UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2015

 

¨	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 0-54205

 

TARSIER LTD. (Name of Registrant in its Charter)

 

Delaware	20-2188353
(State of Other Jurisdiction of incorporation or organization)	(I.R.S.) Employer I.D. No.)

 

475 Park Avenue South, 30th Floor, New York, NY 10016

(Address of Principal Executive Offices)

 

Issuer’s Telephone Number: 212-401-6181

 

Securities Registered Pursuant to Section 12(b) of the Exchange Act: NONE

 

Securities Registered Pursuant to Section 12(g) of the Exchange Act:

 

COMMON STOCK, $0.001 PAR VALUE

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act.    Yes ¨ No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨ No þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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 þ No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained,  to the best of registrant’s  knowledge,  in definitive proxy or information  statements incorporated  by reference  in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions 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 þ

 

As of November 30, 2015, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates was $4,313,479 based upon the closing sale price on November 30, 2014 of $0.58 per share.

 

As of January 19, 2016, there were 28,921,403 shares of common stock outstanding.

 

Documents incorporated by reference: NO

 

 

Form 10-Q Quarterly Report

INDEX

 

PART I FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Balance Sheets as of November 30, 2015 (unaudited) and May 31, 2015	3
	Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months ended November 30, 2015 and 2014 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months ended November 30, 2015 (unaudited)	5
	Notes to the Unaudited Consolidated Financial Statements	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	21
ITEM 4.	Controls and Procedures	21
PART II OTHER INFORMATION
ITEM 1.	Legal Proceedings	22
ITEM 1A.	Risk Factors	22
ITEM 2.	Unregistered Sale of Equity Securities	22
ITEM 3.	Defaults Upon Senior Securities	23
ITEM 4.	Mine Safety Disclosures	23
ITEM 5.	Other Information	23
ITEM 6.	Exhibits	23
SIGNATURES		24

 

 

Tarsier Ltd.

Consolidated Balance Sheets

 

		November 30, 2015				May 31, 2015
Assets		(Unaudited)
Current Assets:
Cash		$	2,030			$	–
Assets from discontinued operations (Note 4)			–				8,703,090
Total Current Assets			2,030				8,703,090
Assets from discontinued operations (Note 4)			–				4,161,668
Total Assets			2,030				12,864,758
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable and accrued expenses		$	304,486			$	48,750
Due to shareholder			101,828				–
Notes payable, net of debt discounts of $10,059			207,941				–
Other current liabilities			21,339				–
Liabilities from discontinued operations (Note 4)			–				11,928,595
Total Current Liabilities			635,594				11,977,345
Liabilities from discontinued operations (Note 4)			–				337,590
Total Liabilities			635,594				12,314,935
Stockholders' Equity (Deficit):
Preferred stock, 10,000,000 shares authorized, 0 shares issued and outstanding
Common stock, $0.001 par value, 150,000,000 shares authorized; 25,291,403 and 34,325,241 shares issued and outstanding at November 30, 2015 and May 31, 2015, respectively			25,291				34,325
Additional paid-in capital			6,722,852				6,866,355
Accumulated deficit			(7,381,707	)			(6,350,857	)
Total Stockholders' Equity (Deficit)			(633,564	)			549,823
Total Liabilities and Stockholders' Equity (Deficit)		$	2,030			$	12,864,758

 

See notes to the unaudited consolidated financial statements.

 

  

Tarsier Ltd.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

 

		For the Three Months Ended								For the Six Months Ended
		November 30,								November 30,
		2015				2014				2015				2014
Net sales		$	1,640			$	–			$	1,640			$	–
Cost of goods sold			1,284				–				1,284				–
Gross profit			356				–				356				–
Operating expenses:
Salaries and other compensation			350,000				–				410,000				–
Professional fees			255,778				–				497,296				–
General and administrative			17,476				–				37,300				–
Total operating expenses			623,254				–				944,596				–
Loss from operations			(622,898	)			–				(944,240	)			–
Other income (expenses):
Interest expense			(633	)			–				(633	)			–
Amortization of debt discount			(82,518	)			–				(85,977	)			–
Loss before income taxes			(706,049	)			–				(1,030,850	)			–
Income tax provision			–				–				–				–
Net loss from continuing operations			(706,049	)			–				(1,030,850	)			–
Net income from discontinued operations, net of taxes (Note 4)			–				468,307				–				341,021
Net (loss) income		$	(706,049	)		$	468,307			$	(1,030,850	)		$	341,021
Foreign currency translation gain			–				2,398				–				236,810
Net comprehensive (loss) income		$	(706,049	)		$	470,705			$	(1,030,850	)		$	577,831
Basic and diluted (loss) from continuing operations		$	(0.03	)		$	–			$	(0.04	)		$	–
Basic and diluted income from discontinued operations		$	–			$	0.01			$	–			$	0.01
Basic and diluted (loss) income per share		$	(0.03	)		$	0.01			$	(0.04	)		$	0.01
Weighted average number of common shares			24,734,301				31,325,241				25,030,545				31,325,241

 

See notes to the unaudited consolidated financial statements.

 

  

Tarsier Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Six Months Ended
		November 30,
Cash flows from operating activities:			2015				2014
Net (loss) income		$	(1,030,850	)		$	341,021
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Net (income) from discontinued operations			–				(341,021	)
Amortization of debt discount			85,977				–
Shares issued to consultants and board of directors			350,000				–
Services received in exchange for issuance of note payable			25,000
Changes in operating assets and liabilities:
Accounts payable and accrued expenses			255,736				–
Other current liabilities			21,339				–
Net cash used in operating activities - continuing operations			(292,798	)			–
Net cash provided by operating activities - discontinued operations			–				121,908
Net cash (used in) provided by operating activities			(292,798	)			121,908
Cash flows from investing activities:
Net cash used in investing activities - continuing operations			–				–
Discontinued operations cash sold in sale of subsidiary			(48,161	)			–
Net cash used in investing activities			(48,161	)			–
Cash flows from financing activities:
Proceeds from promissory note agreements			193,000				–
Due to shareholder			101,828				–
Net cash provided by financing activities - continuing operations			294,828				–
Net cash used in financing activities - discontinued operations			–				(361,484	)
Net cash provided by (used in) financing activities			294,828				(361,484	)
Effect of exchange rate on cash and cash equivalents - discontinued operations			–				7,055
Net (decrease) in cash and cash equivalents			(46,131	)			(232,521	)
Cash at beginning of period - discontinued operations			48,161				344,636
Less: Cash at end of period - discontinued operations			–				(112,115	)
Cash at end of period - continuing operations		$	2,030			$	–
Supplemental schedule of non-cash investing and financing activities:
Sale of discontinued entity		$	598,573			$	–
Common shares issued with promissory notes and recorded as debt discounts		$	96,037			$	–
Supplemental cash flow disclosure:
Income tax paid		$	–			$	–
Interest paid		$	–			$	6,949

