exercise price of $1.65 out of which 75,000 were immediately vested and balance
vesting over three years and expiring six years from issuance date.
The fair value of the vested portion of $34,406
and $68,434 was charged to expenses and additional paid in capital during the three and six months ended June 30, 2015, respectively.
The fair value of these stock options granted and the significant
assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:
| Significant assumptions: | |
|
|
| Risk-free interest rate at grant date | |
| 1.04%-0.89 | |
| % | |
| Expected stock price volatility | |
| 199.38%-344.22 | |
| % | |
| Expected dividend payout | |
| — | |
| | |
| Expected option life-years | |
| 6 | |
| | |
NOTE 16 – SUBSEQUENT EVENTS
On August 12, 2015, the Company converted
into 153,595 shares of common stock, a portion of a certain convertible promissory note originally issued by the Company on January
21, 2014.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following
discussion of the financial condition and results of operations of Fuelstream, Inc. (hereafter, “Fuelstream,” the
“Company,” “we,” “our,” or “us”) should be read in conjunction with the
Unaudited Financial Statements and related Notes thereto included herein. This discussion may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future
strategies that are signified by the words "expects," "anticipates," "intends,"
"believes," or similar language. Actual results could differ materially from those projected in the forward looking
statements. Prospective investors should carefully consider the information set forth herein, and the Company cautions
investors that its business and financial performance is subject to substantial risks and uncertainties.
Overview
We are an in-wing
and on-location supplier and distributor of aviation fuel to corporate, commercial, military, and privately-owned aircraft
throughout the world. We also provide a variety of ground services either directly or through our affiliates, including
concierge services, passenger and baggage handling, landing rights, coordination with local aviation authorities, aircraft
maintenance services, catering, cabin cleaning, customs approvals, and third-party invoice reconciliation. Our personnel
assist customers in flight planning and aircraft routing aircraft, obtaining permits, arranging overflies, and flight follow
services.
Our core business has
developed as a result of a joint venture and eventual acquisition of Aviation Fuel International, Inc., now a wholly-owned subsidiary
of the Company (“AFI”). The Company’s principal sources of revenues are expected to result from the gross selling
price of fuel delivery contracts and associated services. Expenses which comprise the costs of goods sold are expected to include
the acquisition price of fuel transported, as well as operational and staffing costs of the trucks and other vehicles used for
delivery. General and administrative expenses have been comprised of administrative wages and benefits; occupancy and office expenses;
outside legal, accounting and other professional fees; travel and other miscellaneous office and administrative expenses. Selling
and marketing expenses include selling/marketing wages and benefits; advertising and promotional expenses; travel and other miscellaneous
related expenses.
On June 21, 2012
the Company entered into an agreement to create a fuel logistics joint venture with South African based Global Airways
("Global"). Global is an international air transport organization whose activities cover acquisition,
refurbishment, heavy maintenance, leasing and chartering of air crafts throughout South Africa. We expect that this
transaction will expand the Company’s international footprint in a market that is developing standardized systems to
meet the aviation fueling needs of commercial and cargo carriers.
The partnership with
Global underlines the company's strategic plan to generate new revenue streams by partnering with aircraft leasing and MRO businesses
and includes the development, operation and management of the fuel storage, supply and logistic operations located in South Africa.
It is anticipated that the partnership will oversee the logistics delivery of up to 3 Million gallons of Jet-A Fuel per month by
the end of 2013 if the Company is able to secure sufficient means of financing the purchase of such fuel.
Our ability to generate
revenues during the year 2015 and beyond depends substantially upon the Company’s resources available in order to develop
and grow the business of AFI as a supplier of fuel and logistics. Such efforts require significant systems development, marketing
and personnel costs, which, in turn, require substantial funding. If we are unable to obtain such funding, its ability to generate
revenues will be significantly impaired and we may be unable to continue operations.
Because the Company has
incurred losses, income tax expenses are immaterial. No tax benefits have been booked related to operating loss carryforwards,
given the uncertainty of the Company being able to utilize such loss carryforwards in future years. We anticipate incurring additional
losses during the coming year.
Results of Operations
Following is management’s
discussion of the relevant items affecting results of operations for the three and six month periods ended June 30, 2015 and 2014.
Revenues.
The Company generated net revenues of $-0- during the three months ended June 30, 2015 as compared to $210,174 for the three
months ended June 30, 2014. The Company generated net revenues of $-0- during the six months ended June 30, 2015 as compared
to $257,588 for the six months ended June 30, 2014. In the future, the Company’s sole source of revenue is expected to
be related to fuel delivery contracts and associated services.
