UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________



FORM 10-Q



[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934



For the quarterly period ended March 31,
2014



OR



[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934



For the transition period from ________ to ___________



Commission file number: 333-14477



FUELSTREAM, INC.

(Name of Small Business Issuer in Its Charter)





|Delaware                                                                               |  | 87-0561426                                       
|-------------------------------------------------------------------------------------- |  | -------------------------------------------------
|(State
        or Other Jurisdiction
        of Incorporation
        or Organization) |  | (IRS Employer
        Identification
        No.)
|                                                                                       |  |                                                  
|510 Shotgun Road, Suite 110                                                            |  |                                                  
|Fort Lauderdale, Florida                                                               |  | 33326                                            
|(Address of Principal Executive Offices)                                               |  | (Zip Code)                                       







|                                                                                   | (954) 423-5345              | 
|---------------------------------------------------------------------------------- | --------------------------- | 
|                                                                                   | (Issuer’s Telephone Number) | 
|                                                                                   |                             | 
|(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)





Table of Contents





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



Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes [X] No []



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,”“accelerated filer,” and “smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):



|Large Accelerated Filer [  ] |  | Accelerated Filer [  ]       
|---------------------------- |  | -----------------------------
|                             |  |                              
|Non-Accelerated Filer [  ]   |  | Smaller reporting company [X]



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS



Check whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]



APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each
of the issuer’s classes of common equity, as of the latest practicable date. As of May 19, 2014, the Company had outstanding
60,598,135 shares of common stock, par value $0.0001 per share.

































Table of Contents2





PART
I



FINANCIAL
INFORMATION



The
CondensedConsolidated Financial Statements of the Company are prepared as of
March 31, 2014.



ITEM
1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q







|CONTENTS                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------
|Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013                             
|Condensed Consolidated Statements of Operations for the three months period ended March 31, 2014 and 2013(unaudited)     
|Condensed Consolidated Statements of Cash
    Flows for the three months period ended March 31, 2014 and 2013 (unaudited)
|Notes to the Unaudited Condensed Consolidated Financial Statements                                                       



















































Table of Contents3









|FUELSTREAM, INC.                                                                                           
|-----------------------------------------------------------------------------------------------------------
|Condensed Consolidated Balance Sheets                                                                      
|                                                                                                           
|ASSETS                                                                                                     
|                                                                                                           
|                                                                                                           
|                                                                                                           
|CURRENT ASSETS                                                                                             
|                                                                                                           
|Cash and cash equivalents                                                                                  
|Accounts receivable, net of allowance                                                                      
|                                                                                                           
|Total Current Assets                                                                                       
|                                                                                                           
|TOTAL ASSETS                                                                                               
|                                                                                                           
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                      
|                                                                                                           
|CURRENT LIABILITIES                                                                                        
|                                                                                                           
|Accounts payable                                                                                           
|Due to related parties                                                                                     
|Accrued expenses                                                                                           
|Convertible debenture/notes payable - short term (net of                                                   
|discount of $276,664 and $-0-, respectively)                                                               
|Convertible notes payable - related parties                                                                
|Notes payable                                                                                              
|Notes payable - related parties                                                                            
|Derivative liability                                                                                       
|                                                                                                           
|Total Current Liabilities                                                                                  
|                                                                                                           
|LONG TERM LIABILITIES                                                                                      
|                                                                                                           
|Convertible debenture/notes payable (net of discount of                                                    
|$66,966 and $262,006, respectively)                                                                        
|Derivative liability                                                                                       
|Total Long Term Liabilities                                                                                
|                                                                                                           
|TOTAL LIABILITIES                                                                                          
|                                                                                                           
|STOCKHOLDERS' DEFICIT                                                                                      
|                                                                                                           
|Preferred stock, $0.0001 par value; 200 shares                                                             
|authorized, 200 and 200 shares issued and outstanding                                                      
|Common stock, $0.0001 par value; 150,000,000                                                               
|and 50,000,000 shares authorized, 53,927,503 and                                                           
|37,709,552 shares issued and outstanding, respectively                                                     
|Additional paid-in capital                                                                                 
|Accumulated deficit                                                                                        
|                                                                                                           
|Total Stockholders' Deficit                                                                                
|                                                                                                           
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                
|                                                                                                           
|The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



Table of Contents4









|FUELSTREAM, INC.                                                                                           
|-----------------------------------------------------------------------------------------------------------
|Condensed Consolidated Statements of Operations                                                            
|(Unaudited)                                                                                                
|                                                                                                           
|                                                                                                           
|                                                                                                           
|NET SALES                                                                                                  
|                                                                                                           
|COST OF SALES                                                                                              
|                                                                                                           
|GROSS MARGIN                                                                                               
|                                                                                                           
|SELLING, GENERAL AND                                                                                       
|ADMINISTRATIVE EXPENSES                                                                                    
|                                                                                                           
|Selling, general and administrative                                                                        
|                                                                                                           
|Total Selling, General and                                                                                 
|Administrative Expenses                                                                                    
|                                                                                                           
|LOSS FROM OPERATIONS                                                                                       
|                                                                                                           
|OTHER INCOME (EXPENSES)                                                                                    
|                                                                                                           
|Gain (Loss) on change in fair value of derivative liability                                                
|Interest expense (including amortization of debt discount                                                  
|of $380,021, and $45,864, respectively)                                                                    
|                                                                                                           
|Total Other (Expenses)                                                                                     
|                                                                                                           
|LOSS BEFORE INCOME TAXES                                                                                   
|                                                                                                           
|INCOME TAX EXPENSE                                                                                         
|                                                                                                           
|NET LOSS                                                                                                   
|                                                                                                           
|BASIC AND DILUTED:                                                                                         
|Net loss per common share                                                                                  
|                                                                                                           
|Weighted average shares outstanding                                                                        
|                                                                                                           
|The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.





