Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 1 - 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.
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying 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. The accumulated
deficit as of December 31, 2013 was $55,985,447 and the total stockholders’ deficit at December 31, 2013 was $5,854,798
and had working capital deficit, 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:
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 facilitating 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 increase market
share, margins on fuel resales, and greater industry visibility.
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
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
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.
|
|
|
|
Amount
|
|
Accounts receivable acquired
|
|
|
$ 850,000
|
|
Goodwill acquired
|
|
|
6,000,410
|
|
Less liabilities assumed
|
|
|
|
|
Note payable acquired
|
|
1,356,300
|
|
|
Accounts payable acquired
|
|
536,610
|
|
|
Net liabilities assumed
|
|
|
(1,892,910)
|
|
Total Purchase price
|
|
|
$ 4,957,500
|
|
|
|
|
|
The total purchase price was $4,957,500
which was paid by issuance of 7,400,000 shares of common stock, payment adjusted through loan receivable of $183,500 and issuance
of note payable of $1,000,000.
Goodwill represents the excess of
the purchase price over the fair value of the net identifiable tangible assets acquired. As of December 31, 2012, the Company impaired
the total goodwill. Management performed impairment analysis in fourth quarter of 2012 and decided to write off goodwill. Following
is a pro-forma unaudited consolidated statement of operations for the year ended December 31, 2012 as though the acquisition of
AFI had occurred at the beginning of the period.
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
|
|
|
NET SALES
|
|
$
|
1,054,826
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
907,083
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
147,743
|
|
|
|
|
|
|
|
|
Total Selling, General and
|
|
|
|
|
|
Administrative
Expenses
|
|
|
19,037,104
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(18,889,361
|
)
|
|
|
|
|
|
|
|
Total Other Income (Expenses)
|
|
|
(848,180
|
)
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(19,737,541
|
)
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
|
—
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(19,737,541
|
)
|
|
|
|
|
|
|
|
BASIC AND DILUTED:
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(1.76
|
)
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
11,207,869
|
|
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
On May 10, 2012, the Company along
with two partners formed AFI South Africa LLC (“AFI SA”), during the year itself the Company purchased shares of the
other partners to become 100% owner of AFI SA. 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.
On September 2012, the Company issued
2,063,550 shares of Common stock to the partner to purchase there 20% interest in AFI SA. The Company charged to operation the
fair value of the shares issued of $5,158,875.
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES
|
|
a.
|
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.
|
|
b.
|
Concentrations of Credit Risk
|
For the year ended December
31, 2013 and 2012, one customer accounted for 100% and 98% of total revenue, respectively, representing a material amount of
customer concentration. For the year ended December 31, 2013 and 2012, one disputed customers accounted for 100% of total
accounts receivable, representing a material amount of credit risk.
|
|
c.
|
Cash and Cash Equivalents
|
Cash Equivalents include short-term,
highly liquid investments with maturities of three months or less at the time of acquisition.
Accounts receivable are
recorded net of the allowance for doubtful accounts of $670,000 as of December 31, 2013 and 2012, respectively. The Company
generally offers 30-day credit terms on sales to its customers and requires no collateral. The Company maintains an allowance
for doubtful accounts which is determined based on a number of factors, including each customer’s financial condition,
general economic trends and management judgment.
Revenue from the sale of fuel is
recognized when the sales price is fixed or determinable, collectability is reasonably assured and title passes to the customer,
which is when the delivery of fuel is made to our customer directly from us, the supplier or a third-party subcontractor. Our fuel
sales are generated principally as a fuel reseller, although at some point we intend to have inventories from which we may make
deliveries. When acting as a fuel reseller, we generally purchase fuel from the supplier, mark it up and contemporaneously resell
the fuel to the customer, normally taking delivery for purchased fuel at the same place and time as the delivery is made to the
customer. We record the gross sale of the fuel as we generally take inventory risk, have latitude in establishing the sales price,
have discretion in the supplier selection, maintain credit risk and are the
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
primary obligor in the sales
arrangement. Returns or discounts, if any, are netted against gross revenues. For the years ended December 31, 2013 and 2012,
sales are recorded net of the allowance for returns and discounts of $-0-.
The preparation of the consolidated
financial statements in conformity with generally accepted accounting principles 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.
The Company follows the policy of
charging the costs of advertising to expense as incurred. Advertising expense is included in cost of sales in the consolidated
statements of operations as it relates directly to the revenues associated with events managed by the Company. Advertising expense
for the years ended December 31, 2013 and 2012 was $-0-.
|
|
h.
|
Basic
and Fully Diluted Net Loss Per Share
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
Basic and fully diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (numerator)
|
|
$
|
(4,142,642
|
)
|
|
$
|
(19,737,541
|
)
|
|
Shares (denominator)
|
|
|
21,605,080
|
|
|
|
11,207,869
|
|
|
Per share amount
|
|
$
|
(0.19
|
)
|
|
$
|
(1.76
|
)
|
The basic income (loss) per
share of common stock is based on the weighted average number of shares issued and outstanding during the period of the financial
statements. Diluted EPS assumes the exercise of stock option and the conversion of convertible debt, provided the effect is not
antidilutive. The effect of computing diluted loss per share is anti-dilutive and, as such, basic and diluted loss per share is
the same for the years ended December 31, 2013 and 2012.
