AFPW AlumiFuel Power Corporation (CE)

ALUMIFUEL POWER CORPORATION

 (Exact Name of Registrant as Specified in its Charter)

 

Nevada		88-0448626
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

Total

Total notes and interest payable to related parties consisted of the following at June 30, 2013 and 2012:

		2013				2012
Notes payable to officers; interest at 8% and due on demand		$	500			$	1,555
Notes payable to affiliates of Company officers; interest at 8% and due on demand			41,016				37,297
Notes payable, related party			41,516				38,852
Interest payable related party			8,088				6,103
Total principal and interest payable, related party		$	49,604			$	44,955

Issuance Date		Fair Value			Term		Assumed Conversion Price				Market Price on Grant Date				Volatility Percentage				Interest Rate
2/5/13		$	59,683		6 months		$	0.00005			$	0.0001				271	%			0.11	%
3/7/13		$	15,000		9 months		$	0.00005			$	0.0001				295	%			0.13	%
3/22/13		$	17,000		9 months		$	0.00005			$	0.0001				295	%			0.13	%

Fair Value			Term		Assumed Conversion Price				Volatility Percentage				Interest Rate
$	142,662		9 months		$	0.0013				327	%			0.13	%

Issuance Date		Fair Value			Term		Assumed Conversion Price				Market Price on Grant Date				Volatility Percentage				Interest Rate
6/6/13		$	31,660		1 year		$	0.0025			$	0.0073				367	%			0.14	%

Fair Value			Term		Assumed Conversion Price				Volatility Percentage				Interest Rate
$	31,660		1 year		$	0.0013				365	%			0.16	%

Issuance Date		Fair Value			Term		Assumed Conversion Price				Market Price on Grant Date				Volatility Percentage				Interest Rate
6/6/13		$	31,249		6 months		$	0.0028			$	0.0060				292	%			0.08	%

Fair Value			Term		Assumed Conversion Price				Volatility Percentage				Interest Rate
$	35,200		6 months		$	0.0013				286	%			0.11	%

 

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Debentures and convertible notes and interest payable consisted of the following at June 30, 2013:

Short-term liabilities:		June 30, 2013
Convertible debentures; non-affiliates; interest at 6% and due December 2013; outstanding principal of $10,000 face value; net of discount of $0		$	10,000
2012 and 2013 Asher Convertible Notes; non-affiliate, interest at 8%; due May 2012; $92,500 face value net of discount of $24,444			68,056
January 2012 Convertible Notes; non-affiliate; interest at 8%; due January 2013			50,000
January 2012 Interest Note; non-affiliate; interest at 8%; due January 2013; $26,100 face value net of discount of $0			26,100
October 2012 Convertible Notes/Feb 2013 Notes/May 2013 Notes; non-affiliate; interest at 8%; due October 2013/January 2014; $21,508 face value net of discount of $10,235			11,273
October/November Convertible Notes; non-affiliate; interest at 8%; $104,160 face value net of discount of $23,147			81,013
2013 Convertible Notes; non-affiliate; interest at 8%; $85,963 face value net of discount of $28,037			57,926
JMJ Convertible Notes; non-affiliate; interest at 12%; $16,500 face value net of discount of $14,667			1,833
Bohn Convertible Note; non-affiliate; interest at 8%; $20,000 face value net of discount of $16,667			3,333
Wexford Convertible Note; non-affiliate; interest at 8%; $75,000 face value net of discount of $0			75,000
Total short-term convertible notes		$	384,534
Interest payable, short-term convertible notes			81,327
Total principal and interest payable, short-term convertible notes		$	465,853

Note 6: Other Expense

 

Other expense for the three and six month periods ended June 30, 2013 and 2012 consisted of the following:

 

		Three months ended June 30, 2013				Three months ended June 30, 2012				Six months ended June 30, 2013				Six months ended June 30, 2012
General and administrative		$	28,869			$	41,614			$	58,097			$	102,057
Salaries and employee benefits			53,698				55,095				112,248				151,398
Legal and accounting			13,155				5,538				21,655				19,638
Bad debt expense (recovery)			(49,400	)			-				(66,250	)			-
Professional services			56,983				29,526				100,532				103,011
		$	103,305			$	131,773			$	226,282			$	376,104

A summary of the activity of the Company’s outstanding warrants at December 31, 2012 and June 30, 2013 is as follows:		Warrants				Weighted-average exercise price				Weighted-average grant date fair value
Outstanding and exercisable at December 31, 2012			940,000			$	0.40			$	0.20
Granted			190,000				0.016				0.017
Expired/Cancelled			-				-				-
Exercised			-				-				-
Outstanding and exercisable at June 30, 2013			1,130,000			$	0.43			$	0.07

Note 10: Subsequent Events

Management has determined that there are no further events subsequent to the balance sheet date that should be disclosed in these financial statements.