Table of Contents5









|FUELSTREAM, INC.                                                                                           
|-----------------------------------------------------------------------------------------------------------
|Condensed Consolidated Statements of Cash Flows                                                            
|(Unaudited)                                                                                                
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                      
|                                                                                                           
|Net loss                                                                                                   
|Adjustments to reconcile net loss to net                                                                   
|cash used in operating activities:                                                                         
|Common stock issued for services and finance expenses                                                      
|Stock based compensation                                                                                   
|Operating expenses incurred by noteholders on behalf of the Company                                        
|Non-cash interest expenses                                                                                 
|Change in fair value of derivative liability                                                               
|Amortization of debt discounts                                                                             
|Changes in operating assets and liabilities:                                                               
|Accounts payable and accrued expenses                                                                      
|                                                                                                           
|Net Cash Used in Operating Activities                                                                      
|                                                                                                           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                      
|                                                                                                           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                      
|                                                                                                           
|Net proceeds from notes payable                                                                            
|Payments on notes payable                                                                                  
|                                                                                                           
|Net Cash Provided by Financing Activities                                                                  
|                                                                                                           
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                  
|                                                                                                           
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                             
|                                                                                                           
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                   
|                                                                                                           
|SUPPLEMENTAL CASH FLOW INFORMATION                                                                         
|                                                                                                           
|Cash Payments For:                                                                                         
|                                                                                                           
|Interest                                                                                                   
|Income taxes                                                                                               
|                                                                                                           
|Non-cash investing and financing activity:                                                                 
|                                                                                                           
|Initial derivative liability on convertible note payable                                                   
|Beneficial conversion feature on convertible note credited to additional paid in capital                   
|Common stock issued for settlement of notes payable and accrued interest                                   
|Reclassification from due to related party to convertible note payable - related party                     
|                                                                                                           
|The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



Table of Contents6









FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS



Basis of Presentation



The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished
in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in
the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the
disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated
financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in
its Form 10-K for the year ended December 31, 2013. Operating results for the three months ended March 31, 2014 are not necessarily
indicative of the results to be expected for the year ending December 31, 2014.

Organization and Nature of Operation



Fuelstream, Inc. (the
“Company”) was incorporated under the laws of the State of Delaware on July 12, 1996 under the name of
“Durwood, Inc.”From April 6, 1999 to April 9,2010, the Company operated as a sports marketing firm under the
name of “Sportsnuts” Inc. On April 9, 2010, the Company changed its name to Fuelstream, Inc. and changed its
business model to become a fuel transportation and logistics company.



On April 11, 2011, the Company
entered into a joint venture agreement (“Joint Venture”) with Aviation Fuel International, Inc., a Florida
corporation (“AFI”) and a purchaser and reseller of aviation fuel for commercial and private aircraft. The Joint
Venture required the Company to contribute up to $200,000 in respect of supplying aviation fuel to various commercial
aircraft via tanker trucks which were intended to be acquired by the Joint Venture. The Company ultimately contributed
$183,500 in connection with the Joint Venture. On January 18, 2012, the Joint Venture was terminated upon completion of the
acquisition of AFI, which is now a wholly-owned subsidiary of the Company (refer to note 3).



On May 10, 2012, the Company along
with two partners formed AFI South Africa LLC (“AFI SA”),immediately the Company purchased shares of the other
partners to become 100% owner of AFI SA (refer to note 3). AFI SA was effective as Limited Liability Company under the Act by
the filing organization with the office of the Secretary of State of Florida on May 11, 2012. The Company has been organized
for the purpose of partnering with Global Aviation for brokering the sale of Fuel for aircraft in South Africa.



Use of Estimates



The preparation of unaudited condensed
consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.



Revenue Recognition



The Company recognizes revenue in
accordance with Accounting Standards Codification subtopic 605-10,Revenue Recognition (“ASC 605-10”)
which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is
reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature
of the selling prices of the products delivered and the collectability of those amounts.



Table of Contents7





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 1 -	SIGNIFICANT ACCOUNTING POLICIES AND NATURE
OF OPERATIONS (Continued)



ASC605-10 incorporates Accounting
Standards Codification subtopic 605-25, Multiple-Element Arrangements(“ASC 605-25”). ASC 605-25 addresses
accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use
assets.



Principles of Consolidation



The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (“US GAAP”) and include the Company and its wholly-owned
subsidiaries. All inter-company accounts and transactions have been eliminated



Cash



The Company considers cash to consist of cash on hand and temporary
investments having an original maturity of 90 days or less that are readily convertible into cash.



Income Taxes



The Company has adopted Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns.
Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and
tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Temporary differences between taxable income reported for financial reporting purposes and income tax purposes consist primarily
of timing differences such as deferred officers’ compensation and stock based compensation accounting.



Net Loss per share



The Company complies with accounting and
disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per ordinary share is computed by dividing
net loss applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period. Common
share equivalents are excluded from the diluted earnings (loss) per share computation if their effect is anti-dilutive.



Stock based compensation



The Company follows Accounting
Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments
to both employees and non-employees be recognized in the income statement based on their fair values.



Stock based compensation recorded in the unaudited condensed consolidated
financial statements for the three months ended March 31, 2014 and 2013 were $197,528 and $228,088, respectively.



Financial Instruments



On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair
Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair
value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:



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



Table of Contents8







FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014





NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS (Continued)



- Level 2 inputs to the
valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.



- Level 3 inputs to valuation methodology
are unobservable and significant to the fair measurement.



The
carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each
qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between
the origination of such instruments and their expected realization and their current market rate of interest.



Recently Accounting
pronouncements



The Company has adopted all applicable recently-issued
accounting pronouncements. The adoption of the accounting pronouncements, including any not yet effective, is not anticipated
to have a material effect on the financial position or results of operations of the Company.