 

See notes to the unaudited consolidated financial statements.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

NOTE 1 – ORGANIZATION

 

Tarsier Ltd. (the “Company”) was incorporated in Delaware on November 19, 2010 originally under the name China International Enterprise Corp. In 2011, the Company changed its name to HXT Holdings, Inc. On September 2, 2011, the Company acquired all of the outstanding capital stock of China Metal Holding, Inc. (“China Metal”), a privately-owned corporation formed in the State of Delaware. China Metal is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Changzhou Huayue Electronics Company, Limited (“Changzhou Huayue”), a limited liability company organized under the laws of the People’s Republic of China (“China” or “PRC”). Changzhou Huayue is engaged in developing, manufacturing and selling high frequency induction lights and electrolytic capacitors. Changzhou Huayue’s offices and manufacturing facilities are located in China. Effective November 2, 2011, the Company changed its name to Huayue Electronics, Inc. (“HUAY”).

 

On April 23, 2015, the Company entered into a Partnership Interest Purchase Agreement to purchase 51% of the limited liability partnership interests in SavWatt Kazakhstan Ltd. (“SavWatt”), a limited liability partnership formed under the laws of Kazakhstan. SavWatt Kazakhstan was formed by Sutton Global Associates, Inc. (see Note 8) on April 8, 2015 to engage in the business of manufacturing and distributing energy efficient products in Kazakhstan and other Eastern European countries. No funding has been provided by either party and therefore there is no non-controlling interest as of November 30, 2015.

 

In May 2015, the Company approved plans to dispose of China Metal, including its subsidiary Changzhou Huayue. China Metal was sold on June 12, 2015. Refer to Note 4 for further discussion.

 

On September 8, 2015, the Company formed Tarsier Systems Ltd., a New York corporation. Tarsier Systems is a 100% subsidiary. On December 4, 2015, the Company change its name to Tarsier Ltd.

 

NOTE 2 – BASIS OF PRESENTATION

 

These unaudited consolidated financial statements as of and for the three (3) and six (6) months ended November 30, 2015 and 2014, respectively, reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.

 

These interim unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended May 31, 2015 and 2014, respectively, which are included in the Company’s May 31, 2015 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on September 15, 2015 and Form 10-K/A filed on October 13, 2015. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three (3) and six (6) months ended November 30, 2015 are not necessarily indicative of results to be expected for the entire year ending May 31, 2016.

 

NOTE 3 – GOING CONCERN

  

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. The Company had negative working capital of $633,564 at November 30, 2015 and incurred a net loss of $1,030,850 for the six months ended November 30, 2015. The Company also has certain promissory notes which are past due.

 

These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These unaudited consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to fund acquisitions in order to generate profitable operations in the future.

 

The Company hopes that future funds received will enable it to execute its business plan and generate positive operating results. However, the outcome of these matters cannot be predicted at this time and there are no assurances that the Company will be successful in accomplishing its plans.

 

NOTE 4 - DISCONTINUED OPERATIONS

 

In May 2015, the Company approved plans to dispose of its subsidiary China Metal, including China Metal’s wholly-owned subsidiary, Changzhou Huayue. Management elected to dispose of the entities because the Company intends to focus its operations outside of China and rather in the U.S. and other foreign markets. On June 2, 2015, the Company entered into a Stock Purchase Agreement to sell 100% of the issued and outstanding shares of common stock of China Metal. The Company completed the sale on June 12, 2015.

 

In accordance with ASC 205-20, China Metal, and its wholly-owned subsidiary Changzhou Huayue, have been presented as a discontinued business in the consolidated financial statements as of May 31, 2015. Previously reported results for the unaudited comparable periods ended November 30, 2014 have been restated to reflect this reclassification.

 

The operational results of China Metal are presented in the “Net income from discontinued operations, net of taxes” line item on the unaudited consolidated statement of operations for the periods ended November 30, 2014. The assets and liabilities of the discontinued business are presented on the consolidated balance sheet as of May 31, 2015 as assets and liabilities from discontinued operations.

  

On June 12, 2015, the Company completed its sale of China Metal. The Company repurchased 10,000,000 shares of its outstanding common stock from the seller and delivered to the seller 100% of the capital stock of China Metal, which was valued at $598,573 at the time of the sale. The shares were retired and the cost was recorded against additional paid-in capital. As the seller was a related party (see Note 8), the transaction was recorded at cost and no gain or loss was recorded on the sale. There was no activity in the discontinued entity from June 1, 2015 through the date of the sale.

 

The major components of net income from discontinued operations were as follows:

 

		Three Months Ended November 30,								Six Months Ended November 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net sales		$	-			$	2,763,880			$	-			$	6,283,572
Cost of goods sold			-				1,380,696				-				3,323,160
Gross profit			-				1,383,184				-				2,960,412
General and administrative expenses			-				839,642				-				2,550,717
Income tax provision (benefit)			-				88,296				-				22,462
Net income		$	-			$	468,307			$	-			$	341,021
Comprehensive income		$	-			$	470,705			$	-			$	577,831

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

The major classes of assets and liabilities from discontinued operations were as follows:

 

		November 30,				May 31,
		2015				2015
		(Unaudited)
Cash		$	-			$	48,161
Accounts and other receivables			-				2,776,773
Advances to suppliers			-				1,866,075
Investment in sales-type lease			-				2,384,088
Total current assets			-				8,703,090
Property and equipment			-				1,045,827
Long-term receivables			-				2,950,151
Total assets		$	-			$	12,864,758
Short-term loans			-				2,984,834
Accounts payable			-				2,630,700
Taxes payable			-				2,685,297
Due to related parties			-				2,136,921
Total current liabilities			-				11,928,595
Total liabilities		$	-			$	12,266,185

 

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All inter-company transactions and balances are eliminated in consolidation.