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General:

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2012 and 2011.

The independent auditors’ reports on our financial statements for the years ended December 31, 2012 and 2011 include a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 1 to the audited consolidated financial statements for the year ended December 31, 2012.

While we have prepared our financial statements on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern in their audit reports for the years ended December 31, 2012 and 2011.

The Company is a an early production stage alternative energy company that generates hydrogen gas and steam for multiple niche applications requiring on-site, on-demand fuel sources. Our hydrogen drives fuel cells for back-up, remote, and portable power, fills inflatable devices such as weather balloons, and can replace costly, hard-to-handle and high pressure K-Cylinders. Our steam/hydrogen output is also being designed to drive turbine-based underwater propulsion systems and auxiliary power systems. We have significant differentiators in performance, adaptability, safety and cost-effectiveness in its target market applications, with no external power required and no toxic chemicals or by-products.

We have completed the design and engineering modifications necessary and have begun limited production of our Portable Balloon Inflation Systems. In October 2011, we announced we were awarded a contract to deliver a PBIS-2000 Portable Balloon Inflation System to the Air Force Special Operations Command (AFSOC). This unit was delivered in April 2012 and included 360 cartridges as well as a spare parts kit, a tool kit and two days of training by our engineers at the customer’s site. The PBIS-2000 expands the capability of our current family of hydrogen generators, which includes the PBIS-1000 (for 100g balloons) and the PBIS-lite (designed for 30g pieball balloons). The PBIS-2000 generates sufficient hydrogen to inflate a 200g weather balloon within 20 minutes using up to 6 AlumiFuel Cartridges contained in a single reactor vessel; this represents significantly more hydrogen than is required for the PBIS-1000. While the footprint, weight and safety features of the PBIS-2000 are similar to the PBIS-1000, the configuration has been modified such that the system operates at ambient (atmospheric) pressure (below 10 psig) so that the user never has to deal with a high pressure system such as the industry standard K-Cylinder (2265 psig). In September 2012, the Company received a purchase order from the U.S. Air Force to make certain modifications to the PBIS-2000 previously delivered. The unit was returned to the Air Force in the first quarter of 2013 and we booked $13,440 in revenue received for this work.

During the six month period ended June 30, 2013, we transferred all of the assets related to our hydrogen generation business to a new wholly owned subsidiary, Novofuel, Inc. ("Novofuel") in exchange for 12,000,000 shares of Novofuel common stock. Novofuel was formed as a separate entity in anticipation of executing a transaction with Genport, srl of Italy, which would merge its wholly-owned operating subsidiary into Novofuel. The Company and Genport have executed a Term Sheet and the parties are completing extensive due diligence and moving forward toward completion of a definitive agreement through which both parties would own 50% of Novofuel before any future financings.

If completed, the merger would combine and integrate the synergistic technologies, Intellectual Property, products, revenues, engineering staffs, manufacturing operations, marketing, sales and services activities of both companies. The focus of Novofuel would be to pursue and capture backup and portable power applications and business opportunities in the U.S., Europe. The new entity would pursue the engineering development of an integrated 5kW backup power system for telecom facilities.

 

 

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LIQUIDITY AND CAPITAL RESOURCES

To address the going concern situation addressed in our financial statements at December 31, 2012 and 2011, we anticipate we will require over the next twelve months approximately $900,000 of additional capital to fund the Company’s operations. This amount does not include any amounts that may be necessary to pay off existing debt or accrued expenses. We presently believe the source of funds will primarily consist of several components that include: debt financing, which may include further loans from our officers or directors as detailed more fully in the accompanying financial statements; the sale of our equity securities in private placements or other equity offerings or instruments; as well as the potential for very minimal cash flows from operations through the production of PBIS reactors and the resultant sales of AlumiFuel cartridges. As in 2012, during 2013 we anticipate a significant amount of capital resources will come from convertible debt instruments. These instruments typically contain a significant discount to the market value of our common stock of up to 65% causing the issuance of shares below market value prices causing substantial dilution to our stockholders.

During the six months ended June 30, 2013, we received a net of $260,641 from our financing activities, primarily from the issuance of notes payable from various sources totaling $313,280 including $98,500 in convertible notes. This was offset by payments on notes payable totaling $48,250. This compared to cash provided by financing activities of $310,032 in the six months ended June 30, 2012 derived from proceeds from the issuance of notes payable totaling $477,550, proceeds from sales of our common stock of $11,000, and sales of AFPI common stock by parent of $41,038. This was offset by payments on notes payable of $97,921 along with payments on redemption of preferred stock of $110,857.