Reclassification



Certain reclassifications have been made
to prior periods' data to conform to the current period's presentation. These reclassifications had no effect on reported income
or losses



NOTE 2 - GOING CONCERN CONSIDERATIONS



The accompanying unaudited condensed
consolidated financial statements have been prepared using generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As
reported in its Annual Report on Form 10-K for the year ended December 31, 2013, the Company has an accumulated deficit of
$55,985,447 from inception of the Company through December 31, 2013. It should be noted that prior to the acquisition of AFI
as discussed in Note 3, the Company had an accumulated deficit of $32,105,264 as reported in its Annual Report on Form 10-K
for the year ended December 31, 2011. The accumulated deficit as of March 31, 2014 was $56,915,099 and the total
stockholders’ deficit at March 31, 2014 was $6,389,360 and had working capital deficit (current liabilities minus
current assets) of $6,376,326, 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 brokering the sale of aircraft
fuel. No assurance can be given that funds will be available, or, if available, that it will be on terms deemed satisfactory to
management.



The ability of the Company to continue as
a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
attain profitable operations. The accompanying condensed consolidated financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result
from the outcome of these uncertainties.





Table of Contents9





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 3 - ACQUISITION



On January 18, 2012 the Company
completed the acquisition of 100% of the equity of Aviation Fuel International, Inc., a Florida corporation
(“AFI”). AFI is a purchaser and reseller of aviation fuel for commercial and private aircraft. The consideration
for the acquisition of AFI consisted of 7,400,000 shares of restricted common stock, loan receivable adjusted for $183,500
and a note payable in the amount of $1,000,000. As part of the acquisition, the Company recorded goodwill in the amount of
$6,000,410. On June 25, 2013, the Company disaffirmed the note payable of $1,000,000. However, until the Company receives a
judicially approved release, the note payable will remain on the financial statements and is included in the balance sheet as
of September 30, 2013. Prior to the acquisition, AFI had accumulated notes payable of $1,356,300 and accounts payable of
$536,610. These liabilities have been recorded in the condensed consolidated balance sheet. These liabilities are due from
AFI and were not incurred or guaranteed by the parent company, Fuelstream, Inc.



NOTE 4 - LOSS CONTINGENCIES



The Company is involved with various legal
proceedings as described in Part II Item I of this Form 10-Q. The Company has evaluated these contingencies per the requirements
of ASC 450-20 (previously SFAS 5, “Accounting for Contingencies”) and determined that the likelihood of loss from these
proceedings are remote.



NOTE 5 - ACCOUNTS RECEIVABLE



Accounts receivable at March 31, 2014 and
December 31, 2013 are as follow:



|                                       |  | March 31, 2014 |          | December 31, 2013
|-------------------------------------- |  | -------------- | -------- | -----------------
|Accounts receivable                    |  | $              | 698,000  |                  
|                                       |  |                | 698,000  |                  
|Less: allowance on accounts receivable |  |                | (670,000 | )                
|Accounts receivable, net               |  | $              | 28,000   |                  



The Company is involved in disputes with the above accounts receivable
and has filed a lawsuit.



NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES



The accounts payable of $847,265, as of
March 31, 2014, 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
on accounts payable balance as of March 31, 2014 and December 31, 2013 is $142,548 and $129,028, respectively. Interest
expense of $13,520 was charged to expenses during the three months ended March 31, 2014.













Table of Contents10





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 7 - NOTES PAYABLE



|Notes payable consisted of the following:                                                                                                         |  |                |            |                  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | -----------------
|                                                                                                                                                  |  | March 31, 2014 |            | December 31, 2013
|Notes payable, issued on May 6, 2011, unsecured, interest at 10% per annum, due on demand.                                                        |  | $              | 59,500     |                  
|Notes payable, issued on August 25, 2010, unsecured, interest at 10% per annum due on demand.                                                     |  |                | 172,500    |                  
|Notes payable issued on October 18, 2010 to individual, unsecured, interest at 15% per annum, due on demand(1).                                   |  |                | 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 October 4, 2013, January 16, 2014, and January 22, 2014 to a company, unsecured, interest at 8% per annum, due on demand. |  |                | 14,000     |                  
|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 company, unsecured, interest at 8% per annum, due on demand                                               |  |                | 3,810      |                  
|Total notes payable                                                                                                                               |  |                | 1,077,110  |                  
|Less: current portion                                                                                                                             |  |                | (1,077,110 | )                
|Long-term notes payable                                                                                                                           |  | $              | —          |                  
|Maturities of notes payable are as follows:                                                                                                       |  |                |            |                  
|Year Ending March 31,                                                                                                                             |  |                |            |                  
|2015                                                                                                                                              |  |                |            |                  
|Total                                                                                                                                             |  |                |            |                  



Accrued interest on notes payable as
of March 31, 2014 was $399,442 and as of December 31, 2013 was $363,507. Interest expense of $36,027 has been charged to
expenses for the three months ended March 31, 2014.



| | 1) | This Note payable was assumed on the acquisition of AFI. The Company
is negotiating a settlement agreement for $786,300, inclusive of all interest on the date of settlement.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------