 

Use of estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements includes promissory note debt discounts. Actual results could differ from those estimated by management.

 

Non-controlling interests

 

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC 810 “Consolidation”, and are reported as a component of equity, separate from the parent company’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in the Company’s consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, the Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents.

 

Revenue recognition

 

The Company’s revenue is derived from the sale of products. The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104, included in the Accounting Standards Codification (“ASC”) as ASC 605, Revenue Recognition. The Company’s determination to recognize revenue is based on the following:

 

·

Persuasive evidence that an arrangement (sales contract) exists between a willing customer and us that outlines the terms of the sale (including customer information, product specification, quantity of goods, purchase price and payment terms).

 

·

Delivery is considered to have occurred when the risks, rewards and ownership of the products are transferred from the Company to its customers.

 

·

The Company’s price to the customer is fixed and determinable as specifically outlined in the sales contract.

 

·

For customers to whom credit terms are extended, the Company assesses a number of factors to determine whether collection from them is probable, including past transaction history with them and their credit-worthiness. All credit extended to customers is pre-approved by management. If the Company determines that collection is not reasonably assured, the Company defers the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

 

Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as advance from customers.

 

Income taxes

 

The Company accounts for income tax under the asset and liability method as stipulated by ASC 740, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Included in the deferred tax asset is the net operating loss carryforwards. The Company is not able to predict if such future taxable income will be more likely than not sufficient to utilize the benefit. As such, the Company does not believe the benefit is more likely than not to be realized and they have recognized a full valuation allowance for these deferred tax assets as of November 30, 2015 and 2014.

 

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the six months ended November 30, 2015 and 2014.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

Fair value of financial instruments

 

The Financial Accounting Standards Board’s ASC Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.

 

The three levels are defined as follows:

 

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3 - inputs to the valuation methodology are unobservable.

 

The Company’s accounts payable and accrued expenses due to shareholder and notes payables approximate fair values due to their short-term maturities.

 

Stock-based compensation

 

The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The Company accounts for nonemployee share-based awards in accordance with ASC Topic 505-50.

 

Earnings (loss) per common share

 

The Company utilizes the guidance per FASB Codification ASC 260 Earnings per Share (“ASC 260”). Basic earnings per share are calculated by dividing income available to stockholders by the weighted average number of common stock shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common stock shares and dilutive common share equivalents outstanding during the period. Dilutive common stock share equivalents consist of common shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified treasury stock method). There were no such securities for the three and six month periods ended November 30, 2015 and 2014.

 

Foreign currency translation

 

The functional currency of the U.S. parent company is U.S. Dollars, or USD. The functional currency of the discontinued subsidiary at May 31, 2015 is Renminbi or RMB, and its reporting currency is U.S dollars for the purpose of these financial statements.  The accounts of the Chinese subsidiary were translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters,” According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the unaudited statement of operations and comprehensive income for the three and six months ended November 30, 2014.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassification had no impact on previously reported results of operations or stockholders’ equity.

 

Certain items of the discontinued entity, such as statutory reserves and accumulated other comprehensive income, were reclassified to retained earnings in the consolidated balance sheet as of May 31, 2015.

 

NOTE 6 – NOTE PAYABLE

 

On August 24, 2015, the Company entered into an unsecured, short-term promissory note with an accredited investor for $79,000. The note earns interest at 2% per annum and matured on November 23, 2015. In conjunction with the note, the Company issued 180,000 common shares to the investor. The shares resulted in a debt discount of $44,790 based on the relative fair value of the shares issued, of which $3,459 and $41,511 was amortized during the three and six months ended November 30, 2015. The debt discount was fully amortized and the principal was still outstanding and past due at November 30, 2015. Accrued interest is included in accounts payable and accrued expenses on the unaudited consolidated balance sheet.

 

On August 25, 2015, the Company borrowed an additional $11,000 from the same investor. The loan is non-interest bearing, unsecured and due on demand.

  

On September 3, 2015, the Company entered into an unsecured, short-term promissory note with an accredited investor for $78,000. The note matured on December 3, 2015. In conjunction with the note, the Company issued 156,000 common shares to the investor. The shares resulted in a debt discount of $41,889 based on the relative fair value of the shares issued, of which $40,508 was amortized during the three and six months ended November 30, 2015. As of November 30, 2015, the note payable, net of unamortized debt discount, was $76,619. The note is still outstanding and past due as of the filing date of this report.

 

On November 23, 2015, the Company entered into an unsecured, short-term promissory note with an existing accredited investor for $25,000. The note matures on January 24, 2016. In conjunction with the note, the Company issued 25,000 common shares to the investor. The shares resulted in a debt discount of $9,177 based on the relative fair value of the shares issued, of which $499 was amortized during the three and six months ended November 30, 2015. As of November 30, 2015, the note payable, net of unamortized debt discount, was $16,322.

 

During the three months ended November 30, 2015, the Company received consulting services from a firm. In exchange for these services, on September 30, 2015 the Company issued an unsecured note payable in the principal amount of $25,000. The note bears interest at 5% and matures on September 30, 2016.

 

NOTE 7 - STOCKHOLDERS’ EQUITY

 

Pursuant to the Partnership Interest Purchase Agreement dated April 23, 2015, the Company issued 3,000,000 common shares to a related party. Refer to Note 8 for further discussion.

 

On June 12, 2015, the Company repurchased 10,000,000 shares of the Company’s outstanding common stock pursuant to the sale of China Metal. Refer to Note 8 for further discussion.

 

In August 2015, the Company agreed to issue options to purchase 2,000,000 shares of common stock per consulting agreements. These options, as well as the options per Isaac H. Sutton’s employment agreement, are subject to Board approval at the time of this report.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

During the six months ended November 30, 2015, the Company issued 105,162 common shares pursuant to consulting agreements for a total value of $60,000. The fair value of the stock was determined using the closing trading prices on the issuance dates. The amounts are included in professional fees in the unaudited consolidated statements of operations and comprehensive income.