The Financial Accounting Standards
Board (FASB) has issued FASB ASC 740-10. FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements. This standard requires a company to determine whether it is more likely than not
that a tax position will be sustained will be sustained upon examination based upon the technical merits of the position. If
the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the
financial statements. As a result of the implementation of this standard, the Company performed a review of its material
tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
At December 31, 2013 the Company
had net operating loss carryforwards of approximately $14,639,000 that may be offset against future taxable income through 2033.
No tax benefits have been reported in the financial statements, because the potential tax benefits of the net operating loss carry
forwards are offset by a valuation allowance of the same amount.
Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual
limitations.
Should a change in ownership occur,
net operating loss carryforwards may be limited as to use in the future.
Net
deferred tax assets consist of the following components as of December 31, 2013 and 2012:
|
|
|
2013
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
NOL Carryover
|
|
$
|
6,250,000
|
|
|
$
|
5,245,000
|
|
|
Valuation allowance
|
|
|
(6,250,000
|
)
|
|
|
(5,245,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The actual provision for income
taxes differs from the amount computed by applying the federal statutory rate to losses before income taxes at December 31, 2013
and 2012, as follows:
|
|
|
2013
|
|
2012
|
|
Federal income taxes at statutory rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
|
State income tax, net of federal benefit
|
|
|
(8.7
|
)
|
|
|
(8.7
|
)
|
|
Permanent differences
|
|
|
0
|
|
|
|
0
|
|
|
Valuation allowance
|
|
|
42.7
|
%
|
|
|
42.7
|
%
|
The income tax provision differs
from the amount of income tax determined by applying the U.S. federal and state income tax rates of 34% to pretax income from continuing
operations for the years ended December 31, 2013and 2012 due to the following:
|
|
|
2013
|
|
2012
|
|
Current Federal Tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current State Tax
|
|
|
—
|
|
|
|
—
|
|
|
Change in NOL Benefit
|
|
|
1,005,000
|
|
|
|
566,000
|
|
|
Valuation allowance
|
|
|
(1,005,000
|
)
|
|
|
(566,000
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At December 31, 2013, the Company
had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company did not have any
tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase
or decrease within the next 12 months.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
The Company includes interest
and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes.
As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to uncertain tax positions.
The tax years that remain subject
to examination by major taxing jurisdictions are those for the years ended December 31, 2013, 2012 and 2011.
Certain amounts in the accompanying
consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications have
no material affect on the consolidated financial statements.
Accrued expenses consisted of the
following:
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
28,672
|
|
|
$
|
—
|
|
|
Misc. loans payable
|
|
|
5,000
|
|
|
|
—
|
|
|
Accrued interest – related party
|
|
|
255,177
|
|
|
|
892,819
|
|
|
Accrued interest- on note payable
|
|
|
370,894
|
|
|
|
228,278
|
|
|
Accrued interest- on accounts payable
|
|
|
129,028
|
|
|
|
74,948
|
|
|
Total accrued expenses
|
|
$
|
788,771
|
|
|
$
|
1,196,045
|
|
|
|
l.
|
Recent Accounting Pronouncements
|
We have reviewed accounting pronouncements
issued during the past two years and have adopted any that are applicable to our company. We have determined that none had a material
impact on our consolidated financial position, results of operations, or cash flows for the years ended December 31, 2013 and 2012.
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 in active markets.
- 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.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
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.
The Company accounts for its stock
based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under
this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an
entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled
by the issuance of those equity instruments.
NOTE 5 - ACCOUNTS
RECEIVABLE
Accounts receivable
at December 31, 2013 and 2012 are as follow:
|
|
|
2013
|
|
Accounts receivable(on acquisition)
|
|
$
|
698,000
|
|
|
|
|
698,000
|
|
Less: allowance on accounts receivable
|
|
|
(670,000)
|
|
Accounts receivable, net
|
|
$
|
28,000
|
|
|
|
2012
|
|
Accounts receivable (on acquisition)
|
|
$
|
850,000
|
|
|
|
|
850,000
|
|
Less:allowance on accounts receivable
|
|
|
(670,000)
|
|
Accounts receivable, net
|
|
$
|
180,000
|
The Company was involved in disputes with the above
accounts receivable and has filed a lawsuit (refer to note 15)
NOTE 6 - ACCOUNTS
PAYABLE
The accounts payable of
$826,832, as of December 31, 2013, 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 $211,471 of the second accounts
payable. Accrued interest of $129,028 has been accounted and accrued in accrued expenses.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 7 - NOTES PAYABLE
|
Notes payable consisted of the following:
|
|
|
|
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
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 May 25, 2012, secured, interest at 6%per annum, due on November 14, 2012, is in default(1)
|
|
|
—
|
|
|
|
50,000
|
|
|
Notes payable issued on January 28, 2012 to individual, unsecured, interest included, due on demand.(2)
|
|
|
—
|
|
|
|
610,000
|
|
|
Notes payable issued on October 18, 2010 to individual, unsecured, interest at 15% per annum, due on demand.(3)
|
|
|
786,300
|
|
|
|
786,300
|
|
|
Notes payable issued on October 5, 2013 to individual, unsecured, interest at 8% per annum, due on demand.
