PSPW 3Power Energy Group Inc (CE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

NOTE 1 – ORGANIZATION AND BUSINESS

3Power Energy Group, Inc. (the “Company”) was incorporated in the State of Nevada on December 18, 2002 under the name ATM Financial Corp. On April 1, 2008, the Company changed its name from ATM Financial Corp. to Prime Sun Power Inc.  On March 30, 2011, the Company changed its name from Prime Sun Power Inc. to 3Power Energy Group, Inc. and increased its authorized share capital to 300,000,000 shares. The Company plans to pursue a business model producing renewable generated electrical power and other alternative energies.

The Company's primary efforts is to sell electricity generated by solar, wind, hydro, biomass and other renewable energy resources and to develop, build and operate power plants based on these technologies. The core approach of the Company's business is to deliver energy in markets where there is an inherent energy gap between supply and demand or where there exists long term, stable, government back by financial support for development of renewable energy.

On May 13, 2011, pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”), the Company consummated a reverse merger (“Merger”) with Seawind Energy Limited (“Seawind Energy”), Seawind Services Limited (“Seawind Services”, and together with Seawind Energy, the “Seawind”) and the shareholders of Seawind Energy (the “Seawind Group Shareholders” and together with the Company, and the Seawind Companies, the “Parties”). The Seawind Companies were formed under the laws of the United Kingdom.

In connection with the Merger, the Company issued 40,000,000 restricted shares of the Company’s common stock to the Seawind Group Shareholders (such acquisition is referred to herein as the “Seawind Acquisition”).

Upon completion of the Stock Purchase Agreement, Seawind became 3Power Group, Inc.'s wholly-owned subsidiary. For accounting purposes, the acquisition has been treated as a recapitalization of Seawind with Seawind as the acquirer (reverse acquisition). The historical financial statements prior to May 13, 2011 are those of Seawind Energy. The Merger was accounted for as a “reverse merger”, since the stockholders of Seawind owned a majority of the Company’s common stock immediately following the transaction and their management has assumed operational, management and governance control.

The transaction was accounted for as a recapitalization of Seawind pursuant to which Seawind was treated as the surviving and continuing entity.  The Company did not recognize goodwill or any intangible assets in connection with this transaction.  Accordingly, the Company’s historical financial statements are those of Seawind immediately following the consummation of the reverse merger. The accompanying consolidated financial statements give retroactive effect to the recapitalization.

In anticipation of the closing of the Stock Purchase Agreement, the Company changed its name to 3Power Energy Group Inc. and increased its authorized share capital to 300,000,000 shares.

On July 4, 2011, the Seawind Energy Limited and Seawind Service Limited changed their name to 3Power Energy Limited and 3Power Project Service Limited, respectively.

Acquisition of Shala Energy sh .p .k:

On June 5, 2012, the Company and Shala Energy sh.p.k ("Shala") executed a master acquisition agreement (the “Acquisition Agreement”) where Shala agreed to transfer and the Company agreed to acquire 75% of the equity of Shala. Under the Acquisition Agreement (the “Acquisition”), the closing of the acquisition is subject to the Company’s completion and satisfaction of the due diligence on Shala and Shala’s partners with respect to their shares in Shala and upon the Company’s payment of the first year premium for the insurance bond premium issued in favor of the Ministry of Economy, Trade and Energy of Republic of Albania in replacement of the then existing bank guarantee issued in favor of Ministry of Economy, Trade and Energy of Republic of Albania for the Shala River Concession Agreement, in the amount of 7,230,315 Euro (the “Required Insurance Bond Premium”). Shala is a firm specializing in developing hydro-electric projects, owning and operating sustainable energy projects in the hydro, wind and solar power sectors in Albania.

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

On August 10, 2012, after the conclusion of the due diligence efforts, the Company made the first year payment of required Insurance Bond Premium in the amount of 164,851 Euro ($211,972), and as such the Acquisition closed. The acquisition resulted in the Company acquiring 75% of the interest in a hydro-electrical project of a total installed power of 127.6 MW of Shala River in Albania.  The Shala River project finalization is in process with the Ministry of Albania.