 

On November 30, 2015, the Company issued 500,000 common shares to the members of the Board of Directors as compensation for being board members for a total value of $290,000, or $0.58 per share. The fair value of the stock was determined using the closing trading price on the issuance date. The amounts are included in salaries and compensation in the unaudited consolidated statements of operations and comprehensive income.

 

As mentioned in Note 6 above, the Company issued 361,000 common shares during the six months ended November 30, 2015 in conjunction with promissory note agreements.

 

As of November 30, 2015 and May 31, 2015, the Company had 25,291,403 and 34,325,241 common shares issued and outstanding, respectively.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

An individual or entity is considered to be a related party if the person or the entity has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. An individual or entity is also considered to be related if the person or the entity is subject to common control or common significant influence.

 

On June 12, 2015, the Company sold 100% of its subsidiary China Metal to Mr. Shudong Pan, an officer and director of China Metal and Changzhou Huayue. As part of the sale, the Company repurchased 10,000,000 of the outstanding common shares held by Mr. Pan. The repurchase of common shares was recorded at cost of $598,573 as additional paid-in capital, which represented the value of China Metal’s net assets at the time of the sale.

 

During the period ended November 30, 2015, Sutton Global Associates Inc. (“Sutton Global”), a company controlled by the chief executive officer, paid certain expenses on behalf of the Company. The balance owed to Sutton Global is included as due to shareholder on the unaudited consolidated balance sheet.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

On April 27, 2015, the Company entered into an employment agreement with Isaac H. Sutton to serve as Chief Executive Officer of the Company. The agreement provides for an initial term of three years and will terminate on April 27, 2018. The employment agreement will be extended automatically for successive one-year periods thereafter unless the Company or Mr. Sutton gives written notice to the other to allow the employment agreement to expire. Mr. Sutton will be paid an initial annual base salary of $120,000. At November 30, 2015, accrued salary owed to Mr. Sutton is included in due to shareholder per the unaudited consolidated balance sheet.

 

On September 10 , 2015, the Company entered into a purchase agreement to acquire 100% of the limited liability membership interests of BlueCo Energy LLC, a New York limited liability company (“BlueCo”), in consideration for the issuance of 20,000,0000 common shares. Upon closing, the Company will issue the common shares to GoCOM Corporation, a Nevada corporation (“GoCOM”), which is controlled by Isaac H. Sutton. There can be no assurance that the Company will complete the proposed acquisition of BlueCo.

 

  

TARSIER LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2015

 

In addition, Mr. Sutton will be eligible to receive each year an incentive bonus in an amount up to 100% of his base salary and a revenue bonus in an amount equal to 0.75% of the amount by which the Company’s net revenues in such year exceed $25 million.

 

Subject to the approval of the Board, the Company will also grant to Mr. Sutton a stock option to purchase 3,000,000 shares of the Company’s common stock at a price per share not less than the per-share fair market value of the common stock on the date of grant. The option will vest with respect to one-third of the shares on the first anniversary of the date of grant and as to the remaining two-thirds of the shares in 24 equal monthly installments thereafter.

 

The employment agreement also provides that Mr. Sutton will be entitled to participate in any short-term and long- term incentive plans generally available to executive officers of the Company, to participate with other executive officers in any of the Company’s employee fringe benefit plans, and to be reimbursed for certain business-related expenses. In addition, the employment agreement provides for certain benefits upon termination of Mr. Sutton’s employment under certain circumstances, including a change of control of the Company, as defined in the employment agreement, and to certain death benefits.

 

NOTE 10 – RECENT ACCOUNTING PRONOUNCEMENTS

 

In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company has adopted the guidance as described in Note 3.

 

NOTE 11 - SUBSEQUENT EVENTS

 

On December 1, 2015, the Company consummated an asset purchase agreement with DemanSYS Energy Inc. (“DemanSYS”), a Delaware corporation, for all rights under selected contracts, and certain intellectual property rights. In consideration for the purchased assets, the Company issued a convertible promissory note for $450,000 due in various installments from January to June 2016. The note is convertible upon default, at the option of the holder, into shares of common stock at a 30% discount to the 10 day average closing price. The note is also convertible at the option of the lender, in the event of default, into shares of common stock at a 30% discount to the 10 day average closing price. The Company also issued 2,500,000 common shares to DemanSYS to be held in escrow, subject to revenue targets to be met in regards to the software platform acquired. The Company is still determining the purchase price allocation.

 

On December 4, 2015, the Company filed an amendment with the State of Delaware to increase the authorized common stock from 60,000,000 to 150,000,000 shares. The Board also approved the increase of authorized preferred stock from 1,000,000 to 10,000,000 shares.

 

In December 2015, the Company agreed to issue options to purchase 10,800,000 shares of common stock per four employment agreements. These options are subject to Board approval at the time of this report. In August 2015, the Company agreed to issue options to purchase 2,000,000 shares of common stock per consulting agreements. These options, as well as the options per Isaac H. Sutton’s employment agreement, are subject to Board approval at the time of this report.

 

On January 4, 2016, the Company issued 1,000,000 common shares pursuant to a Joint Venture Agreement. The shares are to be held in escrow pending the successful performance of the Joint Venture partner.

 

On January 4, 2016, the Company issued 30,000 common shares pursuant to consulting agreements, and 100,000 common shares pursuant to an employment agreement. The fair value of the stock was determined using the closing trading price on the issuance date. The amounts are included in professional fees and salaries and compensation, respectively, in the unaudited consolidated statements of operations and comprehensive income.

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

  

Forward-Looking Statements: No Assurances Intended

 

In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Tarsier Ltd. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A titled “Risk Factors” in the Amendment No. 1 to the Company’s Annual Report on Form 10K/A filed on October 13, 2015. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

 

Company Overview

 

After completing the reorganization of our business and management in June 2015 as discussed in note 1 to our financial statements included in this report, we intend to engage in the business of:

 

·

developing and selling LED street lighting and state-of-the-art Smart City technology

 

·

providing large corporations, institutions, facilities and factories with energy management software and solutions

 

·

providing energy audit services that help customers reduce their energy consumption and save money

 

·

providing commercial and residential customers sustainable energy products; and

 

·

developing innovative energy-saving products, including LED light bulbs and fixtures, battery back-up systems and micro-grid technology.