|
|
|
28,500
|
|
|
|
—
|
|
|
Notes payable issued on October 17, 2013 to a company, unsecured, interest at 16% per annum, due on demand.
|
|
|
5,000
|
|
|
|
—
|
|
|
Notes payable issued on March 5, 2013 to individual, unsecured, interest at 8% per annum, due on demand.
|
|
|
7,500
|
|
|
|
—
|
|
|
Notes payable issued on July 1, 2013 to a company, unsecured, interest at 8% per annum, due on demand.
|
|
|
28,082
|
|
|
|
—
|
|
|
Notes payable issued on October 4, 2013 to a company, unsecured, interest at 8% per annum, due on demand.
|
|
|
6,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
1,093,382
|
|
|
|
1,678,300
|
|
|
Less: current portion
|
|
|
(1,093,382
|
)
|
|
|
(1,678,300
|
)
|
|
Long-term notes payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Maturities of notes payable are as follows:
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
|
|
Amount
|
|
|
2014
|
|
|
|
|
|
$
|
1,093,382
|
|
Total
|
|
|
|
|
|
$
|
1,093,382
|
|
Accrued interest on notes payable
for the years ended December 31, 2013 and 2012 was $363,507 and $219,978, respectively.
|
|
1)
|
This note payable was guaranteed by one of the shareholder. In the
year 2012, the Company also issued 25,000 shares of Common stock as a consideration for the note which was fair valued at market
rate for $62,500 and charged to expenses. The $50,000 note and the accrued interest of $3,296 were converted to stock by issuance
of 580,000 shares of common stock of the Company during the year ended December 31, 2013
|
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
|
|
2)
|
This note payable was assumed on the acquisition of AFI. The original
owner of AFI has pledge 1.2 million shares of the Company in escrow account.. The note was converted to stock by issuance of 2,100,000
shares of common stock of the Company during the year ended December 31, 2013
|
|
|
3)
|
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.
|
NOTE 8 - CONVERTIBLE
DEBENTURE/NOTES PAYABLE
|
|
|
2013
|
|
2012
|
|
Notes payable issued on March 21, 2012, unsecured, interest included, due on March 21, 2014,convertible into common stock at $1.00 per share (less unamortized debt discount of $12,616 and $151,869 , respectively)
|
|
$
|
92,384
|
|
|
$
|
98,131
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debenture issued on October 2, 2012, unsecured, interest included, due on October 2, 2015, convertible into common stock at 60% of the lowest closing bid price for the twenty trading days immediately preceding the date of conversion, (less unamortized debt discount of $0 and $110,137, respectively)
|
|
|
—
|
|
|
|
9,863
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued on March 2013, unsecured, interest at 8%, due on October 05, 2013, in default.
|
|
|
10,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued on July 2013, August 2013 and October 2013, unsecured, interest at 8%, due on April 22, 2014, May 27, 2014 and July 25, 2014. Unamortized debt discount of $92,011 and $0, respectively
|
|
|
81,989
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued on October 2013 and December 2013, unsecured, zero interest if paid on or before 90 days otherwise one time interest charge of 12%, due on October 2, 2015 and December 2, 2015. Unamortized debt discount of $50,082 and $0, respectively
|
|
|
4,918
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued on October 2013, unsecured, interest at 6%, due on October 13, 2014. Unamortized debt discount of $23,507 and $0, respectively
|
|
|
6,493
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued on December 2013, unsecured, interest at 8%, due on December 12, 2014. Unamortized debt discount of $58,299 and $0, respectively
|
|
|
3,201
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued on December 2013, unsecured, interest at 6%, due on December 12, 2014. Unamortized debt discount of $100,317 and $0, respectively
|
|
|
32,183
|
|
|
|
—
|
|
|
Total notes payable
|
|
|
231,168
|
|
|
|
107,994
|
|
|
Less: current portion
|
|
|
(4,918
|
)
|
|
|
—
|
|
|
Long-term convertible debenture/notes payable
|
|
$
|
226,250
|
|
|
$
|
107,994
|
|
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
Convertible note issued March
21, 2012
On March 21, 2012, the Company issued
a $250,000 Convertible Promissory Note which is convertible into 250,000 shares of the Company’s common stock at the holder’s
option, at $1.00 per share.
In accordance with ASC 470-20, the
Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds
equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of
$250,000 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in
capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is charged to current
period operations as interest expense using the effective interest method over the term of the note.