Cost
of Sales. Cost of sales for the three months ended June 30, 2015 was $-0- as compared to $184,557 for the three months
ended June 30, 2014. Cost of sales for the six months ended June 30, 2015 was $-0- as compared to $220,895 for the six months
ended June 30, 2014. Our cost of sales consisted principally of the acquisition price of fuel and other petro chemicals
delivered to customers and clients, other related services provided directly or outsourced through our affiliates, as well as
operational and staffing costs with respect thereto. The increase is a direct correlation to the increase in sales as
described above.
Selling, General
and Administrative Expenses. Selling, general and administrative expenses for the three months ended June 30, 2015 were
$169,934 compared to $439,789 during the three months ended June 30, 2014. Selling, general and administrative expenses for
the six months ended June 30, 2015 were $288,244 compared to $889,922 during the six months ended June 30, 2014. The decrease
is mainly the result of a decrease in the issuance of shares for compensation. The Company expects that salaries and
consulting expenses, that are cash-based instead of share-based, will increase as we add personnel to build our fuel
brokerage business.
Other Income
(Expense). The Company had net other income of $117,510 for the three months ended June 30, 2015 compared to net other
expenses of $476,738 during the three months ended June 30, 2014. The Company had net other expenses of $54,776 for the six
months ended June 30, 2015 compared to net other expenses of $967,333 during the six months ended June 30, 2014. Other
expenses incurred were comprised primarily of interest expenses related to notes payable including amortization of debt
discount and setoff with gain on change in derivative liability and a gain on the conversion of debt. During the six months
ended June 30, 2015 and 2014, interest expense was $367,381 and $1,561,070, respectively. Included in interest expense was
the amortization of debt discount of $55,048 and $924,585 for the six months ended June 30, 2015 and 2014, respectively. The
gain on change in derivative liability was $312,122 and $529,123 for the six months ended June 30, 2015 and 2014,
respectively.
Net Loss.
The Company had a net loss of $343,020 for the six months ended June 30, 2015 compared to $1,820,562 during the six months
ended June 30, 2014. The decrease in net loss was mainly due to the decrease in overall expenses incurred by the Company.
Liquidity and Capital Resources
As of June 30, 2015,
our primary source of liquidity consisted of $202,192 in cash and cash equivalents. We hold most of our cash reserves in local
checking accounts with local financial institutions. Since inception, we have financed our operations through a combination of
short and long-term loans, and through the private placement of our common stock.
We have sustained significant net
losses which have resulted in a total stockholders’ deficit at June 30, 2015 of $6,881,670 and are currently
experiencing a substantial shortfall in operating capital which raises doubt about our ability to continue as a going
concern. We anticipate a net loss for the year ended December 31, 2015 and with the expected cash requirements for the coming
months, without additional cash inflows from an increase in revenues combined with continued cost-cutting or a receipt of
cash from capital investment, there is substantial doubt as to the Company’s ability to continue operations. The
Company’s management continues to develop a strategy of exploring all options available to it so that it can develop
successful operations and have sufficient funds, therefore, as to be able to operate over the next twelve months. The Company
is attempting to improve these conditions by way of financial assistance through issuances of additional equity and by
generating revenues by brokering the sale of aircraft fuel. No assurance can be given that funds will be available, or, if
available, that it will be on terms deemed satisfactory to management.
The ability of the Company to continue as
a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that
might result from the outcome of these uncertainties.
There is presently no agreement in place with any source of financing
for the Company and we cannot assure you that the Company will be able to raise any additional funds, or that such funds will be
available on acceptable terms. Funds raised through future equity financing will likely be substantially dilutive to current shareholders.
Lack of additional funds will materially affect the Company and its business, and may cause us to cease operations. Consequently,
shareholders could incur a loss of their entire investment in the Company.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Contractual
Obligations
As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this
information.
Critical accounting policies
The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods.
The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We
also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to
understanding our results, which are described in Note 4 to our audited consolidated financial statements for 2014 appearing in
our Annual Report on Form 10-K for the year ended December 31, 2014.
Recent accounting pronouncements
The recent accounting standards that have
been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not
expected to have a material impact on our unaudited condensed consolidated financial statements upon adoption.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting
company we are not required to provide this information.
ITEM
4. CONTROLS AND PROCEDURES
Management’s Evaluation on Disclosure
Controls and Procedures
We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management,
to allow for timely decisions regarding required disclosure.