 

Smart City Technology

 

Cities worldwide compete daily to engage and attract new residents, businesses and visitors. As a result, constant attention must be paid to providing safer neighborhoods, less stressful means of transportation, a vibrant economic climate and an overall better quality of life. Local and regional government leaders continue to look toward “Smart City” technology to provide a strong foundation on which they can build their city’s future. We plan to capitalize on this emerging opportunity by establishing our company as an innovative developer and provider of Smart City technology. We believe that the streetlight will become the eyes and ears of a city. Each streetlight pole is capable of illuminating, monitoring and protecting its assigned territory. Through advances in technology, the streetlight is quickly morphing into a multi-faceted observation tower capable of providing a city’s control center with important real-time data, including pedestrian activity, traffic flow, video surveillance and weather information. The newest LED lights can be Wi-Fi-enabled or equipped with BLE (Bluetooth Low Energy), VLC (Visual Light Communication) components that allow a city to build a vast data network that can be used to obtain and/or provide critical information and content to its workers, residents or visitors via their mobile devices.

 

  

We believe Smart Cities will not only be safer and more convenient cities, but they will be “greener,” more cost-effective cities as the advances in LED lighting can dramatically reduce a cities energy consumption. We are in the process of developing and/or acquiring the innovative talent, patents and technology that we believe will be required to enable our company to be a driving force in shaping the cities of tomorrow. We plan on being pioneers as the world of utility merges with the worlds of convenience, data dissemination, media and lifestyle.

 

Energy Management Software and Solutions

 

While many companies have rightfully sought out more cost-effective energy suppliers, we intend to establish a team of innovators in the area of “energy consumption reduction.” By combining their expertise with a comprehensive energy management software solution, we believe we can help our clients to significantly reduce their energy cost without disrupting their respective businesses. We have recently acquired this technology, which will be marketed under the name T-Flow Energy Management Software. T-Flow enables the Company to be able to go into any large building, facility, campus or factory and monitor the energy demand of its equipment (e.g. HVAC, Heavy Machinery, Lighting, etc.). Our software would then continually provide the critical “load data” our clients need to effectively manage overall demand. Clients are compensated in the form of rebates for this access and the Company participates in the revenues for providing the software and monitoring services.

 

According to the Federal Energy Regulatory Commission, demand response (DR) is defined as “changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.” DR includes all intentional modifications to consumption patterns of electricity of induce customers that are intended to alter the timing, level of instantaneous demand, or the total electricity consumption. It is expected that demand response programs will be designed to decrease electricity consumption or shift it from on-peak to off-peak periods depending on consumers’ preferences and lifestyles. Demand response activities are defined as “actions voluntarily taken by a consumer to adjust the amount or timing of his energy consumption”. Actions are generally in response to an economic signal (e.g. energy price, or government and/or utility incentive). Demand response is a reduction in demand designed to reduce peak demand or avoid system emergencies. As a result, demand response can be a more cost-effective alternative than adding generation capabilities to meet the peak and or occasional demand spikes. The underlying objective of DR is to actively engage customers in modifying their consumption in response to pricing signals. The goal is to reflect supply expectations through consumer price signals or controls and enable dynamic changes in consumption relative to price.

 

In electricity grids, DR can be used as a dynamic demand mechanism to manage customer consumption of electricity in response to supply conditions. For example, DR can be applied to have electricity customers reduce their consumption at critical times or in response to market prices. The difference is that demand response mechanisms respond to explicit requests to shut off, whereas dynamic demand devices passively shut off when stress in the grid is sensed. Demand response can involve actually curtailing power used or by starting on-site generation which may or may not be connected in parallel with the grid. This is a quite different concept from energy efficiency, which means using less power to perform the same tasks, on a continuous basis or whenever that task is performed. At the same time, demand response is a component of smart energy demand, which also includes energy efficiency, home and building energy management, distributed renewable resources, and electric vehicle charging.

 

Current demand response schemes are implemented with large and small commercial, as well as residential customers, often through the use of dedicated control systems to shed loads in response to a request by a utility or market price conditions. Services (lights, machines, air conditioning) are reduced according to a preplanned load prioritization scheme during the critical time frames. An alternative to load shedding is on-site generation of electricity to supplement the power grid. Under conditions of tight electricity supply, demand response can significantly decrease the peak price and, in general, electricity price volatility.

 

Demand response is generally used to refer to mechanisms used to encourage consumers to reduce demand, thereby reducing the peak demand for electricity. Since electrical generation and transmission systems are generally sized to correspond to peak demand (plus margin for forecasting error and unforeseen events), lowering peak demand reduces overall plant and capital cost requirements. Depending on the configuration of generation capacity, however, demand response may also be used to increase demand (load) at times of high production and low demand. Some systems may thereby encourage energy storage to arbitrage between periods of low and high demand (or low and high prices).

 

  

There are three types of demand response - emergency demand response, economic demand response and ancillary services demand response. Emergency demand response is employed to avoid involuntary service interruptions during times of supply scarcity. Economic demand response is employed to allow electricity customers to curtail their consumption when the productive or convenience of consuming that electricity is worth less to them than paying for the electricity. Ancillary services demand response consists of a number of specialty services that are needed to ensure the secure operation of the transmission grid and which have traditionally been provided by generators.

 

Energy Audits

 

Few commercial or residential energy customers are aware of how much energy they waste every single day. We plan to form a new division, to be known as Tarsier Advisors, to address this opportunity. The “energy audit” will not only help customers save money, but it will help the planet by reducing a consumer’s carbon footprint. In addition, it will help us build a credible dialogue with new customers, each of which will be in need of services such as: Sustainable Energy (Electric and Gas) - a service that we expect to provide through our Tarsier Energy division; LED Lighting - products that can be provided by our recently-formed Tarsier Innovation division; and Energy Management, a service that we expect to provide by our Tarsier Systems division. We believe this seamless vertical integration will help position us as a leader in energy, energy savings and Smart City technology.