During the years ended December
31, 2013 and 2012, the Company amortized $139,252 and $98,131 current period operations as interest expense, respectively, inclusive
of debt discount amortization. In the year 2012 the holder of the promissory note made payments of $200,000 directly to vendors
of the Company for purchase of fuel and paid $50,000 directly to the Company. As part of the joint venture agreement the Company
has agreed to pay 50% of all the profits generated by all the fuel transactions in South Africa. As of December 31, 2012 the Company
has accounted and paid $48,153 to the joint venture partner
On December 12, 2013, the Note holder
assigned $145,000 of its note to another note holder (as mentioned below).
Convertible debenture issued
October 2, 2012
On October 2, 2012, the Company
issued a $120,000 Convertible Promissory Note which bears interest at a rate of 6% and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of60% of the lowest closing bid price for the twenty trading
days immediately preceding the date of conversion. The Company also issued 30,000 of shares along with Note which valued at market
rate for $75,000 and was charged to expenses. The Company received net $88,000 from the debenture holder and balance $32,000 were
paid towards the legal expenses and due diligence fees.
The Company identified embedded
derivatives related to the Convertible Promissory Note entered into on October 2, 2012.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 ofthe Convertible Promissory Note, the Company determined a fair value of $182,125 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
|
|
|
313.6
|
%
|
|
Risk free rate:
|
|
|
0.31
|
%
|
In the year 2012 the initial fair
value of the embedded debt derivative of $182,125 was allocated as a debt discount up to the proceeds of the note ($120,000) with
the remainder($62,125) charged to current period operations as interest expense.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
On February 1, 2013, the Company
issued a $100,000 Convertible Promissory Note which bears interest at a rate of 6% and is convertible into the Company’s
common stock at the holder’s option, at the conversion rate of 60% of the lowest closing bid price for the twenty trading
days immediately preceding the date of conversion. The Company received net $90,000 from the debenture holder and balance $10,000
were paid towards the legal expenses.
The Company identified embedded
derivatives related to the Convertible Promissory Note entered into on February 1, 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 $206,062 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
|
|
|
313.6
|
%
|
|
Risk free rate:
|
|
|
0.31
|
%
|
The initial fair value of the embedded
debt derivative of $206,062 was allocated as a debt discount up to the proceeds of the note ($100,000) with the remainder ($106,062)
charged to current period operations as interest expense for the year ended December 31, 2013.
During the year ended December 31,
2013, the Company issued common stock for converting $142,000 of a convertible note payable by issuance of 4,081,788 shares of
common stock of the Company and the balance of the convertible note of $78,000 along with accrued interest of $7,795 was paid in
cash. Derivative liability as of date of conversion of $334,082 was transferred to additional paid in capital included in the value
of shares issued. Excess value of shares over the converted value of note for $24,235 was charged to non-cash interest expenses.
At December 31, 2013 and 2012, the
Company adjusted the recorded fair value of the derivative liability to market on both notes resulting in non-cash, non-operating
gains of $137,570 and $0, respectively.
During the years ended December
31, 2013 and 2012, the Company amortized $210,137 and $9,863 to current period operations as interest expense, respectively.
Convertible debenture July 2013,
August 2013 and October 2013
On July 19, 2013, the Company issued
a $78,500 Convertible Promissory Note which bears interest at a rate of 8%, due on April 22, 2014 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 also has prepayment penalty clause.
On August 26, 2013, the Company
issued a $53,000 Convertible Promissory Note which bears interest at a rate of 8%, due on May 27, 2014 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
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
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
also has prepayment penalty clause.
On October 23, 2013, the Company
issued a $42,500 Convertible Promissory Note which bears interest at a rate of 8%, due on July 25, 2014 and is convertible into
the Company’s common stock at the holder’s option, at the conversion rate of 60% of the lowest three day trading price
for ten trading days immediately preceding the date of conversion. Any amount of principal or interest on this Note which is not
paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is
paid (“Default Interest”) and the note also has prepayment penalty clause.
The Company received a net of $135,000
from the debenture holder, $6,500 was paid towards the accrued legal expenses and due diligence fees, $7,500 toward legal and professional
fees and$25,000 was paid toward accrued professional fees.
The Company identified embedded
derivatives related to the Convertible Promissory Note entered into in July 2013, August 2013 and 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 $395,144 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
|
|
|
243%-312
|
%
|
|
|
Risk free rate:
|
|
|
0.31
|
%
|
|
The initial fair value of the embedded debt derivative
of $395,144 was allocated as a debt discount up to the proceeds of the note ($174,000) with the remainder ($221,144) charged to
current period operations as non-cash interest expense for the year ended December 31, 2013.
The fair value of the described embedded derivative of
$227,069 at December 31, 2013 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
|
Volatility
|
|
|
292.88
|
%
|
|
|
Risk free rate:
|
|
|
0.08% -0.11
|
%
|
|
At December 31, 2013, the Company adjusted the recorded
fair value of the derivative liability to market on both notes resulting in non-cash, non-operating gain of $118,075 for the year
ended December 31, 2013.
