NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business
and organization, asset sale, and going concern and management’s plans:
Business
and organization:
FastFunds
Financial Corporation (the “Company” or “FFFC”) is a holding company, and through January 31, 2006, operated
primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). FFFC was previously organized as Seven
Ventures, Inc. (“SVI”). Effective June 7, 2004, Chex merged with SVI (the “Merger”), a Nevada corporation
formed in 1985. At the date of the Merger, SVI was a public shell with no significant operations.
The
acquisition of Chex by SVI was recorded as a reverse acquisition based on factors demonstrating that Chex represents the accounting
acquirer. The historical stockholders’ equity of Chex prior to the exchange was retroactively restated (a recapitalization)
for the equivalent number of shares received in the exchange after giving effect to any differences in the par value of the SVI
and Chex common stock, with an offset to additional paid-in capital. The restated consolidated accumulated deficit of the accounting
acquirer (Chex) has been carried forward after the exchange.
On June 29, 2004, SVI changed its name
to FFFC.
On
May 25, 2012, the Company entered into an Agreement Concerning the Exchange of Securities (the “Agreement”) by and
among Advanced Technology Development, Inc., a Colorado corporation ("ATD"), and Carbon Capture USA, Inc., a Colorado
corporation ("Carbon") and Carbon Capture Corporation, a Colorado corporation ("CCC"). ATD is a newly formed,
100% wholly owned subsidiary of the Company. Carbon is a 100% wholly owned subsidiary of CCC, which is privately held. Mr. Henry
Fong, a director of the Company is the control person of CCC. Pursuant to the Agreement, ATD acquired from CCC all of the issued
and outstanding common stock of Carbon in exchange for ninety million (90,000,000) newly issued unregistered shares of the Company’s
common stock. ATD has also assumed an unpaid license fee of $250,000 due from Carbon to CCC.
Carbon
has an exclusive US license related to provisional patent Serial number 61/077,376 and a US Patent to be issued. The patent titled,
“METHOD OF SEPARATING CARBON DIOXIDE”, related to methods of decomposing a gaseous medium, more specifically, relating
to methods of utilizing radio frequency energy to separate the elemental components of gases such as carbon dioxide. ATD will
commence research and development with a goal of potential commercialization; subject to financing.
On
July 6, 2012 The Financial Industry Regulatory Authority approved the Company's 3 for 1 forward stock split on its common stock
outstanding in the form of a dividend, with a Record Date of June 18, 2012. The stock split entitled each common stock shareholder
as of the Record Date to receive two (2) additional shares of common stock for each one (1) share owned. Additional shares issued
as a result of the stock split were distributed on July 9, 2012. All share amounts in this Annual Report have been adjusted to
reflect the stock split.
On
March 5, 2013, the Company and its’ newly formed and wholly owned subsidiary NET LIFE Processing Inc., (“NET LIFE”)
entered into an Agreement Concerning the Exchange of Securities (the “Agreement”) with Net Life Financial Processing
Trust (“Net Life Trust”) and the Trustee of Net Life Trust pursuant to which NET LIFE will acquire the exclusive mortgage
servicing rights (the “Rights”) from Net Life Trust. Net Life Trust holds the exclusive mortgage servicing rights
from Net Life Financial Holdings Trust.
The
consideration for the Rights will be thirty three percent (33%) of the Company on a post issuance basis (the “Share Consideration”).
The parties have agreed that the Share Consideration can be in a Class of newly formed Preferred Stock which Certificate of Designation,
will include among other things, the right for the Preferred Stock to convert to thirty three percent (33%) of the outstanding
shares of common stock, post issuance.
The
closing of the transaction contemplated by the Agreement (the “Closing”) is subject to the satisfaction or waiver
of customary closing conditions, including that the representations and warranties given by the Parties are materially true
and correct as of the Closing, and the exchanging and approval by each party of the other party’s schedules
and exhibits. The Company is conducting ongoing due diligence and there is no assurance the closing conditions will be met
and that this transaction will ever close.
NET
LIFE is a development stage enterprise that has developed an innovative new mortgage product that is not based
on credit history (no doc) or personal guarantees. It is only secured by the underlying collateral and a life insurance policy
on the borrower. Therefore, all that is required to qualify for a mortgage loan is qualifying for a life insurance policy, a down
payment that usually amounts to 10% of the purchase price and verification that the borrower has the financial ability to pay
the monthly payments. NET LIFE believes this mortgage product will be attractive to a wide spectrum of potential borrowers including:
|
•
|
borrowers
who
have
experienced
prior
financial
difficulties
such
as
foreclosures,
bankruptcies,
late
payments
or
other
credit
problems
|
|
•
|
borrowers
who
are
presently
employed
and
whose
current
income
would
qualify
for
a
mortgage
loan;
but
who
couldn't
otherwise
qualify;
and
|
|
•
|
borrowers
who
may
wish
to
bypass
the
traditional
paperwork
involved
in
the
typical
underwriting
process
but
who
would
otherwise
qualify.
|
Since
its formation in 2012, NET LIFE has represented that it had conducted testing via a number of successful closings, however, to
date the company has been unable to verify these occurrences.