 

LED Bulbs and Fixtures

 

Emitting more light per watt than incandescent bulbs and capable to lasting up to 100,000 hours, LED lights are revolutionizing the lighting industry. Unlike their virtually obsolete counterparts, LED lights contain no harmful ultraviolet rays, do not visibly flicker, and do not contain any toxic substances. Additionally, LED lighting is projected to achieve a market share of 84% of lumen-hour sales in the general illumination market by 2030, reducing lighting energy consumption in that year alone by 40%, for a savings of 3.0 quads (261 terawatt-hours) - worth over $26 billion at today’s energy prices and equivalent to the total energy consumed by nearly 24 million U.S. homes ( per US Department of Energy).

 

Our Tarsier Innovation division, which was formed to engage in the development and sales of innovative energy-savings products, has aligned itself with manufacturers of quality LED products, including, but not limited to, LED streetlights and LED tubes, spots and floodlights. We plan to supply both residential customers and commercial businesses with LED lighting solutions. Our Tarsier Innovation division expects to work closely with municipalities and state governments interested in procuring LED lighting and other Smart City technology to not only provide them with the best possible solution, but to assist them in the procurement of financing from China-based lenders that are working closely with our Chinese manufacturing partners.

 

To spur adoption of energy efficient products, U.S. federal law mandated that all light bulbs become 30% more efficient by 2012. The Federal government currently offers tax deductions of up to $.60 per square foot if a new lighting system is installed that reduces power usage by 25% to 40% of the standard lighting power values specified by AHSRAE standard 90.1-2001

 

The lighting industry is intensely competitive and many of our competitors are large, well-funded companies that have substantially larger staffs, manufacturing and distribution facilities and financial resources than we have at the present time. In the LED market, we will compete with companies that manufacture or sell nitride-based LED chips as well as those that sell LED components. Competitors are offering new blue, green and white LEDs with aggressive prices and improved performance. These competitors may reduce average sales prices faster than we are able to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average sales prices.

 

  

We also will compete with major lighting manufacturers, including General Electric, Philips and Sylvania. Although these companies have established reputations in the marketplace, we believe we can establish our company as a trusted brand because essentially everyone is a newcomer to the LED space. In addition, while these larger companies have more intensive research and development, sales and marketing resources, we believe our smaller infrastructure should allow us to be more nimble, be able to bring new innovations to market faster and be more price competitive as we too are working with high-yield manufacturers. While we also face competition from smaller U.S.-based lighting companies, we believe our product innovation, as well as our branding and marketing expertise, will help us rise above the weakest competition and stay head-to-head with the best competitors in the marketplace.

 

We intend to gain market share is by vertically integrating our energy audit businesses, our energy reselling business and our LED products business. We believe that clients that engage in an energy audit will also be seeking out cost-effective, energy-consumption-reducing LED products. Similarly, we believe our Tarsier Energy division customers will have a similar need as they seek to reduce energy costs by reducing consumption. We are currently in the process of developing an online retail portal that will allow both commercial and residential customers to purchase lighting products online. It is currently contemplated that our Tarsier Energy and Tarsier Advisors division clients will have the opportunity to redeem rebate certificates we provide to them on this site to secure a variety of LED lights at a substantial savings.

 

Micro-Grid/Battery Back Up

 

In October 2012, Hurricane Sandy devastated power infrastructures from Jamaica and Cuba to New York City and beyond. Power was disrupted to millions of families and businesses for days, weeks and even months. Electric grid vulnerability was back in the mind of government leaders, emergency management personnel and even customers. The advances in battery technology over the last decade is palpable. The purchases of electric cars have gone well beyond the “early adopters” and into the mainstream. Fledgling companies like Tesla have emerged as formidable competition for Detroit’s oldest brands, and Tesla has recently announced that it has set its sights on other major applications for its innovative battery technologies. We also plan to become a formidable competitor in the world of battery storage and micro-grid technology. While the world has embraced the concept of “energy saving,” there is still a heavy reliance on the worldwide energy grid, the complex system of energy supply that spans the globe. Ultimately, it is those that achieve total independence from this energy grid that will be the least vulnerable and most valuable. Over the next several years, our Tarsier Innovation division plans will to forge new ground in battery storage and micro-grid technology. As discussed above, we acquired software program that can manage energy that is purchased at “off peak” times, when costs are lower, stored on a battery and re-deployed during “Peak” times when energy costs typically are higher.

 

Energy Reselling

 

We recently entered into an agreement to acquire BlueCo Energy LLC, a New York ESCO (Energy Savings Company). BlueCo has historically served approximately 5,000 customers within New York State. If acquired, BlueCo will adopt the Tarsier Energy brand. The current plan is for Tarsier Energy to continue to offer a variety of pricing models, which include fixed-price plans, BlueCo’s flat-rate plan for natural gas, and variable-price plan for some of BlueCo’s natural gas and electricity customers. Under our fixed price service options, our customers will purchase natural gas and electricity at a fixed price over the life of the customer contract, which provides our customers with protection against increases in natural gas and electricity prices. Our fixed-price contracts will typically have a term of one to two years for residential customers and up to three years for commercial customers. Most will provide for an early termination fee in the event that the customer terminates service prior to the expiration of the contract term. Our variable-price service options will provide for a month-to-month term and they will be priced based on our forecasts of underlying commodity prices and other market factors, including the competitive landscape in the market and the regulatory environment. For instance, in a typical market, we can offer fixed-price electricity plans for 6, 12 and 24 months and natural gas plans from 12 to 24 months, which may come with or without a monthly service fee and/or a termination fee. We can also offer variable price natural gas and electricity plans that offer an introductory fixed price that is generally applied for a certain number of billing cycles, typically two billing cycles in our current markets, then switches to a variable price based on market conditions. Our variable plans may or may not provide for a termination fee, depending on the market and customer type.

 

  

Our Tarsier Energy division also plans to offer renewable and carbon neutral (“green”) products in certain markets. Green energy products are a growing market opportunity and typically provide increased unit margins as a result of improved customer satisfaction and less competition. Renewable electricity products allow customers to choose electricity sourced from wind, solar, hydroelectric and bio fuels sources, through the purchase of renewable energy credits (“RECs”). Carbon neutral gas products give customers the option to reduce or eliminate the carbon footprint associated with their energy usage through the purchase of carbon offset credits. These products typically provide for fixed or variable prices and generally follow the terms of our other products with the added benefit of carbon reduction and reduced environmental impact.