During the year ended December 31,
2013 and 2012, the Company amortized $81,989 and $-0-, respectively, of beneficial debt discount to the operations as interest
expense.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
Convertible debenture March 2013
On March 05, 2013 the Company issued
a $10,000 Convertible Promissory Note against expenses incurred, which bears interest at a rate of 8%, payable on October 05, 2013
The Maker of this Note shall have option after the affected date (October 5, 2013), in its sole discretion, to convert all or part
of the principal balance and accrued interest on this Note to common stock of the Maker at a 40% discount of the average three
lowest trading days in the ten trading days previous to the conversion.
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 Note was in default during the
year ended December 31, 2013 and $5,000 was charged to interest expenses as penalty.
Convertible debenture October
2013 and December 2013
On October 2, 2013, the Company
issued a $35,000 Convertible Promissory Note which bears zero interest if paid on or before 90 days otherwise one time interest
charge of 12%, due on October 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 two day trading price for twenty five trading days immediately preceding
the date of conversion.
On December 9, 2013, the Company
issued a $20,000 Convertible Promissory Note which bears zero interest if paid on or before 90 days otherwise one time interest
charge of 12%, due on December 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 two day trading price for twenty five trading days immediately preceding
the date of conversion.
The Company identified
embedded derivatives related to the Convertible Promissory Note entered into in October 2013 and December 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 $108,910 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
|
|
|
272%-277
|
|
|
|
%
|
|
|
Risk free rate:
|
|
|
0.30%-0.31
|
|
|
|
%
|
|
The initial fair value of the embedded
debt derivative of $108,910 was allocated as a debt discount up to the proceeds of the note ($55,000) with the remainder ($53,911)
charged to current period operations as non-cash interest expense for the year ended December 31, 2013.
The fair value of the described
embedded derivative of $112,688 at December 31, 2013 was determined using the Binomial Lattice Model with the following assumptions:
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
292.88
|
%
|
|
Risk free rate:
|
|
|
0.32
|
%
|
At December 31, 2013, the Company
adjusted the recorded fair value of the derivative liability to market on both notes resulting in non-cash, non-operating loss
of $3,778 for the year ended December 31, 2013.
During the year ended December 31,
2013 and 2012, the Company amortized $4,918 and $-0-, respectively, of beneficial debt discount to the operations as interest expense.
Convertible debenture October
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:
|
|
|
0.14
|
%
|
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.
The fair value of the described
embedded derivative of $53,437 at December 31, 2013 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
292.88
|
%
|
|
Risk free rate:
|
|
|
0.12
|
%
|
At December 31, 2013, the Company
adjusted the recorded fair value of the derivative liability to market on both notes resulting in non-cash, non-operating gain
of $4,312 for the year ended December 31, 2013.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
During the year ended December 31,
2013 and 2012, the Company amortized $6,493 and $-0-, respectively, of beneficial debt discount to the operations as interest expense.
Convertible debenture December
2013
On December 12, 2013, the Company
issued a $61,500 Convertible Promissory Note which bears interest at a rate of 8%, due on December 12, 2014 and is convertible
into the Company’s common stock at the holder’s option, at the conversion rate of 60% of the lowest three trading price
of ten prior trading days immediately preceding the date of conversion. Default rate of interest is 22% per annum.
The Company received a net of $58,500
from the convertible note holder and $3,000 was paid towards the legal expenses.
The Company identified embedded
derivatives related to the Convertible Promissory Note entered into in December 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 $92,841 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
|
|
|
272
|
%
|
|
Risk free rate:
|
|
|
0.14
|
%
|
The initial fair value of the embedded
debt derivative of $92,841 was allocated as a debt discount up to the proceeds of the note ($61,500) with the remainder ($31,341)
charged to current period operations as non-cash interest expense for the year ended December 31, 2013.
The fair value of the described
embedded derivative of $115,353 at December 31, 2013 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
292.88
|
%
|
|
Risk free rate:
|
|
|
0.13
|
%
|
At December 31, 2013, the Company
adjusted the recorded fair value of the derivative liability to market on both notes resulting in non-cash, non-operating loss
of $22,512 for the year ended December 31, 2013.
During the year ended December 31,
2013 and 2012, the Company amortized $3,201 and $-0-, respectively, of beneficial debt discount to the operations as interest expense.
Convertible debenture December
2013
On December 12, 2013 one of above
note holder assigned its Note of $145,000 to another holder, which bears interest at a rate of 8%, payable on December 12, 2014
and is convertible into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price
in five
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
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. T
he
note also has prepayment penalty clause.
During the year 2013, the Company
issued 527,778 shares of company common stock in exchange of convertible note of $12,500.