As of June 30, 2015,
the end of our second quarter, we carried out an evaluation, under the supervision of our Chief Executive Officer and Controller,
of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded
that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report. Our
board of directors has only one member. We do not have a formal audit committee.
Changes in Internal Control over Financial
Reporting
There have been no significant
changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2015 that have materially
or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Ryan International
Airlines. One of our subsidiaries, Aviation Fuel International ("AFI") is involved in disputes with two airlines:
Ryan International Airlines, LLC ("Ryan") and Direct Air. Both aviation fuel customers litigation arise out of disputed
amounts for the delivery of Jet Fuel. Ryan Air failed to pay for fuelings received from AFI. AFI filed under the commercial lien
laws as required to secure a lien on the planes fueled in order to protect their receivable due from Ryan. Disagreements between
the parties resulted in both parties filing separate lawsuits in three actions. Ryan filed a cause of action in Case No. 09-57580,
Ryan International Airlines, Inc. v. Aviation Flight Services, LLC (“AFS”) and Aviation Fuel International, Inc.,
(“AFI”), and sought recovery of $1,491,308.66 allegedly paid to AFS as pre-payment of aviation fuel and flight
services under a contractual relationship between Ryan and AFS. AFI moved to dismiss the action, to which, Ryan has subsequently
filed a notice of removal to the Federal District Court for the Northern District of Illinois, Bankruptcy Division Case No.: 12-80802.
AFI filed an action for breach of contract for Ryan’s failure to pay certain Jet Fuel invoices for the delivery of fuel in
the amount of $678,000 plus interest; Aviation Fuel International v. Ryan International Airlines, Inc., a Kansas corporation,
Wells Fargo Bank Northwest, Trustee N.A., a Utah corporation, RUBLOFF 757-MSN24794LLC, an Illinois limited liability company, RYAN
767 LLC, an Illinois limited liability company, AFT TRUST SUB I, a Delaware corporation, RYAN 767 N123 LLC, an Illinois limited
liability company, and RUBLOFF 440 LLC, an Illinois corporation, Civil Action Case No. CACE 10-037788-04. AFI also filed the
corresponding claims of liens under the FAA Aircraft Registration Branch, for each plane, registered and tail wing number listed
therein. This action has also been recently noticed for been removal to the Federal District Court for the Northern District of
Illinois, Bankruptcy Division Case No.: 12-80802. In addition, as a result of Ryan’s filing a Federal Involuntary
Bankruptcy Petition against Aviation
Flight Services (“AFS”) on June 10, 2010, Case No.: 10-27313-JKO, (S.D. of Fla.), our subsidiary AFI, also filed
and was discharged as a creditor in the amount of $269,000. However, the obligations for the unpaid fuelings owed to AFI
still remain outstanding as obligations due to AFI.
Southern Sky Air Tours,
d/b/a Myrtle Beach Direct Air and Tours (Direct Air). On or about March 13, 2012, Southern Sky Air Tours, d/b/a Myrtle Beach
Direct Air and Tours (“Direct Air”) ― a public charter operator ― ceased operations. Direct Air has subsequently
filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of Massachusetts (Worcester)(Case no. 12-40944).
The Company currently has $122,000 in cash in escrow with Suntrust Bank, representing a partial payment by Direct Air for Fuel.
This action is currently pending before the court, as it relates to the collection of the garnishment.
Russell Adler.
On January 11, 2013, Russell Adler, our former Chief Executive Officer, filed a cross-complaint against the Company, AFI, and other
associated persons in the Seventeenth Judicial District Court, Broward County, Florida. Mr. Adler’s complaint alleges various
causes of action, including indemnification from the Company in respect of litigation described above, damages for breach of Mr.
Adler’s employment contract, fraud, unpaid legal fees, unjust enrichment, and quantum meruit. We believe Mr. Adler’s
claims are without merit and intend to defend the same.
As a result of the non-payment
for Jet Fuel by AFI customers, AFI’s suppliers have filed actions that have resulted in judgment and garnishments, in the
amount of $330,000. Most of these fuel outstanding fuel delivery charges are secured in the bankruptcy action involving Ryan as
described above,through lien filings by both the issuer and individual fuel providers. In addition, AFI incurred certain loan and
debt obligations for which the Company is attempting to convert into common stock of the issuer.
From time to time, we
are also a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our
rights under contracts with purchasers and suppliers of fuel. While the outcome of these legal proceedings cannot at this time
be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or
results of operations.