Table of Contents11







FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 8 - CONVERTIBLE DEBENTURE/NOTES
PAYABLE





|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | March 31,
                                                                               2014 |         | December 31, 2013
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- | ------- | -----------------
|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 $-0- and $12,616, respectively).                                                                                                                                                                                                                                               |  | $                                                                                             | 105,000 |                  
|Convertible
note issued on March 2013, unsecured, interest at 8%, due on October 05, 2013, in default.                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                               | 10,000  |                  
|Convertible
note issued on January 2014, unsecured, interest at 8%, due on November 3, 2014. Unamortized debt discount of $61,496 and $92,011,
respectively.                                                                                                                                                                                                                                                                                                   |  |                                                                                               | 17,004  |                  
|Convertible note issued on October 2013, December 2013 and February 2014,
                                                                          unsecured, zero interest if paid on or before 90 days otherwise one time interest charge of 12%, due on October 2, 2015,
                                                                          December 9, 2015 and February 20, 2016. Unamortized debt discount of $66,966 and $50,082, respectively. |  |                                                                                               | 13,034  |                  
|Convertible
note issued on October 2013, unsecured, interest at 6%, due on October 13, 2014. Unamortized debt discount of $16,110 and $23,507,
respectively.                                                                                                                                                                                                                                                                                                   |  |                                                                                               | 13,890  |                  
|Convertible
note issued on December 2013 and January 2014, unsecured, interest at 8%, due on December 12, 2014, July 20, 2014 and January
30, 2015. Unamortized debt discount of $187,545 and $58,299, respectively                                                                                                                                                                                                                                            |  |                                                                                               | 102,455 |                  
|Convertible
note issued on December 2013, unsecured, interest at 6%, due on December 12, 2014. Unamortized debt discount of $8,394 and $100,317,
respectively.                                                                                                                                                                                                                                                                                                 |  |                                                                                               | 6,606   |                  
|Convertible
debenture issued on January 2, 2014, unsecured, interest at 10%, due on June 2, 2014, convertible into common stock at 60% of
the bid price on the date of conversion, (less unamortized debt discount of $3,118 and $0, respectively).                                                                                                                                                                                                            |  |                                                                                               | 8,090   |                  
|Total notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                               | 276,079 |                  
|Less: current portion                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                               | (13,034 | )                
|Long-term convertible debenture/notes payable                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $                                                                                             | 263,045 |                  





Table of Contents12





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 8 - CONVERTIBLE DEBENTURE/NOTES
PAYABLE (Continued)



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, or $1.00 per share, and there is no fluctuation in this conversion rate.



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.



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.



On
December 12, 2013, the Note holder assigned $145,000 of its note to another note holder.



Convertible
debenture July 2013 August 2013, October 2013 and January 2014



On
July 19, 2013, the Company issued a $78,500 Convertible Promissory Note which bears interest at a rate of 8% 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.



On
August 26, 2013, the Company issued a $53,000 Convertible Promissory Note which bears interest at a rate of 8% 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.



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.



On January
30, 2014, the Company issued a $78,500 Convertible Promissory Note which bears interest at a rate of 8%, due on November 3, 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 $185,000 from
the debenture holder, $6,500 was paid towards the accrued legal expenses and due diligence fees and $36,000 toward legal and professional
fees and $25,000 was paid toward accrued professional fees.



Table of Contents13





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



During the three months ended March 31, 2014,
the Company paid $174,000 for July 2013, August 2013 and October 2013 note.



The Company identified embedded
derivatives related to the Convertible Promissory Note entered into in January 2014. These embedded derivatives included
certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record
the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as
of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair
value of $130,485 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      |  |  | 268.98 | %
|Risk free rate: |  |  | 0.08   | %



The
initial fair value of the embedded debt derivative of $130,485 was allocated as a debt discount up to the proceeds of the note
($78,500) with the remainder ($51,985) charged to current period operations as interest expense for the three months ended March
31, 2014.



Convertible
debenture December 2013 and January 2014



During
the three months ended March 31, 2014, the Company issued two notes of total a $228,500 Convertible Promissory Note which bears
interest at a rate of 8%, due on July 20, 2014 and January 30, 2015 and is convertible into the Company’s common stock at
the holder’s option, at the conversion rate of 60% of the lowest three day trading price for ten trading days immediately
preceding the date of conversion. Any amount of principal or interest on this Note which is not paid when due shall bear interest
at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”)
and the note also has prepayment penalty clause.



The
Company identified embedded derivatives related to the Convertible Promissory Note entered into in January
2014. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial
instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible
Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible
Promissory Note, the Company determined a fair value of $383,457 of the embedded derivative. The fair value of the embedded
derivative was determined using the Binomial Lattice Model based on the following assumptions:



|Dividend yield: |  |  | -0-            | %
|--------------- |  |  | -------------- | -
|Volatility      |  |  | 267.19%-268.98 | %
|Risk free rate: |  |  | 0.07%-0.10     | %



The initial fair value of the embedded debt
derivative of $383,457 was allocated as a debt discount up to the proceeds of the note ($228,500) with the remainder ($154,957)
charged to current period operations as interest expense for the three months ended March 31, 2014.





Table of Contents14





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



Convertible debenture October 2013,
December 2013 and February 2014



During
the three months ended March 31, 2014, the Company issued notes of total a $25,000 Convertible Promissory Note which bears interest
at a rate of 8%, due on February 20, 2016 and is convertible into the Company’s common stock at the holder’s
option, at the conversion rate of 60% of the lowest three day trading price for ten trading days immediately preceding the date
of conversion. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of
twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”) and the note
also has prepayment penalty clause.



The Company identified embedded
derivatives related to the Convertible Promissory Note entered into in January 2014. These embedded derivatives included
certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record
the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as
of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair
value of $39,722 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial
Lattice Model based on the following assumptions:



|Dividend yield: |  |  | -0-    | %
|--------------- |  |  | ------ | -
|Volatility      |  |  | 270.02 | %
|Risk free rate: |  |  | 0.34   | %



The
initial fair value of the embedded debt derivative of $39,722 was allocated as a debt discount up to the proceeds of the note
($25,000) with the remainder ($14,722) charged to current period operations as interest expense for the three months ended March
31, 2014.



Convertible
debenture January 2014



During the three months ended March 31, 2014,
the Company issued notes of total a $11,209 Convertible Promissory Note which bears interest at a rate of 8%, due on June 2, 2014
and is convertible into the Company’s common stock at the maker’s option, at the conversion rate of 40% of the lowest
three day trading price for ten trading days immediately preceding the date of conversion. Any amount of principal or interest
on this Note which is not paid when due shall bear interest at the lesser of i) 10 percent (10%) per annum or ii) the maximum rate
allowed under the applicable law until paid in full or until the Note is reinstated.