In the six month period ended June 30, 2013, net cash used in operating activities was $258,955. This compared to net cash used in operating activities of $308,615 for six month period ended June 30, 2012. The 2013 amount included a $439,090 net loss that included approximately $278,280 in non-cash charges and credits to operating assets and liabilities primarily from non-cash interest expense of $227,208 related to our convertible notes as well as amortization of discount on debentures payable totaling $164,775. This compares to a net loss of $1,262,001 in the six months ended June 30, 2012 that included a non-cash loss of approximately $755,676 primarily from the change in fair value of derivative liability of $396,436 along with amortization of discount on debentures payable of $289,501 both related to our convertible debt.

We can make no assurance that we will be successful in raising the funds necessary for our working capital requirements as suitable financing may not be available and we may not have the ability to sell either equity or debt securities under acceptable terms or in amounts sufficient to fund our needs. Our inability to access various capital markets or acceptable financing could have a material adverse effect on our commercialization efforts, results of operations and deployment of our business strategies and severely threaten our ability to operate as a going concern.

During the remainder of our fiscal year and for the foreseeable future, we will be concentrating on raising the necessary working capital through acceptable debt instruments and equity financing to insure the operation of our business. To the extent that additional capital is raised through the sale of equity or equity related securities such as convertible notes, which is expected to be our primary source of increased capital, the issuance of such securities has resulted and will continue to result in significant dilution to our current shareholders.

 

(b)           Results of Operations

 

 

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Six Month Period ended June 30, 2013 vs. June 30, 2012

In September 2012, the Company received a purchase order from the United State Air Force Strategic Operations Command to make modification to a previously delivered PBIS-2000 portable balloon inflation device. This order was delivered in the first quarter of 2013 and accordingly revenue of $13,440 for these modifications was recorded in the first quarter of 2013. We had previously recorded an asset as  "Work in progress" on our balance sheet at December 31, 2012, reflecting the cost of our work to modify PBIS-2000 through that date. This amount included parts, labor and other expenses directly related to modifications to the PBIS-2000 unit. Upon payment for the unit in the quarter ended March 31, 2013, a total of $21,421 for costs related to the modifications to the PBIS-2000 was expensed and is presented on our statements of operations a "Cost of goods sold".

For the six month period ended June 30, 2013, our total revenue was $13,440 from the PBIS-2000 modifications versus $61,134 from the sale of three PBIS-2000 units to the United State Air Force in the 2012 period. The costs of goods sold was $21,421 for gross loss of $7,981 for the period. Cost of goods sold was $32,918 during the 2012 period for a gross profit of $28,216. The loss from operations for the six month period ended June 30, 2013 was $405,318 versus $583,483 in the six month period ended June 30, 2012. As discussed more fully below, "other" SG&A expenses decreased significantly in the 2013 period as compared to the 2012 period accounting for a majority of the decrease. Due to a credit from a vendor of an overcharge from 2011, reactor production costs were $(7,088) for the six months ended June 30, 2012 with no similar credit or expense in 2013. The losses included $167,069 and $157,335 in 2013 and 2012, respectively, comprised of related party expense that included officer and key employee management fees as well as rent paid to related parties.

A total of $226,282 and $376,103 for “other” SG&A expenses in the six month periods ended June 30, 2013 and 2012, respectively, was comprised of the following:

		Six months ended June 30, 2013				Six months ended June 30, 2012
General and administrative		$	58,097			$	102,057
Salaries and employee benefits			112,248				151,398
Legal and accounting			21,655				19,638
Bad debt expense (recovery)			(66,250	)			-
Professional services			100,532				103,011
		$	226,282			$	376,104

The “other” SG&A expense during the six months ended June 30, 2013 included a decrease in nearly all categories as the Company limited its operations due to lack of sufficient working capital. The Company recovered $66,250 in bad debt expense from payments received on notes receivable from FFFC in 2013 with no similar payments in the 2012 period.

The company recorded $(33,772) in “other income (expense)” during the six months ended June 30, 2013 as compared to $(678,518) in the six months ended June 30, 2012. This significant decrease is the direct result of a gain in "litigation contingency" on the settlement of the lawsuit with API's former landlord of $351,232. In addition, fair value adjustments of derivative liabilities related to the Company's various convertible notes as the Company's stock price decreased compared to the prior period resulting in a decreased change in the derivative liability. The Company experienced decreases in interest expense in the 2013 period versus the 2012 period.

