Attached files
| file | filename |
|---|---|
| EX-31 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER - Fuelstream INC | ex31302certification.htm |
| EX-32 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER - Fuelstream INC | ex32906certification.htm |
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 March 31, 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 June 2, 2015, the Company had outstanding 1,166,978 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 March 31, 2015.
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 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 three months ended March 31, 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
March 31, 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 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 three months ended March 31, 2015 and 2014 were $34,028 and $34,028, 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
March 31, 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 March 31, 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
March 31, 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
March 31, 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 March 31, 2015 was $59,509,664 and the total stockholders’ deficit at March 31, 2015 was $6,885,803 and had working capital deficit (current liabilities minus current assets) of $6,885,803, 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
March 31, 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 March 31, 2015. 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 March 31, 2015 and December 31, 2014 are as follow:
| March 31, 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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
NOTE 6 -ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The accounts payable of $962,169, as of March 31, 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 March 31, 2015 and December 31, 2014 is $196,628 and $183,108, respectively. Interest expense of $13,520 was charged to expenses during the three months ended March 31, 2015.
NOTE 7 - NOTES PAYABLE
| Notes payable consisted of the following: | ||||||||
| March 31, 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 March 31, |
Amount | |||||||
| 2016 | $ | 1,034,610 | ||||||
| Total | $ | 1,034,610 | ||||||
Accrued interest on notes payable as of March 31, 2015 was $541,688 and as of December 31, 2014 was $505,482. Interest expense of $36,440 has been charged to expenses for the three months ended March 31, 2015.
| 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
March 31, 2015
NOTE 8 - CONVERTIBLE DEBENTURE/NOTES PAYABLE
| March 31, 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 $1,848 and $2,352, respectively. | $ | 2,272 | $ | 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. | 115,000 | 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 | ||||||
| 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 |
| |||||
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 $4,181 and $-0-, respectively. | 1,819 | — | ||||||
| Total notes payable | 640,470 | 634,141 | ||||||
| Less: current portion | (640,470 | ) | (634,141 | ) | ||||
| Long-term convertible debenture/notes payable | $ | — | $ | — |
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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 March 31, 2015 is $2,272.
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.
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 March 31, 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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 March 31, 2015 is $115,000.
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 March 31, 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.
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 March 31, 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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 March 31, 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 | % |
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 March 31, 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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 March 31, 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 March 31, 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 March 31, 2015 is $1,929.
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:
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
| 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 March 31, 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 March 31, 2015 is $1,890.
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 | % |
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 March 31, 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 March 31, 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.
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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
The outstanding balance as of March 31, 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 $75,000 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 $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 March 31, 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.
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 March 31, 2015 is $1,819.
At March 31, 2015, the Company adjusted the recorded fair value of the derivative liability to market on the notes resulting in noncash, non-operating gain of $7,097 for the three months ended March 31, 2015.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
During the three months ended March 31, 2015 and 2014 the Company amortized $36,330 and $335,021, respectively, of beneficial debt discount to the operations as interest expense.
Accrued interest on convertible notes payable for the three months ended March 31, 2015 was $58,984. Interest expense of $15,103 has been charged to expenses for the three months ended March 31, 2015.
NOTE 9 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible Notes payable - related parties consist of the following
| March 31, 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
March 31, 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 March 31, 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 March 31, 2015 is $42,470.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 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 March 31, 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 March 31, 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
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 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 $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 March 31, 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 March 31, 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
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 | % |
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 March 31, 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 December 31, 2014 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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 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 $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 March 31, 2015 is $4,000.
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 March 31, 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 March 31, 2015 is $4,000.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
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 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 months ended March 31, 2015, debt discount of $30,000 was amortized. The outstanding balance as of March 31, 2015 is $45,000.
For the three months ended March 31, 2015 and 2014, interest expenses charged on the above notes is $8,471 and $6,306, respectively. Accrued interest on convertible notes payable – related parties as of March 31, 2015 and December 31, 2014 was $47,404 and $38,933, respectively.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
NOTE 10 - NOTES PAYABLE - RELATED PARTIES
| Notes payable - related parties consist of the following: | ||||||||
| March 31, 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) | 28,633 | 28,633 | ||||||
| Total notes payable - related parties | 2,138,106 | 2,138,106 | ||||||
| Less: current portion | (2,138,106 | ) | (2,138,106 | ) | ||||
| Long-term notes payable - related parties | $ | — | $ | — | ||||
| Maturities of notes payable - related parties are as follows: | ||||||||
| Year Ending March 31, |
Amount | |||||||
| 2016 | $ | 2,138,106 | ||||||
| Total | $ | 2,138,106 | ||||||
Accrued interest on notes payable – related parties as of March 31, 2015 and December 31, 2014 was $444,003 and $380,080, respectively. During the three months ended March 31, 2015, total interest expense to related party was $63,923.