The Company analyzed the convertible
debts for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that
derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial
conversion feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The
intrinsic value of the beneficial conversion feature was determined to be $7,473 and was recorded as debt discount.



The fair value of the described embedded
derivative for all the convertible note is of $873,831 at March 31, 2014 was determined using the Binomial Lattice Model with
the following assumptions:



|Dividend yield: |  |  | -0-        | %
|--------------- |  |  | ---------- | -
|Volatility      |  |  | 266.94     | %
|Risk free rate: |  |  | 0.05%-0.41 | %



At March 31, 2014, the Company adjusted
the recorded fair value of the derivative liability to market on both notes resulting in non-cash, non-operating loss of
$238,381 for the three months ended March 31, 2014.

Table of Contents15





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



During the three months ended March
31, 2014 and 2013 the Company amortized $335,021 and $45,864, respectively, of beneficial debt discount to the operations as
interest expense



NOTE 9 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES



Convertible Notes payable - related parties consist of the
following:



|                                                                                    |  |                |          |                  
|----------------------------------------------------------------------------------- |  | -------------- | -------- | -----------------
|                                                                                    |  | March 31, 2014 |          | December 31, 2013
|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  |                  
|Convertible note issued on January 2014, unsecured, interest at 10%, due on demand. |  |                | 45,000   |                  
|Total convertible notes payable - related parties                                   |  |                | 256,254  |                  
|Less: current portion                                                               |  |                | (256,254 | )                
|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.



Table of Contents16





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



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 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.



Convertible debenture January 1, 2014



On January 2014 the Company issued a
$45,000 Convertible Promissory Note against the account payable, which bears interest at a rate of 10%, payable on demand and
is convertible into the Company’s common stock at the holder’s option at 40% discount to the lowest trading price
in five days prior to date of notice of conversion. Additionally in no event the floor price for the exercise can't go below
$0.00004. If these notes are converted at this rate, the number of shares issued would be in excess of the authorized limit
of share issuance. If the Borrower is unable to issue any shares under this provision due to the fact that there is an
insufficient number of authorized and unissued shares available, the Holder promises not to force the Borrower to issue these
shares or trigger an Event of Default, provided that Borrower takes immediate steps required to get the appropriate level of
approval from shareholders or the board of directors, where applicable to raise the number of authorized shares to satisfy
the Notice of Conversion. In the event of default the Company has to pay 150% time the sum of outstanding principal and
accrued interest. The note also has prepayment penalty clause.



The Company analyzed the convertible debts
for derivative accounting consideration under ASC 815 “Derivatives and Hedging” and determined that derivative accounting
is not applicable. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the
date of the notes and determined that a beneficial conversion feature exists. The intrinsic value of the beneficial conversion
feature was determined to be $45,000 and was recorded as debt discount. During the three months ended March 31, 2014, debt discount
of $45,000 was amortized.



For the three months ended March 31, 2014
and 2013, interest expenses charged on the above three notes is $6,306 and $0, respectively. Accrued interest on convertible
notes payable – related parties as of March 31, 2014 and December 31, 2013 was $11,149 and $4,843, respectively







Table of Contents17





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 10 - NOTES PAYABLE - RELATED PARTIES



|Notes payable - related parties consist of the following:                                                                                                                                                                                                                 |  |                |            |                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | -----------------
|                                                                                                                                                                                                                                                                          |  | March 31, 2014 |            | December 31, 2013
|Note payable to a shareholder, secured by tangible and intangible assets of the Company, interest at 16% per annum, principal and interest due April 1, 2000, past due.  Note is convertible into common stock of the Company at $0.10 per share. Note is in default. (2) |  | $              | 1,087,370  |                  
|                                                                                                                                                                                                                                                                          |  |                |            |                  
|Note payable to a related individual, interest at 8% per annum,past due. Note is in default. (1)                                                                                                                                                                          |  |                | 1,000,000  |                  
|                                                                                                                                                                                                                                                                          |  |                |            |                  
|Notes payable to related individuals, unsecured,
    interest at 10%, due on demand.(3)                                                                                                                                                                                   |  |                | 28,500     |                  
|Total notes payable - related parties                                                                                                                                                                                                                                     |  |                | 2,115,870  |                  
|Less: current portion                                                                                                                                                                                                                                                     |  |                | (2,115,870 | )                
|Long-term notes payable - related parties                                                                                                                                                                                                                                 |  | $              | —          |                  
|Maturities of notes payable - related parties are as follows:                                                                                                                                                                                                             |  |                |            |                  
|Year Ending March 31,                                                                                                                                                                                                                                                     |  |                |            |                  
|2015                                                                                                                                                                                                                                                                      |  |                |            |                  
|Total                                                                                                                                                                                                                                                                     |  |                |            |                  



Accrued interest on notes payable –
related parties for the three months ended March 31, 2014 and year ended December 31, 2013 was $312,857 and $250,334,
respectively. During the three months ended March 31, 2014, total interest expense to related party was $63,328.



| | 1) | This note was issued for the acquisition of
AFI on January 28, 2012. As of March 31, 2014 and December 31, 2013, the Company had accrued interest on the note in the amount
of $173,808 and $154,082, 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 $837,369 was converted
to two new notes for $1,087,370 and $200,000. During the year 2013 the Company issued 2,100,000 shares of the common stock against
settlement of the new note of $200,000
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | During the year ended December 31, 2013,
                                                                                                     one of the note holder for $15,000 along with accrued interest of $13,300 transfer edits 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Table of Contents18





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS



ASC 820 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs
can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on
the observability of those inputs.



The following tables set forth by level within
the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March
31, 2014 and December 31, 2013. As required by ASC 820, a financial instrument’s level within the fair value hierarchy is
based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance
of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities
and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for the
periods ended March 31, 2014 and December 31, 2013.