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 $116,483 and was recorded as debt discount. During the year ended December 31, 2013, debt
discount of $16,166 was amortized to interest expenses.
|
Maturities of notes payable are as follows:
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2014
|
|
|
$
|
513,000
|
|
|
|
2015
|
|
|
|
55,000
|
|
|
|
Total
|
|
|
|
568,000
|
|
|
|
Less: Unamortized debt discount
|
|
|
|
(336,833
|
)
|
|
|
Total
|
|
|
$
|
231,167
|
|
Accrued interest on convertible
notes payable for the years ended December 31, 2013 and 2012 was $7,387 and $8,300, respectively.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 9 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible Notes payable - related parties
consist of the following
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
Convertible note issued on October 2013, unsecured, interest at 8%, due on demand.
|
|
$
|
17,000
|
|
|
$
|
—
|
|
|
Convertible note issued on October 2013, unsecured, interest at 8%, due on demand.
|
|
|
194,254
|
|
|
|
—
|
|
|
Total convertible notes payable - related parties
|
|
|
211,254
|
|
|
|
—
|
|
|
Less: current portion
|
|
|
(211,254
|
)
|
|
|
—
|
|
|
Long-term convertible notes payable - related parties
|
|
$
|
—
|
|
|
$
|
—
|
|
Convertible debenture October
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.
Convertible debenture October
1, 2013
On October 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
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
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.
For the year ended December 31,
2013 and 2012, interest expenses charged on the above two note is $4,843 and $0, respectively. Accrued interest on convertible
notes payable – related parties for the years ended December 31, 2013 and 2012 was $4,843and $0, respectively
NOTE 10 - NOTES PAYABLE - RELATED PARTIES
|
Notes payable - related parties consist of the following:
|
|
|
|
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
Note payable to a related individual, secured by tangible and intangible assets of the Company, interest at 16%, 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)
|
|
$
|
1,087,370
|
|
|
$
|
450,000
|
|
|
Note payable to a related individual, interest at 8%,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
|
|
|
|
43,500
|
|
|
Total notes payable - related parties
|
|
|
2,115,870
|
|
|
|
1,493,500
|
|
|
Less: current portion
|
|
|
(2,115,870
|
)
|
|
|
(1,493,500
|
)
|
|
Long-term notes payable - related parties
|
|
$
|
—
|
|
|
$
|
—
|
|
Maturities of notes payable - related parties are as follows:
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
|
|
Amount
|
|
|
2014
|
|
|
|
|
|
$
|
2,115,870
|
|
Total
|
|
|
|
|
|
$
|
2,115,870
|
|
Accrued interest on notes
payable – related parties for the years ended December 31, 2013 and 2012 was $250,334 and $892,819, respectively.
During the year ended December 31, 2013 and 2012, total interest expense to related party was $207,380 and $150,641,
respectively.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
|
|
1)
|
This note was issued for the acquisition of
AFI on January 28, 2012. As of December 31, 2013 and 2012, the Company had accrued interest on the note in the amount of $154,082
and $74,082, 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 $837,370 was converted
to two new notes for $1,087,370 and $200,000. The Company issued 2,100,000 shares of the common stock against settlement of the
new note of $200,000 from above.
|
|
|
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 itself the Company issued 1,800,000 shares of the common stock to settle $28,300 of note of non- related party.
|
NOTE 11 - COMMON AND PREFERRED STOCK TRANSACTIONS
Preferred Stock
The Company is authorized
to issue 200 preferred shares of $0.0001 par value. As of December 31, 2013 and 2012 the Company has 200 shares of preferred
stock as 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 50,000,000 shares of $0.0001 par value of common stock. As of December 31, 2013 and 2012 the Company had 37,709,552
and 15,216,848 shares of common stock as issued and outstanding.
During the year ended
December 31, 2012, the Company issued an aggregate of 7,400,000 shares of common stock for acquisition of AFI (refer to note
3). The fair value of the stock on the dates of issuance was arrived at $3,774,000 and was part of the purchase price
consideration.
During the year ended
December 31, 2012, the Company issued an aggregate of 490,000 shares of common stock to various contract personnel for
services provided. The market value of the stock on the dates of issuance was $1,219,500 and charged to statements of
operations.
During the year ended
December 31, 2012, the Company issued an aggregate of 2,040,551 shares of common stock to two accredited investors in private
transactions as payment for services rendered during the year. The market value of the stock on the dates of issuance was
$5,101,378 and was charged to statements of operations.
During the year ended
December 31, 2012, the Company issued an aggregate of 2,063,550 shares of common stock for acquisition of interest in AFI
South Africa, LLC (AFI SA) (refer to note 3). The market value of the stock on the dates of issuance was $5,158,875 and
charged to statements of operations.
During the year ended December
31, 2012, the Company issued an aggregate of 55,000, shares of common stock to note holder. The market value of the stock on the
dates of issuance was $137,500 and charged to finance expenses.
During the year ended December
31, 2013, the Company issued an aggregate of 8,586,102 shares of common stock to various contract personnel for services provided.
The market value of the stock on the dates of issuance was $1,538,349 and charged to statements of operations.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
During the year ended December
31, 2013, the Company issued an aggregate of 11,189,566 shares of common stock for the conversion of debt and accrued interest
of $1,380,179 and $24,235 was charged to expenses for excess value of shares issued over the value of converted note.
During the year ended December
31, 2013, the Company issued an aggregate of 700,000 shares of common stock for the conversion of accrued expenses of $70,000.