| 1) | This note was issued for the acquisition of AFI on January 28, 2012. As of March 31, 2015 and December 31, 2014, the Company had accrued interest on the note in the amount of $253,589 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 for $1,080,973. The accrued interest as of December 31, 2014 is $177,024. |
| 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.. Accrued interest as of March 31, 2015 was $11,288. |
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
| 4) | During the year 2014, the Company issued the note value of $26,000 in cash and $2,632 for expense incurred. Accrued interest as of March 31, 2015 was $2,102. |
NOTE 11 – 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.
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 March 31, 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 March 31, 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 March 31, 2015:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability | — | — | $ | 377,362 | $ | 377,362 | ||||||||||
| Total | — | — | $ | 377,362 | $ | 377,362 | ||||||||||
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2015:
| Debt Derivative Liability | ||||
| Balance, December 31, 2014 | $ | 372,939 | ||
| Initial fair value of debt derivatives at note issuances | 11,520 | |||
| Extinguished derivative liability | — | |||
| Mark-to-market at March 31, 2015 - Embedded debt derivatives | (7,097 | ) | ||
| Balance, March 31, 2015 | $ | 377,362 | ||
| Net gain for the period included in earnings relating to the liabilities held at March 31, 2015 | $ | 7,097 | ||
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.
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
NOTE 12 - COMMON AND PREFERRED STOCK TRANSACTIONS
Preferred Stock
The Company is authorized to issue 200 preferred shares of $0.0001 par value. As of March 31, 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 March 31, 2015 and December 31, 2014 the Company had 1,166,978 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 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.
NOTE 13 - 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 March 31, 2015 | 370,000 | $ | 1.34 | |||||
FUELSTREAM INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2015
Common stock options outstanding and exercisable as of March 31, 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 | 4.00 | 66,644 | $ | 0.01 | |||||||||||||
| January 2, 2019 | 1.65 | 300,000 | 4.25 | 237,124 | 1.65 | |||||||||||||||
| Total | 370,000 | 303,768 | ||||||||||||||||||
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 $34,028 was charged to expenses and additional paid in capital during the three months ended March 31, 2015.
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 14 – SUBSEQUENT EVENTS
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.
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 month periods ended March 31, 2015 and 2014.
Revenues. The Company generated net revenues of $-0- during the three months ended March 31, 2015 as compared to $47,414 for the three months ended March 31, 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. Our cost of sales for the three months ended March 31, 2015 was $-0- as compared to $36,338 for the three months ended March 31, 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 March 31, 2015 were $118,310 compared to $450,133 during the three months ended March 31, 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 expenses of $172,286 for the three months ended March 31, 2015 compared to $490,595 during the three months ended March 31, 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 three months ended March 31, 2015 and 2014, interest expense was $179,383 and $728,975, respectively. Included in interest expense was the amortization of debt discount of $36,330 and $380,021 for the three months ended March 31, 2015 and 2014, respectively. The gain on change in derivative liability was $7,097 and $238,380 for the three months ended March 31, 2015 and 2014, respectively.
Net Loss. The Company had a net loss of $290,596 for the three months ended March 31, 2015 compared to $929,652 during the three months ended March 31, 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 March 31, 2015, our primary source of liquidity consisted of $152 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 March 31, 2015 of $6,885,803 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.
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 March 31, 2015, the end of our first 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 March 31, 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.
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
| Number | Exhibits | |
| 3.1 | Amended and Restated Certificate of Incorporation of Fuelstream, Inc | |
| 3.2 | Amended and Restated Bylaws of Fuelstream, Inc.(1) | |
| 10.1 | Form of Indemnification Agreement (2) | |
| 10.2 | 2012 Equity Incentive Plan (2) | |
| 31 | Certification by Chief Executive Officer, John D. Thomas, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | Certification by Chief Executive Officer, John D. Thomas, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
(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.
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FUELSTREAM, INC.
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| Date: June 19, 2015 | BY: /s/ John D. Thomas__________________ | |
| John D. Thomas | ||
| Chief Executive Officer |