 

 

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Three Month Period ended June 30, 2013 vs. June 30, 2012

For the three month period ended June 30, 2013, our total revenue was $0 versus $61,134 from the sale of three PBIS-2000 units to the United State Air Force in the 2012 period. The costs of goods sold was therefore $0 for the 2013 period. Cost of goods sold was $32,918 during the 2012 period for a gross profit of $28,216. The loss from operations for the three month period ended June 30, 2013 was $186,921 versus $246,120 in the three month period ended June 30, 2012. As discussed more fully below, "other" SG&A expenses decreased significantly in the 2013 period as compared to the 2012 period accounting for a significant portion of the decrease along with a significant decrease in stock compensation expense. The losses included $83,215 and $72,975 in 2013 and 2012, respectively, comprised of related party expense that included officer and key employee management fees as well as rent paid to related parties.

A total of $103,306 and $131,773 for “other” SG&A expenses in the three month periods ended June 30, 2013 and 2012, respectively, was comprised of the following:

		Three months ended June 30, 2013				Three months ended June 30, 2012
General and administrative		$	28,869			$	41,614
Salaries and employee benefits			53,698				55,095
Legal and accounting			13,155				5,538
Bad debt expense (recovery)			(49,400	)			-
Professional services			56,983				29,526
		$	103,305			$	131,773

The “other” SG&A expense during the three months ended June 30, 2013 included a decrease in several categories as the Company limited its operations due to lack of sufficient working capital. The Company recovered $49,400 in bad debt expense from payments received on notes receivable from FFFC in 2013 with no similar recovery in the 2012 period but saw an increase in professional services.

The company recorded $264,598 in “other income (expense)” during the three months ended June 30, 2013 as compared to $(82,684) in the three months ended June 30, 2012. This significant decrease is the direct result of a gain in "litigation contingency" on the settlement of the lawsuit with API's former landlord of $351,232 that occurred during the three months ended June 30, 2013. In addition, fair value adjustments of derivative liabilities related to the Company's various convertible notes as the Company's stock price decreased compared to the prior period resulting in a decreased change in the derivative liability. The Company also experienced decreased interest expense in the 2013 period versus the 2012 period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

 

 

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Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

A review and evaluation was performed by the Company's management, including the Company's Chief Executive Officer (the "CEO") who is also the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that review and evaluation, the CEO concluded that as of June 30, 2013 disclosure controls and procedures, were effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

Management’s Report on Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

•	Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our CEO/CFO has evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to the extent possible given the limited personnel resources and technological infrastructure in place to perform the evaluation. Based upon our management’s discussions with our auditors and other advisors, our CEO/CFO believe that, during the period covered by this report, such internal controls and procedures were not effective as described below.

Due to the small size and limited financial resources, our administrative assistant, corporate secretary and chief executive officer are the only individuals involved in the accounting and financial reporting. As a result, there is limited segregation of duties in the accounting function, leaving all aspects of financial reporting and physical control of cash primarily in the hands of two individuals. This limited segregation of duties represents a material weakness. We will continue to periodically review our disclosure controls and procedures and internal control over financial reporting and make modifications from time to time considered necessary or desirable.

This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities

During the three month period ended June 30, 2013, we issued a total of 23,005,822 shares of our common stock on the conversion of $69,432 in principal and interest on our various convertible promissory notes. In addition to the converted principal and interest on the notes, the Company recorded $138,064 in additional expense for the derivative liability for a total cost to the Company of $207,496 or $0.009 per share.

We offered and sold the securities in reliance on an exemption from federal registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We relied on this exemption and rule based on the fact that there were a limited number of investors, all of whom were accredited investors and (i) either alone or through a purchaser representative, had knowledge and experience in financial and business matters such that each was capable of evaluating the risks of the investment, and (ii) we had obtained subscription agreements from such investors indicating that they were purchasing for investment purposes only. The securities were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The disclosure contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities of the Company, and is made only as permitted by Rule 135c under the Securities Act.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None.

 

 

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Item 6. Exhibits

Exhibits:
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

101.INS **		XBRL Instance Document
101.SCH **		XBRL Taxonomy Extension Schema Document
101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **		XBRL Taxonomy Extension Label Linkbase Document
101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

	ALUMIFUEL POWER CORPORATION (Registrant)
Date: August 14, 2013	By:	/s/ Henry Fong
		Henry Fong
		Principal Executive Officer and Principal Financial Officer

 

 

 

 

 

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