Going
concern and management’s plans:
In
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, the Report of the Independent Registered
Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company’s ability to
continue as a going concern. The Company’s interim financial statements for the three and six months ended June 30, 2013
and 2012 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company reported a net loss of $865,535 for the six months ended June 30,
2013, and has a working capital deficit of approximately $10,126,799 and accumulated deficit of approximately $24,051,751 as of
June 30, 2013. Moreover, the Company presently has no significant ongoing business operations or sources of revenue and has little
resources with which to obtain or develop new operations.
These
factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do
not contain any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
The
Company currently expects to receive approximately $30,000 annually pursuant to the Preferred Stock it holds of an unaffiliated
party (see note 3), as well as minimal cash from the Nova remaining credit card portfolio. However, the Company has not received
the quarterly dividend from its’ investment since the quarter ended June 30, 2012, and has not received any cash from the
Nova portfolio since 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
There can be no assurance that the Company will have adequate resources to fund future operations, if any, or that funds will
be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company.
Currently, the Company does not have a revolving loan agreement with any financial institutions, nor can the Company provide any
assurance it will be able to enter into any such agreement in the future. The condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
The
Company evaluates, on an ongoing basis, potential business acquisition/restructuring opportunities that become available from
time to time, which management considers in relation to its corporate plans and strategies.
2. Summary
of significant accounting policies:
Basis
of presentation and principles of consolidation:
The
accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management,
all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have
been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information
and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements
should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included
in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 16, 2013. Interim
results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of future results for the
full year. Certain amounts from the 2012 period have been reclassified to conform to the presentation used in the current period.
The
condensed consolidated financial statements include the accounts of the Company and its’ subsidiaries. All material intercompany
balances and transactions have been eliminated.
Cash
and cash equivalents:
For
the purpose of the financial statements, the Company considers all highly-liquid investments with an original maturity three-months
or less to be cash equivalents.
Accounts
receivables and revenue recognition:
Accounts
receivables are stated at cost plus refundable and earned fees (the balance reported to customers), reduced by allowances for
refundable fees and losses. Fees (revenues) are accrued monthly on active credit card accounts and included in accounts receivables,
net of estimated uncollectible amounts. Accrual of income is discontinued on credit card accounts that have been closed or charged
off. Accrued fees on credit card loans are charged off with the card balance, generally when the account becomes 90 days past
due. The allowance for losses is established through a provision for losses charged to expenses. Credit card receivables are charged
against the allowance for losses when management believes that collectability of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the
collectability of the accounts and prior loss experience. This evaluation also takes into consideration such factors as changes
in the volume of the loan portfolio, overall portfolio quality and current economic conditions that may affect the borrowers’
ability to pay. While management uses the best information available to make its evaluations, this estimate is susceptible to
significant change in the near term.
Long-lived
assets:
Long-lived
assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
Noncontrolling
interest:
On January
1, 2012, the Company adopted authoritative accounting guidance that requires the ownership interests in subsidiaries held by parties
other than the parent, and income attributable to those parties, be clearly identified and distinguished in the parent’s
consolidated financial statements. The Company’s noncontrolling interest is now disclosed as a separate component of the
Company’s consolidated deficiency on the balance sheets. Earnings and other comprehensive income are separately attributed
to both the controlling and noncontrolling interests. Earnings per share are calculated based on net income attributable
to the Company’s controlling interest.
Loss
per share:
Loss
per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Stock
options, warrants, and common stock underlying convertible promissory notes are not considered in the calculations for the three
and six month periods ended June 30, 2013 and 2012, as the impact of the potential common shares, which total 187,947,614 (2013)
and 16,795,547 (2012), would be antidilutive.
Use
of estimates:
Preparation
of the consolidated financial statements in accordance 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 dates of the balance sheets and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Fair
value of financial instruments:
The
estimated fair value of financial instruments has been determined by the Company using available market information and appropriate
methodologies; however, considerable judgment is required in interpreting information necessary to develop these estimates. Accordingly,
the Company’s estimates of fair values are not necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The
fair values of cash and cash equivalents, current non-related party accounts receivable, and accounts payable approximate their
carrying amounts because of the short maturities of these instruments.