ITEM 1A. RISK FACTORS
As a smaller reporting
company, we are not required to provide the information required by this item.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 6, 2015, the
Company issued a promissory note in the original principal amount of $6,000 (“Note”) to a lender. The Note matures
on October 10, 2015 and carries an interest rate of 8% per annum. The Note shall at the maturity date, be due and payable in full
unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common
stock of the Company at a 50% discount to the average of the three lowest daily trading prices as reported on the OTCQB for the
twenty trading days previous to the conversion date.
On December 8, 2014,
our board of directors and the holder of a majority in interest of our voting capital stock approved a 1-for-2,000 reverse split
of our common shares (“Reverse Split”). The Reverse Split became effective on April 6, 2015. As a result of the Reverse
Split, each shareholder of record received one (1) share of common stock for each two thousand (2,000) shares of common stock they
held prior to the Reverse Split, provided however, that fractions of a share were rounded up to the nearest whole share and any
registered shareholder who would have otherwise held less than 200 shares following the Reverse Split was rounded up to 200 shares.
Consequently, none of our registered shareholders as of the record date held less than 200 shares following the Reverse Split.
This rounding up to 200 shares resulted in an additional 197,892 shares issued. These financial statements have been retroactively
restated for this change in capital structure.
On
June 22, 2015, the Company converted into 111,608 shares of common stock, a portion of a certain convertible promissory note originally
issued by the Company on January 21, 2014. The number
of shares issued, at the time of such issuance, represented approximately 8.72% of the issued and outstanding shares of the Company.
On
June 26, 2015, the Company converted into 124,070 shares of common stock, a portion of a certain convertible promissory note originally
issued by the Company on January 21, 2014. The number
of shares issued, at the time of such issuance, represented approximately 8.84% of the issued and outstanding shares of the Company.
On
June 30, 2015, the Company converted into 134,921 shares of common stock, a portion of a certain convertible promissory note originally
issued by the Company on January 21, 2014. The number
of shares issued, at the time of such issuance, represented approximately 8.77% of the issued and outstanding shares of the Company.
On
August 12, 2015, the Company converted into 153,595 shares of common stock, a portion of a certain convertible promissory note
originally issued by the Company on January 21, 2014. The
number of shares issued, at the time of such issuance, represented approximately 9.07% of the issued and outstanding shares of
the Company.
No solicitation was made
and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance
of shares and options as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section
4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Effective February 1,
2000, the Company sold and issued a promissory note secured by certain tangible and intangible assets of the Company (“Note”)
in exchange for $450,000 in cash proceeds. As of May 1, 2000, the Company is in default with respect to the Note. The Note and
its accompanying Security Agreement have been filed as an exhibit to the Company’s 1999 annual report on form 10-KSB filed
with the Securities and Exchange Commission on March 30, 2000.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
Not applicable.
ITEM 6.
EXHIBITS
The following
documents are filed as exhibits to this Form 10-Q:
INDEX TO EXHIBITS
(1) Filed as an Exhibit to the Company’s
Current Report on Form 8-K, filed on June 17, 2011.
(2) Filed as an Exhibit to the Company’s
Current Report on Form 8-K, filed on September 18, 2012.
SIGNATURES
Pursuant to the requirements
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.
| |
|
FUELSTREAM, INC.
|
| Date: August 19, 2015 |
|
BY: /s/ John D. Thomas__________________ |
| |
|
John D. Thomas |
| |
|
Chief Executive Officer |
Exhibit 31
Certification of Chief Executive Officer
and Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
I, John D. Thomas, certify that:
- I have reviewed this quarterly report on Form 10-Q for the quarterly
period ended
June 30,
2015 of Fuelstream, Inc.;
- Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
- Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
- As the registrant's sole certifying officer, I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
- Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in
which this report is being prepared;
- Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
- Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
- Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting;
- I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
- All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information; and
- Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 19, 2015
| By: /s/ John D. Thomas |
|
| John D. Thomas |
|
| Chief Executive Officer |
|
| and Principal Financial Officer |
|
Exhibit 32
Certification of Chief Executive Officer
and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I,John D. Thomas, certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report on Form 10-Q
for the quarterly period ended June 30, 2015 of Fuelstream, Inc. fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of Fuelstream, Inc.
Date: August 19, 2015
| By: /s/ John D. Thomas |
|
| John D. Thomas |
|
| Chief Executive Officer |
|
| and Principal Financial Officer |
|
FuelStream (CE) (USOTC:FLST)
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