In connection the acquisition of Shala, the Company is obligated for an aggregate of 4% of the total project costs as facilitator fees in either cash or the Company's common stock to Capital Trust Holding AG, as advisor for the Shala acquisition transaction. During the year ended March 31, 2013, the Company accrued $600,000 due to the facilitator fees for feasibility studies in process and recorded as expenses. In December 2013, the Company issued to Capital Trust Holding AG and its affiliates, 15,000,000 shares of its common stock, valued at $0.04 per share in settlement of the facilitator fees for feasibility studies.

During the year ended March 31, 2016, Shala began operations, acquiring assets and incurring costs. As such, its activity is including in the consolidated balance sheet and statement of operations for the current period.

Liquidation/winding up of international subsidiaries:

On October 8, 2012, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of 3Power Project Services Limited, a wholly owned subsidiary of the Company’s Subsidiary, 3Power Energy Limited.

By the letter of The Insolvency Service dated October 12, 2012, the Company was required to provide information relating to 3Power Project Services Limited to the Official Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s Office to review the prospect of recovering the assets of 3Power Project Services Limited for the benefit of creditors.

The Company was also required to deliver to the Official Receiver’s Office certain assets (cash or cheque) and accounting records that are still in its possession or control. The Company has attended the interview and delivered all the available accounting records to the Officer Receiver’s Office.

On January 17, 2013, the Company filed a Strike off application with the Registrar of Companies in the United Kingdom to dissolve 3Power Energy Limited, a wholly owned subsidiary of the Company. During the Nine months ended December 31, 2017, the strike-off application was approved. 

Consolidated 3Power Energy Limited (including liabilities of 3Power Project Services Limited) had liabilities as of the date of the strike-off approval of:

During the nine months ended December 31, 2017, the Company recognized a gain on disposal of subsidiary of $1,853,916 inclusive of accumulative adjustment of other comprehensive income of $269,207.

Acquisition of Shala Energy Plc

In October 2017, the Company acquired 45% of Shala Energy Plc, a Republic of Ireland corporation. Effective October 20, 2017, ownership was increased to 75% by acquiring an additional 30% from Falak Enterprises, a related party. Shala Energy Plc was formed to assist with financing opportunities. Purchase price of the 45% and additional 30% has yet to be determined and no consideration has been transferred. Shala Energy Plc is a recently formed entity with no significant assets or liabilities.

On October 20, 2017 Shala Energy Plc formed a 80% owned subsidiary, 3Power Shala Sh.Pk, as an Albanian Special Purpose Vehicle (“SPV”) as required by Albanian law, to bid and to successfully acquire an 83.5MW Shala River Concession.

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The following (a) condensed consolidated balance sheet as of December 31, 2017, which has been derived from audited consolidated financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 2017 are not necessarily indicative of results that may be expected for the year ending March 31, 2018. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended March 31, 2017 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on July 14, 2017.

Basis of presentation:

The unaudited condensed consolidated financial statements include the accounts of the Company and it’s wholly and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.

Comprehensive Income (Loss)

The Company applies Accounting Standards Codification subtopic 220-10, Comprehensive Income (“ASC 220-10”). ASC 220-10 establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Functional currency

The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars ("USD"). The Company's functional currencies for UK subsidiary, 3Power Project Services Limited/3Power Energy Limited is in British pounds ("GBP") and Albania subsidiary Shala Energy Sh p.k. Shala Energy PLC and 3Power Shala LLC is in Albania Lek (“LEK”). The consolidated financial statements are translated into USD in accordance with Codification ASC 830, Foreign Currency Matters .

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, shareholders' equity is translated at the historical rates and income statement items are translated at an average exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in the shareholders' equity in accordance with Codification ASC 220,

Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into GBP or LEK, as applicable at the rate on the date of the transaction and included in the results of operations as incurred.

The exchange rates used to translate amounts in GBP and LEK into USD for the purposes of preparing the consolidated financial statements were as follows:

Balance sheet:

Income statement:

Per share data

The Company accounts for net income (loss) per share in accordance with Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.