The carrying amounts reported in the balance
sheets for cash, accounts receivable, loans payable, and accounts payable and accrued expenses, approximate their fair market value
based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and
recognized at fair value as of March 31, 2014 on a recurring basis:



Assets and liabilities at fair value on a recurring
basis at March 31, 2014:



|                     |  | Level 1 |   | Level 2 |  | Level 3 |   | Total
|-------------------- |  | ------- | - | ------- |  | ------- | - | -----
|Liabilities          |  |         |   |         |  |         |   |      
|Derivative liability |  |         | — |         |  |         | — |      
|Total                |  |         | — |         |  |         | — |      



The following table provides a summary of changes
in fair value of the Company’s Level 3 financial liabilities as of March 31, 2014:



|                                                                                                |  | Derivative Liability
|----------------------------------------------------------------------------------------------- |  | --------------------
|Balance, December 31, 2013                                                                      |  | $                   
|Initial fair value of debt derivatives at note issuances                                        |  |                     
|                                                                                                |  |                     
|-Embedded debt derivatives                                                                      |  |                     
|Balance, March 31, 2014                                                                         |  | $                   
|                                                                                                |  |                     
|Net gain for the period included in earnings relating to the liabilities held at March 31, 2014 |  | $                   



The carrying value of short term financial
instruments including cash, accounts payable, accrued expenses and short-term borrowings approximate fair value due to the short
period of maturity for these instruments. The long-term debentures payable approximates fair value since the related rates of interest
approximate current market rates.



Table of Contents19





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



NOTE 12 - COMMON AND PREFERRED STOCK TRANSACTIONS



Preferred Stock



The Company is authorized to
issue 200 preferred shares of $0.0001 par value. As of March 31, 2014 and December 31, 2013 the Company has 200 shares of
preferred stock issued and outstanding. Although the preferred stock carries no dividend, distribution, liquidation or
conversion rights, each share of preferred stock carries ten million (10,000,000) votes and holders of our preferred stock
are able to vote together with our common stockholders on all matters. Consequently, the holder of our preferred stock is
able to unilaterally control the election of our board of directors and, ultimately, the direction of our Company.



Common stock



The Company is authorized to issue 150,000,000
shares of $0.0001 par value of common stock. As of March 31, 2014 and December 31, 2013 the Company had 53,927,503 and 37,709,552
shares of common stock as issued and outstanding.



During the quarter ended March 31, 2014,
the Company issued an aggregate of 13,167,951 shares of common stock for the conversion of debt and accrued interest of
$142,746.



During the quarter ended March 31, 2014, the
Company issued an aggregate of 3,050,000 shares of common stock to consultants of the Company. The shares were valued at market
price on the date of issuance which was $163,500.



NOTE 13 - 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, 2014 |                  |  |                                
| | Granted                           |                  |  |                                
| | Exercised                         |                  |  |                                
| | Cancelled                         |                  |  |                                
| | Outstanding at March 31, 2014     |                  |  |                                













Table of Contents20





FUELSTREAM INC. AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated
Financial Statements

March 31, 2014



Common stock options outstanding and exercisable as of March 31,
2014 are:



|                |  | Options Outstanding |      | Options Exercisable      
|--------------- |  | ------------------- | ---- | -------------------------
|Expiration Date |  | Exercise Price      |      | Number shares outstanding
|                |  |                     |      |                          
|October 1, 2018 |  | $                   | 0.01 |                          
|January 2, 2019 |  |                     | 1.65 |                          
|Total           |  |                     |      |                          



During the year ended December 31, 2013, the
Company granted 300,000 stock options with an exercise price of $1.65 out of which 75,000 were immediately vested and balance vesting
over three years and expiring six years from issuance date.



The fair value of the vested portion of $34,028
was charged to expenses and additional paid in capital during the three months ended March 31, 2014.



The fair value
of these stock options granted and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing
model are as follows:



|Significant assumptions:              |  |  |               
|------------------------------------- |  |  | --------------
|Risk-free interest rate at grant date |  |  | 1.04%-0.89    
|Expected stock price volatility       |  |  | 199.38%-344.22
|Expected dividend payout              |  |  | —             
|Expected option life-years            |  |  | 6             



NOTE 14 – SUBSEQUENT EVENTS

Subsequent to March 31, 2014, the Company issued 6,670,632
shares of common stock as part of a settlement agreement with debt holders of the Company.

















Table of Contents21





ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



The following
discussion of the financial condition and results of operations of Fuelstream, Inc. (hereafter, “Fuelstream,” the
“Company,” “we,” “our,” or “us”) should be read in conjunction with the
Unaudited Financial Statements and related Notes thereto included herein. This discussion may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future
strategies that are signified by the words "expects," "anticipates," "intends,"
"believes," or similar language. Actual results could differ materially from those projected in the forward looking
statements. Prospective investors should carefully consider the information set forth herein, and the Company cautions
investors that its business and financial performance is subject to substantial risks and uncertainties.



Overview



We are an in-wing and
on-location supplier and distributor of aviation fuel to corporate, commercial, military, and privately-owned aircraft
throughout the world. We also provide a variety of ground services either directly or through our affiliates, including
concierge services, passenger and baggage handling, landing rights, coordination with local aviation authorities, aircraft
maintenance services, catering, cabin cleaning, customs approvals, and third-party invoice reconciliation. Our personnel
assist customers in flight planning and aircraft routing aircraft, obtaining permits, arranging overflies, and flight follow
services.



Our core business has developed
as a result of a joint venture and eventual acquisition of Aviation Fuel International, Inc., now a wholly-owned subsidiary of
the Company (“AFI”). The Company’s principal sources of revenues are expected to result from the gross selling
price of fuel delivery contracts and associated services. Expenses which comprise the costs of goods sold are expected to include
the acquisition price of fuel transported, as well as operational and staffing costs of the trucks and other vehicles used for
delivery. General and administrative expenses have been comprised of administrative wages and benefits; occupancy and office expenses;
outside legal, accounting and other professional fees; travel and other miscellaneous office and administrative expenses. Selling
and marketing expenses include selling/marketing wages and benefits; advertising and promotional expenses; travel and other miscellaneous
related expenses.