 

We plan to identify market opportunities by redeveloping price curves in each of the markets we serve and comparing the market prices and the price the local regulated utility is offering. We can then determine if there is an opportunity in a particular market based on our ability to create an attractive customer value proposition that is also able to enhance our profitability. The attractiveness of a product from a consumer’s standpoint is based on a variety of factors, including overall pricing, price stability, contract term, sources of generation and environmental impact and whether or not the contract provides for termination and other fees. Product pricing will also be based on several other factors, including the cost to acquire customers in the market, the competitive landscape and supply issues that may affect pricing.

 

Once a product has been created for a particular market, we plan to develop a marketing campaign using a combination of sales channels, with an emphasis on door-to-door marketing, outbound telemarketing, event marketing, geo-targeted internet advertising/social media and local advertising/PR. We plan to identify and acquire customers through a variety of additional sales channels, including our inbound customer care call center, online marketing, email marketing, direct mail, direct sales, brokers and consultants. We also believe that our uniqueness will be that both our Energy Audit and Energy Management divisions will help us identify new customers and vice versa. We plan on entering into non-exclusive arrangements with independent sales, marketing and public relations vendors and our marketing team will continually monitor their effectiveness. A close eye will be kept on customer acquisition costs to ensure that we are maximizing the return on our marketing dollars.

 

Our management and marketing teams will not only devote significant attention to customer acquisition, but both a “refer-a-friend” incentive and a “loyalty” incentive program will be developed. We will continually educate our customer and keep them informed of their historical usage, attrition rates and consumer behavior so we can continue to build trust. This will also allow us to specifically tailor competitive products that aim to maximize the total expected return from energy sales to a specific customer. This is what we refer to as Customer Lifetime Value (CLV).

 

We plan to hedge and procure our energy requirements from various wholesale energy markets, including both physical and financial markets through short and long term contracts. Our in-house energy supply team will be responsible for managing our commodity positions (including energy procurement, capacity, transmission, renewable energy, and resource adequacy requirements) within risk tolerance as defined by our risk management policies. We plan to procure our natural gas and electricity requirements at various trading hubs, city gates and load zones. When we procure commodities at trading hubs, we will be responsible for delivery to the applicable local regulated utility for distribution.

 

We plan to purchase physical natural gas supply from several counter parties in the wholesale natural gas market. We plan to periodically adjust our portfolio of purchase/sale contracts based upon continual analysis of our forecasted load requirements. Natural gas will then be delivered to the local regulated utility city-gate or other specified delivery points where the local regulated utility takes control of the natural gas and delivers it to individual customers’ locations.

 

In most markets, we will typically hedge our electricity exposure with financial products and then purchase the physical power directly from the Independent System Operator (“ISO”) for delivery. From time to time, we plan to use a combination of physical and financial products to hedge our electricity exposure before buying physical electricity in the day ahead real-time market from the ISO.

 

  

We will be assessed monthly for ancillary charges, such as reserves and capacity in the electricity sector by the ISOs. For instance, the ISOs will charge all retail electricity providers for monthly reserves that the ISO determines are necessary to protect the integrity of the grid. We attempt to estimate such amounts but they are difficult to estimate because they are charged in arrears by the ISOs and are subject to fluctuations based on weather and other market conditions. Many of the utilities we will serve will also allocate natural gas transportation and storage assets to us as a part of their competitive choice program. We will be required to fill our allocated storage capacity with natural gas, which creates commodity supply and price risk. Sometimes we will not be able to hedge the volumes associated with these assets because they will be too small compared to the much larger bulk transaction volumes required for trades in the wholesale market or it will not be economically feasible to do so.

 

The markets in which we will operate are highly competitive. In markets that are open to competitive choice of retail energy suppliers, our primary competition will come from the incumbent utility and other independent retail energy companies. In the electricity sector, these competitors will include larger, well-capitalized energy retailers such as Direct Energy, Inc., FirstEnergy Solutions Inc., Just Energy Group Inc. and NRG Energy. We also will compete with small local retail energy providers in the electricity sector that are focused exclusively on certain markets. Each market has a different group of local retail energy providers. With respect to natural gas, our national competitors will be primarily Direct Energy and Constellation Energy. Our national competitors will generally have diversified energy platforms with multiple marketing approaches and broad geographic coverage similar to us. Competition in each case will be based primarily on product offering, price and customer service.

 

If we complete our acquisition of BlueCo, we will operate in the highly-regulated natural gas and electricity retail sales industry. We will be required to comply with the legislation and regulations in these jurisdictions in order to maintain our licensed status and to continue our operations, and to obtain the necessary licenses in jurisdictions in which we plan to compete. Licensing requirements vary by state, but generally involve regular, standardized reporting in order to maintain a license in good standing with the state commission responsible for regulating retail electricity and gas suppliers. There is potential for changes to state legislation and regulatory measures addressing licensing requirements that may impact our business model in the applicable jurisdiction. In addition, our marketing activities and customer enrollment procedures are subject to rules and regulations at the state and federal level, and failure to comply with requirements imposed by federal and state regulatory authorities could impact our licensing in a particular market.

 

Consolidated Results of Operations

 

For the Three and Six Months Ended November 30, 2015 and 2014

 

In June 2015, we disposed of our wholly-owned subsidiary, China Metal Holdings, Inc. The results of China Metal are presented as net income from discontinued operations in our unaudited consolidated statements of operations for the periods ended November 30, 2015 and 2014. Refer to Note 4 in the notes to the unaudited consolidated financial statements for a breakdown of major income and expense items of the discontinued entity.

 

During three and six months ended November 30, 2015, our continuing operations had $1,640 in sales. Our continuing operations did not have any sales for the three and six months ended November 30, 2014.

 

During three and six months ended November 30, 2015, our continuing operations had $356 in gross profit. Our continuing operations did not have any gross profit for the three and six months ended November 30, 2014.

 

Our operating expenses for the periods were as follows:

 

		Three Months Ended November 30,								Six Months Ended November 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Salaries and compensation		$	350,000			$	-			$	410,000			$	-
Professional fees			255,778				-				497,296				-
General and administrative			17,477				-				37,300				-
Total operating expenses		$	623,255			$	-			$	944,596			$	-

 

  

Salaries and compensation consisted of amounts owed to the chief executive officer and share based compensation. Salary expense incurred to our CEO, who joined our company in April 2015, was $60,000 and $120,000, respectively, for the three and six months ended November 30, 2015. During the three months ended November 30, 2015, we issued 100,000 shares to each of our five board of directors members for a total value of $290,000.