Basic net income (loss) per common share is calculated by dividing net income (loss), by the weighted average number of outstanding shares of common stock, adjusted to give effect to the exchange ratio in the Share Exchange in May 2011 (see Note 1), which was accounted for as recapitalization of the Company. Diluted income (loss) per share is calculated by dividing the net income (loss) attributable to Common shareholders by the sum of the weighted average number of Common shares outstanding plus potential dilutive common shares outstanding during the period. The Company had no common stock equivalents as of December 31, 2017 and 2016.

Income taxes

Income tax provisions or benefits for interim periods are computed based on the Company’s estimated annual effective tax rate. Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is not more likely than not that deferred tax assets will be realized and, accordingly, has provided a full valuation allowance. As the Company anticipates or anticipated that its net deferred tax assets at December 31, 2017 and March 31, 2017 would be fully offset by a valuation allowance, there is no federal or state income tax benefit for the three and Nine months ended December 31, 2017 and 2016 related to losses incurred during such periods.

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2017 and March 31, 2017, the Company has not recorded any unrecognized tax benefits.

Segment Information

Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.

Accounting for Stock-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period.  Stock-based compensation expense is recorded by the Company in the same expense classifications in the statement of operations, as if such amounts were paid in cash.

Recent Accounting Pronouncements

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

NOTE 3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern.  As of December 31, 2017, the Company has a deficit of $18,250,001 applicable to controlling interest compared with deficit of $19,337,016 applicable to controlling interest as of March 31, 2017, and has incurred significant operating losses and negative cash flows. For the nine months ended December 31, 2017, the Company sustained operating loss of $492,769 compared to a net operating loss of $424,167 for the nine months ended December 31, 2016.

The Company's primary source of operating funds has been cash proceeds from related party loans.  The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

Accordingly, the accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

Property and equipment are recorded on the basis of cost. For financial statement purposes, property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment in accordance with the guidance for impairment of long lived assets.

During the three and nine months ended December 31, 2017 and 2016, the Company charged to operations depreciation expense of $975, $2,796, $1,021 and $3,005, respectively.

NOTE 5 – NOTES PAYABLE

On March 2, 2010, the Company issued an unsecured Senior Promissory Note ("Note") for 470,000 Euros ($564,219) at December 31, 2017) initially due on December 31, 2010 including interest at 7.5% per annum. Upon default by the Company on January 1, 2011, the interest rate of 15% per annum applies. The Note has not been paid by the Company. As of December 31, 2017 and March 31, 2017, accrued interest on this note was $1,123,137 and $958,870 respectively. During three and nine months ended December 31, 2017 and 2016, the Company recognized income (loss) of $(8,362), $(61,529), $32,664 and $39,470 respectively, on foreign currency translation due to the change in exchange rates between the Euro and the USD.

On November 14, 2012, CRG Finance AG (“CRG”) filed a complaint in the District Court for Southern District of New York for allegedly beaching a promissory note. However, the Company’s contention is that the promissory note was satisfied by a third party, Rudana Investment Group AG.

On January 17, 2013, the Company filed a motion to compel arbitration and on May 23, 2013, the Court granted the Company’s Motion to Compel and ordered that CRG file its claims as a AAA arbitration. On June 5, 2013, CRG filed its statement of claim with the AAA in the International Center for Disputed Resolution division. The Company filed its statement answer on July 8, 2013. The Company denies the allegations in the complaint and claims it is without merit. In defense of the action, the Company’s counsel vigorously sought documents from Rudana in an effort to establish the Company’s defense. However, due to the fact that Rudana was in the midst of a bankruptcy action in the Swiss Bankruptcy Court, the Company’s counsel sought an order from the AAA Arbitrator authorizing the Swiss Bankruptcy Court to provide documents establishing Rudana’s satisfaction of the debt.

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

On or about December 13, 2013, the AAA Arbitrator entered such an order and the Company’s counsel requested the documents. However, after the Company’s counsel made several requests to postpone the arbitration to allow time to receive the requested documents, the Company was not able to obtain the necessary documents from the Swiss Bankruptcy Court.