During the year ended December
31, 2013, the Company sold an aggregate of 2,017,036 shares of common stock for cash in the amount of $142,193.
NOTE 12 - OPTIONS AND WARRANTS
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, 2012
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Granted
|
|
|
|
2,670,000
|
|
|
|
0.01
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancelled
|
|
|
|
(2,600,000
|
)
|
|
|
(0.01
|
)
|
|
|
Outstanding at December 31, 2012
|
|
|
|
70,000
|
|
|
$
|
0.01
|
|
|
|
Granted
|
|
|
|
300,000
|
|
|
|
1.65
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Outstanding at December 31, 2013
|
|
|
|
370,000
|
|
|
$
|
1.34
|
|
Common stock options outstanding and exercisable
as of December, 2013 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
|
|
|
|
4.75
|
|
|
|
58,333
|
|
|
$
|
0.01
|
|
|
January 2, 2019
|
|
|
1.65
|
|
|
|
300,000
|
|
|
|
5.00
|
|
|
|
143,630
|
|
|
$
|
1.65
|
|
|
Total
|
|
|
|
|
|
|
370,000
|
|
|
|
|
|
|
|
201,963
|
|
|
|
|
|
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
During the year
ended December 31, 2012, the Company granted 2,250,000 stock options with an exercise price of $0.01 out of which
1,250,000 was immediately vested and balance vesting over three years and expiring ten years from issuance. 1,250,000 of the
options were immediately cancelled by the board due to termination of the officer and the balance of 1,000,000 was
automatically canceled due to termination by clause. Hence no fair valuation was done by the company on the vested
portion.
During the year ended December 31,
2012, the Company granted 350,000 stock options with an exercise price of $0.01 vesting over three years and expiring ten years
from issuance. These options were immediately cancelled by the board and instead 150,000 shares of Company common stock were
issued which were fair valued at market rate and charged to expenses.
During the year ended
December 31, 2012, the Company granted 70,000 stock options to consultant with an exercise price of $0.01 and expiring
ten years from issuance. Out of these options 50,000 were immediately vested and 20,000 were vested over the period of three
years.
On January 28, 2013, pursuant
to its 2012 Equity Incentive Plan, the Company issued 150,000 common stock purchase options to each of their directors at an
exercise price of $1.65 per share. 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 (determined as described below) of $249,643 and $123,988 was charged to expenses and additional
paid in capital during the year ended December 31, 2013 and 2012, respectively
.
The
fair value of these stock options granted and the significant assumptions used to determine those fair values, using a Black-Scholes
option-pricing model are as follows
:
|
Significant assumptions:
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
1.04%-0.89
|
%
|
|
Expected stock price volatility
|
|
|
199.38%-344.22
|
%
|
|
Expected dividend payout
|
|
|
—
|
|
|
Expected option life-years
|
|
|
6
|
|
NOTE 13 - RELATED PARTY TRANSACTIONS
From time to time, an
officer of the Company and an entity they owns paid for expenses of the Company for which he has not been reimbursed.
These unreimbursed expenses are disclosed as due to related parties. The balance due at December 31, 2013 and 2012 was
$56,973 and $104,254, respectively. During the year ended December 31, 2013 the Company has charged $159,000 for service
rendered by officers. During the year ended December 31, 2013, the Company issued 50,000 shares for service rendered by the
officer which was fair valued at market rate for $4,500.
During the year ended December 31,
2012 the Company sold fuel to a previous partner in a joint venture who converted their interest in the joint venture to stock
of the Company. During the year ended December 31, 2012, the Company recorded sales to this party in the amount of $1,034,180.
During the year ended December
31, 2013 and 2012, the Company issued 3,539,046 and 1,826,622 shares to a major shareholder and Vice President of Sales of the
Company, for services rendered to the Company regarding business in South Africa which was fair valued at market rate for $247,733
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
and $4,566,555, respectively.
During the year ended December 31, 2013 and 2012, this shareholder was also paid $162,600 and $67,500, respectively, as salary
which has been recorded in the statement of operations. No formal compensation agreement has been memorialized for this shareholder.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as
the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions,
and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that
may be used to measure fair value:
Level 1 - Quoted prices in active
markets for identical assets or liabilities.
Level 2 - Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to
the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is
based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In
such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed
is determined based on the lowest level input that is significant to the fair value measurement.
Items recorded or measured at fair
value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December
31, 2013:
|
|
|
|
|
Fair Value Measurements at December 31, 2013 using:
|
|
|
|
December 31,
2013
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Derivative liabilities
|
|
$
|
558,548
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
558,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The debt derivative and
warrant liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical
prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2013 and 2012:
|
|
|
Debt Derivative
Liability
|
|
Balance, December 31, 2011
|
|
$
|
—
|
|
|
Initial fair value of debt derivatives at note issuances
|
|
|
182,124
|
|
|
Extinguished derivative liability
|
|
|
—
|
|
|
Mark-to-market at December 31, 2012-Embedded debt derivatives
|
|
|
83,464
|
|
|
Balance, December 31, 2012
|
|
$
|
265,589
|
|
|
Initial fair value of debt derivatives at note issuances
|
|
|
860,708
|
|
|
Extinguished derivative liability
|
|
|
(334,082
|
)
|
|
Mark-to-market at December 31, 2013-Embedded debt derivatives
|
|
|
(233,667
|
)
|
|
Balance, December 31, 2013
|
|
$
|
558,548
|
|
|
|
|
|
|
|
|
Net gain for the period included in earnings relating to the liabilities held at December 31, 2013
|
|
$
|
233,667
|
|
Level 3 Liabilities are comprised
of our bifurcated convertible debt features on Companies our convertible notes.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to certain
legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements
may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial
position or results of operations.