 

Professional fees included expenses incurred for consultants, lawyers, accountants and investor relations. Included in this amount is $40,000 and $60,000 of common shares issued to a consultant during the three and six months ended November 30, 2015, respectively, as mentioned in Note 7 of the unaudited consolidated financial statements. General and administrative expenses was primarily attributable to rent expense and travel and entertainment. We expect operating expenses to increase as we continue to increase our operations.

 

During the three and six months ended November 30, 2015, we recorded amortization of debt discount of $82,518 and $85,977, respectively, pertaining to the debt discounts established upon the promissory note agreements as mentioned in Note 6 of the unaudited consolidated financial statements.

 

Net loss from continuing operations for the three and six months ended November 30, 2015 was $706,051 and $1,030,851, respectively. There was no net income for continuing operations for the three and six months ended November 30, 2014. We anticipate that, depending on market conditions and our current state of operations, we may incur additional operating losses in the future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.

 

Liquidity and Capital Resources

 

As of November 30, 2015, our cash balance was $2,030. Our primary sources of cash have been several short-term promissory notes and loans from individual investors. Further, certain expenses have been paid by Sutton Global, the company controlled by our chief executive officer, on behalf of our company. This has allowed us to continue operations and pay creditors given our limited liquidity. Our primary use of cash has been payments for professional fees to consultants, lawyers, accountants, and fees associated with public filings, as well as repayments of amounts owed to our chief executive officer.

 

We believe that we have the ability to generate adequate working capital necessary for ongoing operations and obligations. However, we do not have sufficient working capital to fund our aggressive growth plans. We will need to raise additional capital to fund our mergers and acquisition activity. We are actively seeking debt and equity financing. If we are unable to raise additional funds through any means, we will be forced to postpone our expansion plans and our growth and profitability would be reduced.

 

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.

 

We have presented cash flows from operating, investing, and financing activities from discontinued operations on the unaudited consolidated statements of cash flows for the periods ended November 30, 2015 and 2014.

 

During the six months ended November 30, 2015, net cash used in operating activities of $190,970 was primarily attributable to a net loss of $1,030,851. The net loss was offset by non-cash charges, including amortization of debt discount of $85,977 and share, based compensation of $350,000. Further, the net loss was offset by an increase in accounts payable and accrued expenses of $255,735 as many professional fees incurred have not yet been paid to creditors, and an increase in due to shareholder of $101,828, representing amounts still owed to Sutton Global for expenses paid on behalf of our company.

 

During the six months ended November 30, 2015, there was no cash provided by or used in investing activities.

 

  

During the six months ended November 30, 2015, net cash provided by financing activities of $193,000 primarily included short-term promissory notes of $79,000, $78,000, $11,000 and $25,000 from individual accredited investors.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are fully described in Note 5 to our unaudited consolidated financial statements for the period ended November 30, 2015 contained herein.

 

Impact of Accounting Pronouncements

 

In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. We have adopted the guidance as described in Note 5 in the notes to the unaudited consolidated financial statements.

 

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 or results of operations.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

 

Not Applicable.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

 

(a)

Evaluation of Disclosure Controls and Procedures.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act (defined below)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The evaluation revealed that there are material weaknesses in our disclosure controls, specifically:

 

-The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

(b)	Changes in Internal Controls.

  

There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during our first fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

 

PART II.    OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.

RISK FACTORS

 

There have been no material changes from the risk factors included in our Annual Report on Form 10-K filed on September 15, 2015.

 

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURIITES

 

Sale of Unregistered Securities. On August 24, 2015, we issued 180,000 common shares, valued at $.25 per share, in conjunction with a promissory note agreement. The common shares issued pursuant to the note agreement qualified for an exemption pursuant to Section 4(a) (2) of the Securities Act as the issuance of the securities by our company did not involve a “public offering.”

 

On August 17, 2015, we issued 34,483 common shares, valued at $.58 per share, pursuant to a consulting agreement to provide investor relations services. The common shares issued pursuant to the consulting agreement qualified for an exemption pursuant to Section 4(a) (2) of the Securities Act as the issuance of the securities by our company did not involve a “public offering.”

 

 

On September 3, 2015, we issued 156,000 common shares, valued at $.25 per share, in conjunction with a promissory note agreement. The common shares issued pursuant to the note agreement qualified for an exemption pursuant to Section 4(a) (2) of the Securities Act as the issuance of the securities by our company did not involve a “public offering.”

 

On September 29, 2015, we issued 34,965 common shares, valued at $ .57 per share, pursuant to a consulting agreement to provide investor relations services. The common shares issued pursuant to the consulting agreement qualified for an exemption pursuant to Section 4(a) (2) of the Securities Act as the issuance of the securities by our company did not involve a “public offering.”

 

On October 25, 2015, we issued 35,714 common shares, valued at $ .57 per share, pursuant to a consulting agreement to provide investor relations services. The common shares issued pursuant to the consulting agreement qualified for an exemption pursuant to Section 4(a) (2) of the Securities Act as the issuance of the securities by our company did not involve a “public offering.”

 

On November 23, 2015, we issued 25,000 common shares, valued at $.25 per share, in conjunction with a promissory note agreement. The common shares issued pursuant to the note agreement qualified for an exemption pursuant to Section 4(a) (2) of the Securities Act as the issuance of the securities by our company did not involve a “public offering.”

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

Notes for $79,000 Due on November 23, 2015 and $78,000 due on December 3, 2015 are in default. Management is in discussions with the Note Holders to extend payment dates.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.

OTHER INFORMATION

 

None.

 

ITEM 6.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

 

31	Rule 13a-14(a) Certification – CEO
32	Rule 13a-14(b) Certification
101.INS	XBRL Instance
101.SCH	XBRL Schema
101.CAL	XBRL Calculation
101.DEF	XBRL Definition
101.LAB	XBRL Label
101.PRE	XBRL Presentation

 

  

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	TARSIER LTD.
Date: January 19, 2016	By:	/s/ Isaac H. Sutton
	Chief Executive Officer