The Final Hearing in the AAA arbitration took place on February 27, 2014, wherein the Company was not able to establish its defense due to the lack of evidence from Rudana. The AAA Arbitrator entered an award of Euro 470,000 plus interest at the annual rate of 7.5% against the Company. As of March 31, 2014, the total award against the Company is Euro 728,241 ($1,012,401). On or about April 4, 2014, in an effort to perfect this award against the Company, CRG filed a petition with the Southern District of New York seeking to confirm the award. In addition, the Company accrued total of $56,835 as reimbursement of attorney fees and cost incurred by CRG and $15,500 as administrative fees and compensation to the Arbitrator. On July 8, 2014, a judgment has been entered against 3Power in the Southern District of New York in the amount of $1,086,186. That judgment remains unpaid.

NOTE 6 – COMMON STOCK

The Company is authorized to issue 300,000,000 shares of $0.0001 par value common stock. As of December 31, 2017 and March 31, 2017, 274,295,110 shares were issued and outstanding.

NOTE 7 – RELATED PARTY TRANSACTIONS

The Company’s current and former officers and stockholders have advanced funds on a non-interest bearing basis to the Company for travel related and working capital purposes. The Company has not entered into any agreement on the repayment terms for these advances. As of December 31, 2017 and March 31, 2017, there were $1,134,245 and $605,989 advances outstanding, respectively.

As of December 31, 2017 and March 31, 2017, there were $52,723 and $-0-, respectively amounts due from related party.

During the three and nine months ended December 31, 2017 and 2016, the Company charged to operation $45,000, $135,000, $45,000 and $135,000 as salary to Board members, respectively.

NOTE 8 – NON CONTROLLING INTEREST

The Company has a 50% interest in American Seawind Energy LLC, a company registered in the State of Texas, United States of America, 75% interest in Shala Energy sh.pk, 75% interest in Shala Energy PLC and Shala Energy PLC has 80% interest in 3Power Shala LLC, a Company registered in the Republic of Albania. American Seawind Energy LLC was inactive as of December 31, 2017.

A reconciliation of the non-controlling loss attributable to the Company:

Net loss Attributable to the Company and transfers (to) from non-controlling interest for the three months ended December 31, 2017:

Net loss Attributable to the Company and transfers (to) from non-controlling interest for the Nine months ended December 31, 2017:

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

Net loss Attributable to the Company and transfers (to) from non-controlling interest for the three months ended December 31, 2016:

Net loss Attributable to the Company and transfers (to) from non-controlling interest for the Nine months ended December 31, 2016:

The following table summarizes the changes in Non-controlling Interest from April 1, 2016 through December 31, 2017:

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Wuersch Settlement

In November 2011, the Company entered into a Settlement Agreement (the “Wuersch Agreement”) with Wuersch & Gering LLP (“Wuersch”). The Wuersch Agreement provided that Wuersch will accept a cash payment of $50,000, payable in five equal installments, and 2,000,000 options to purchase shares of our common stock at $0.54 per share as full satisfaction of debt obligations to Wuersch of $518,359. The five cash payment installments of $10,000 were due on the 15th calendar day of each month beginning November 15, 2011 and ending on March 15, 2012. Two installment payments were made to Wuersch. The total outstanding balance as of December 31, 2017 and March 31, 2017 is $504,519.

Hellenic Settlement

On November 15, 2011, the Company entered into a Settlement Agreement (the “Hellenic Agreement”) with Hellenic Technologies (“Hellenic”). The Hellenic Agreement provided that Hellenic will accept cash payments of $70,000, payable in five equal installments, and 1,260,000 shares of common stock as full satisfaction of debt obligations to Hellenic of $700,000. The five cash payment installments of $14,000 were due beginning November 14, 2011 and continuing on the 15th calendar day of each month thereafter until paid in full. Two installments were paid as of March 31, 2012. The Company has also issued 1,260,000 of Common stock valued at $630,000 during the year ended March 31, 2012. The outstanding balance as of December 31, 2017 and March 31, 2017 is $28,000.

3POWER ENERGY GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

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, results of operations or liquidity.