On June 21, 2012 the
Company entered into an agreement to create a fuel logistics joint venture with South African based Global Airways
("Global"). Global is an international air transport organization whose activities cover acquisition,
refurbishment, heavy maintenance, leasing and chartering of air crafts throughout South Africa. We expect that this
transaction will expand the Company’s international footprint in a market that is developing standardized systems to
meet the aviation fueling needs of commercial and cargo carriers.



The partnership with Global
underlines the company's strategic plan to generate new revenue streams by partnering with aircraft leasing and MRO businesses
and includes the development, operation and management of the fuel storage, supply and logistic operations located in South Africa.
It is anticipated that the partnership will oversee the logistics delivery of up to 3 Million gallons of Jet-A Fuel per month by
the end of 2013 if the Company is able to secure sufficient means of financing the purchase of such fuel.



Table of Contents22







Our ability to generate
revenues during the year 2013 and beyond depends substantially upon the Company’s resources available in order to develop
and grow the business of AFI as a supplier of fuel and logistics. Such efforts require significant systems development, marketing
and personnel costs, which, in turn, require substantial funding. If we are unable to obtain such funding, its ability to generate
revenues will be significantly impaired and we may be unable to continue operations.



Because the Company has
incurred losses, income tax expenses are immaterial. No tax benefits have been booked related to operating loss carryforwards,
given the uncertainty of the Company being able to utilize such loss carryforwards in future years. We anticipate incurring additional
losses during the coming year.



Results of Operations



Following is management’s
discussion of the relevant items affecting results of operations for the three month periods ended March 31, 2014 and 2013.



Revenues.The
Company generated net revenues of $47,414 during the three months ended March 31, 2014 as compared to $-0- for the three
months ended March 31, 2013. In the future, the Company’s sole source of revenue is expected to be related to fuel
delivery contracts and associated services.



Cost of Sales.
Our cost of sales for the three months ended March 31, 2014 was $36,338 as compared to $-0- three months ended March 31,
2013. Our cost of sales consisted principally of the acquisition price of fuel and other petrochemicals delivered to
customers and clients, other related services provided directly or outsourced through our affiliates, as well as operational
and staffing costs with respect thereto. The increase is a direct correlation to the increase in sales as described
above.



Selling,
General and Administrative Expenses.Selling, general and administrative expenses for the three months ended March 31,
2014 were $450,133 compared to $406,984 during the first quarter of 2013. The increase is mainly the result of increased
activity in the business and compensation paid during the first quarter of 2014. The Company expects that salaries and
consulting expenses, that are cash- instead of share-based, will increase as we add personnel to build our fuel brokerage
business.



Other Income
(Expense). The Company had net other expenses of $490,595 for the three months ended March 31, 2014 compared to $172,277
during the first quarter of 2013. Other expenses incurred were comprised primarily of interest expenses related to notes
payable including amortization of debt discount and setoff with gain on change in derivative liability. During the three
months ended March 31, 2014 and 2013, interest expense was $728,975 and $233,727, respectively. Included in interest expense
was the amortization of debt discount of $380,021 and $45,864 for the three months ended March 31, 2014 and 2013,
respectively. The gain on change in derivative liability was $238,380 and $61,450 for the three months ended March 31, 2014
and 2013, respectively.



Net Loss.
The Company had a net loss of $929,652 for the three months ended March 31, 2014 compared to $579,261 during the first
quarter of 2013. The increase in net loss was mainly due to increase in interest expenses.



Liquidity and Capital Resources



As of March 31, 2014, our
primary source of liquidity consisted of $-0- in cash and cash equivalents. We hold most of our cash reserves in local checking
accounts with local financial institutions. Since inception, we have financed our operations through a combination of short and
long-term loans, and through the private placement of our common stock.

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We have sustained
significant net losses which have resulted in a total stockholders’ deficit at March 31, 2014 of $6,389,360 and are
currently experiencing a substantial shortfall in operating capital which raises doubt about our ability to continue as a
going concern. We anticipate a net loss for the year ended December 31, 2014 and with the expected cash requirements for the
coming months, without additional cash inflows from an increase in revenues combined with continued cost-cutting or a receipt
of cash from capital investment, there is substantial doubt as to the Company’s ability to continue operations.



There is presently no agreement
in place with any source of financing for the Company and we cannot assure you that the Company will be able to raise any additional
funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will likely be substantially
dilutive to current shareholders. Lack of additional funds will materially affect the Company and its business, and may cause us
to cease operations. Consequently, shareholders could incur a loss of their entire investment in the Company.



ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK



As a smaller reporting company we are not required
to provide this information.



ITEM 4. CONTROLS AND PROCEDURES



Management’s Evaluation on Disclosure Controls and Procedures



We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management,
to allow for timely decisions regarding required disclosure.



As of March 31, 2014,
the end of our first quarter, we carried out an evaluation, under the supervision of our Chief Executive Officer and
Controller, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the
foregoing, we concluded that our disclosure controls and procedures were not effective as of the end of the period covered by
this quarterly report. Our board of directors has only one member. We do not have a formal audit committee.



Changes in Internal Control over Financial
Reporting



There have been no
significant changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2014
that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.