Ryan International Airlines
.
One of the Companies 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. 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;
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
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
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.
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 Direct Air currently has $122,000 in cash in escrow with
Suntrust Bank, representing a partial payment by Direct Air for Fuel. This amount was unrecorded in the Company’s
financial statements because it has been challenged by the debtor and has been sequestered by the bankruptcy court in the
proceeding. This action is currently pending before the court, as it relates to the collection of the garnishment.
As a result of the non-payment for
jet fuel by AFI customers, certain of AFI’s suppliers have filed actions that have resulted in judgment and garnishments,
in the amount of $330,000. Most of these outstanding fuel delivery charges are secured in, and being challenged through, the Bankruptcy
action through the lien filings by both the issuer and individual fuel providers. In addition, AFI incurred certain loan and debt
obligations for which the Company are attempting to convert into our common stock.
Julian Manuel Leyva and Gabriel
Leyva
.
On June 8, 2012, Julian Manuel Leyva
and Gabriel Leyva (collectively, the “Leyvas”) filed a lawsuit in the Seventeenth Judicial Circuit Court, Broward County,
Florida, against us, our subsidiary AFI, and various others, alleging various claims in connection with efforts to collect sums
allegedly loaned to AFI between September 24, 2009 through February 11, 2011. The Leyvas are seeking damages of $570,000 plus interest
in addition to additional damages from other parties to the lawsuit. $610,000 has been accounted as payable under note payable.
During the year 2013 the Company issued 2,100,000 shares of common stock for settlement of $610,000.
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 involving the Leyvas described above, damages for breach of Mr. Adler’s employment contract, fraud, unpaid
legal fees, unjust enrichment, and quantum meruit. The Company believe Mr. Adler’s claims are without merit and intend to
defend the same.
From time to time, the Company is
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 its consolidated financial condition or
results of operations.
Lease Commitments
The Company’s headquarters
is located in Fort Lauderdale, Florida. Many administrative functions such as accounting and legal are performed in an office in
Draper, UT.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
Future minimum lease and related payments are
as follows:
|
2014
|
|
$
|
46,025
|
|
|
2015
|
|
-
|
|
|
2016
|
|
-
|
|
|
2017 and after
|
|
-
|
|
The Company’s main office
is located in Fort Lauderdale, Florida. The lease had a term of 12 months, which began on August 1, 2012 and expires on July 31,
2014. The Company currently pays rent and related costs of approximately $6,575 per month.
There is no lease obligation in
its administrative office in Draper, Utah.
NOTE 16 - SUBSEQUENT EVENTS
On January 13, 2014, the Company
issued an aggregate of 2,859,067 shares of its common stock to certain consulting personnel for services provided.
On January 14, 2014, the Company
converted into 1,660,026 shares of common stock, a portion of a loan originally received by the Company on March 21, 2012.
On January 22, 2014, the Company
issued a convertible note. The net proceeds of the Note were used to redeem and retire two 8% convertible notes that were issued
to Asher Enterprises, Inc. in the aggregate principal amount of $131,500.
On January 29, 2014, the Company
converted into 1,166,667 shares of common stock, a portion of a loan originally received by the Company on March 21, 2012.
On February 10, 2014, the Company
converted into 1,237,624 shares of common stock, a portion of a loan originally received by the Company on March 21, 2012.
On February 10, 2014, the Board
of Directors of the Company approved an amendment and restatement of the Certificate of Designation to the Company’s Certificate
of Incorporation. The Certificate of Designation concerns the rights, preferences, privileges, and restrictions of Series “A”
Preferred Stock (the “Preferred Stock”). The amended and restated Certificate of Designation has increased the conversion
rights applicable to each share of Preferred Stock from ten million (10,000,000) to twenty million (20,000,000).
On February 10, 2014,
in connection with action taken by our board of directors and the holders of a majority in interest of our voting capital stock,
we effected a restatement of our Certificate of Incorporation to increase the number of authorized shares of our common stock from
150,000,000 to 300,000,000.
On February 18, 2014, the Company
converted into 1,470,588 shares of common stock, a portion of a loan originally received by the Company on March 21, 2012.
On March 3, 2014, the Company issued
1,000,000 shares of its common stock to a consultant for services provided.
FUELSTREAM, INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
On March 4, 2014, the Company converted
into 2,083,333 shares of common stock, a portion of a loan originally received by the Company on March 21, 2012.