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PART II



OTHER INFORMATION



ITEM 1. LEGAL
PROCEEDINGS



Ryan International Airlines.
One of our subsidiaries, Aviation Fuel International ("AFI") is involved in disputes with two airlines: Ryan International
Airlines, LLC ("Ryan") and Direct Air. Both aviation fuel customers litigation arise out of disputed amounts for the
delivery of Jet Fuel. Ryan Air failed to pay for fuelings received from AFI. AFI filed under the commercial lien laws as required
to secure a lien on the planes fueled in order to protect their receivable due from Ryan. Disagreements between the parties resulted
in both parties filing separate lawsuits in three actions. Ryan filed a cause of action in Case No. 09-57580, Ryan International
Airlines, Inc. v. Aviation Flight Services, LLC (“AFS”) and Aviation Fuel International, Inc., (“AFI”),
and sought recovery of $1,491,308.66 allegedly paid to AFS as pre-payment of aviation fuel and flight services under a contractual
relationship between Ryan and AFS. AFI moved to dismiss the action, to which, Ryan has subsequently filed a notice of removal to
the Federal District Court for the Northern District of Illinois, Bankruptcy Division Case No.: 12-80802. AFI filed an action for
breach of contract for Ryan’s failure to pay certain Jet Fuel invoices for the delivery of fuel in the amount of $678,000
plus interest; Aviation Fuel International v. Ryan International Airlines, Inc., a Kansas corporation, Wells Fargo Bank Northwest,
Trustee N.A., a Utah corporation, RUBLOFF 757-MSN24794LLC, an Illinois limited liability company, RYAN 767 LLC, an Illinois limited
liability company, AFT TRUST SUB I, a Delaware corporation, RYAN 767 N123 LLC, an Illinois limited liability company, and RUBLOFF
440 LLC, an Illinois corporation, Civil Action Case No. CACE 10-037788-04. AFI also filed the corresponding claims of liens
under the FAA Aircraft Registration Branch, for each plane, registered and tail wing number listed therein. This action has also
been recently noticed for been removal to the Federal District Court for the Northern District of Illinois, Bankruptcy Division
Case No.: 12-80802. In addition, as a result of Ryan’s filing a Federal Involuntary Bankruptcy Petition against Aviation
Flight Services (“AFS”) on June 10, 2010, Case No.: 10-27313-JKO, (S.D. of Fla.), our subsidiary AFI, also filed and
was discharged as a creditor in the amount of $269,000. However, the obligations for the unpaid fuelings owed to AFI still remain
outstanding as obligations due to AFI.



Southern Sky Air Tours,
d/b/a Myrtle Beach Direct Air and Tours (Direct Air). On or about March 13, 2012, Southern Sky Air Tours, d/b/a Myrtle Beach
Direct Air and Tours (“Direct Air”) ― a public charter operator ― ceased operations. Direct Air has subsequently
filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of Massachusetts (Worcester)(Case no. 12-40944).
The Company currently has $122,000 in cash in escrow with Suntrust Bank, representing a partial payment by Direct Air for Fuel.
This action is currently pending before the court, as it relates to the collection of the garnishment.



Russell Adler. On
January 11, 2013, Russell Adler, our former Chief Executive Officer, filed a cross-complaint against the Company, AFI, and other
associated persons in the Seventeenth Judicial District Court, Broward County, Florida. Mr. Adler’s complaint alleges various
causes of action, including indemnification from the Company in respect of litigation described above, damages for breach of Mr.
Adler’s employment contract, fraud, unpaid legal fees, unjust enrichment, and quantum meruit. We believe Mr. Adler’s
claims are without merit and intend to defend the same.



As a result of the non-payment
for Jet Fuel by AFI customers, AFI’s suppliers have filed actions that have resulted in judgment and garnishments, in the
amount of $330,000. Most of these fuel outstanding fuel delivery charges are secured in the bankruptcy action involving Ryan as
described above,

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through lien filings by both the issuer and
individual fuel providers. In addition, AFI incurred certain loan and debt obligations for which the Company is attempting to convert
into common stock of the issuer.



From time to time, we are
also a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights
under contracts with purchasers and suppliers of fuel. While the outcome of these legal proceedings cannot at this time be predicted
with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of
operations.



ITEM 1A. RISK FACTORS



As a smaller reporting
company, we are not required to provide the information required by this item.



ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



No solicitation was made
and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance
of shares and options as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section
4(2) of the Securities Act of 1933.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



Effective February 1, 2000, the Company sold
and issued a promissory note secured by certain tangible and intangible assets of the Company (“Note”) in exchange
for $450,000 in cash proceeds. As of May 1, 2000, the Company is in default with respect to the Note. The Note and its accompanying
Security Agreement have been filed as an exhibit to the Company’s 1999 annual report on form 10-KSB filed with the Securities
and Exchange Commission on March 30, 2000.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



ITEM 5. OTHER INFORMATION



Not applicable.



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ITEM 6. EXHIBITS



The following documents are filed
as exhibits to this Form 10-Q:



INDEX TO EXHIBITS



|Number |  | Exhibits                                                                                                            
|------ |  | --------------------------------------------------------------------------------------------------------------------
|3.1    |  | Amended
    and Restated Certificate of Incorporation of Fuelstream, Inc.                                           
|3.2    |  | Amended
    and Restated Bylaws of Fuelstream, Inc.(1)                                                              
|10.1   |  | Form
    of Indemnification Agreement (2)                                                                           
|10.2   |  | 2012
    Equity Incentive Plan (2)                                                                                  
|31     |  | Certification by Chief Executive Officer, John D. Thomas, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32     |  | Certification by Chief Executive Officer, John D. Thomas, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|       |  |                                                                                                                     





(1) Filed as an Exhibit to the Company’s Current Report on
Form 8-K, filed on June 17, 2011.



(2) Filed as an Exhibit to the Company’s Current Report on
Form 8-K, filed on September 18, 2012.















































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SIGNATURES



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  | FUELSTREAM, INC.                        
|------------------ |  | ----------------------------------------
|Date: May 20, 2014 |  | BY: /s/ John D. Thomas__________________
|                   |  | John D. Thomas                          
|                   |  | Chief Executive Officer                 















































































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