The
fair values of notes and advances receivable from non-related parties approximate their net carrying values because of the allowances
recorded as well as the short maturities of these instruments.
The
fair values of notes and loans payable to non-related parties approximate their carrying values because of the short maturities
of these instruments. The fair value of long-term debt to non-related parties approximates carrying values, net of discounts applied,
based on market rates currently available to the Company.
Accounting
for obligations and instruments potentially settled in the Company’s common stock:
The
Company accounts for obligations and instruments potentially to be settled in the Company's stock in accordance with ASC Topic
815,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.
This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially
settled in, the Company's stock.
Under
ASC Topic 815, contracts are initially classified as equity or as either assets or liabilities, depending on the situation. All
contracts are initially measured at fair value and subsequently accounted for based on the then current classification. Contracts
initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified
as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses
these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified
as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue
to be included in earnings. The classification of a contract is reassessed at each balance sheet date.
Stock-based
compensation:
The
Company has one stock option plan approved by FFFC’s Board of Directors in 2004, and also grants options and warrants to
consultants outside of its stock option plan pursuant to individual agreements. The Company accounts for its stock based compensation
under ASC 718 “Compensation- Stock Compensation” using the fair value based method. Under this method, compensation
cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually
the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity
instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods
and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance
of those equity instruments. We use the Black Scholes model for measuring the fair value of options. The stock based fair value
compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement
date) and is recognized over the vesting periods.
There
were no options granted during the three and six months ended June 30, 2013 and 2012.
The
Company’s stock option plan is more fully described in Note 8.
Income
Taxes
Deferred
tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A
valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The
Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 740, “Accounting for Income Taxes. It prescribes a recognition threshold
and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. As a result, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties. The
guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination
by the various taxing authorities.
The
Company classifies penalties and interest related to unrecognized tax benefits as income tax expense in the Statements of Operations
Reclassifications:
Certain
prior period balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications
had no impact on previously reported results of operations or stockholders' deficiency.
Recent
Accounting Pronouncements Not Yet Adopted
:
As
of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that we believe would
have a material impact on our financial statements.
3.
Long term investments:
On
March 30, 2011, the Company and Paymaster Limited (“Paymaster”) agreed to restructure a note receivable (the “Note”).
Pursuant to the agreement, the parties agreed to convert the remaining balance of $339,575 of the Note receivable into Cumulative
Convertible Redeemable Preference Shares (the Preference Shares”) with a value of $400,000, and an annual dividend of 7.5%
over thirty-six (36) months. Paymaster, at any time prior to maturity, may elect to redeem some or all of the Preference Shares
at an effective dividend rate of 10% per annum. The Company, upon maturity and with not less than ninety (90) days prior notice,
may elect to convert some or all of Preference Shares into the pro rata equivalent of 11,100 ordinary shares of Paymaster (equal
to 10% of the issued and outstanding capital of the Company based on the conversion of all Preference Shares on a fully diluted
basis). The Company has recorded the investment at $89,575, net of a valuation allowance of $250,000, the same historical carrying
value on the Company’s balance sheet as the note. The last dividend the Company has received was the quarterly dividend
for the quarter ended June 30, 2012.
4. Accrued
liabilities:
|
|
Accrued
liabilities at June 30, 2013 and December 31, 2012 were $3,286,581 and
$3,021,455, respectively, and were comprised of:
|
|
|
2013
|
|
2012
|
Legal fees
|
|
$
|
215,218
|
|
|
$
|
215,218
|
|
Interest
|
|
|
2,661,071
|
|
|
|
2,427,746
|
|
Consultants and advisors
|
|
|
207,550
|
|
|
|
175,750
|
|
Registration rights
|
|
|
98,013
|
|
|
|
98,013
|
|
Other
|
|
|
104,729
|
|
|
|
104,728
|
|
|
|
$
|
3,286,581
|
|
|
$
|
3,021,455
|
|
5.
Promissory notes, including related parties and debenture payable:
Promissory
notes, including related parties at June 30, 2013 and December 31, 2012, consist of the following:
|
|
2013
|
|
2012
|
Promissory notes payable:
|
|
|
|
|
|
|
|
|
Various, including related parties of $264,963 (2013) and $333,363 (2012); interest rate ranging from 8% to 10%
[A]
|
|
$
|
288,663
|
|
|
$
|
351,563
|
|
Notes payable; interest rates ranging from 9% to 15%; interest payable quarterly; the notes are unsecured, matured on February 28, 2008; currently in default and past due
[B]
|
|
|
2,090,719
|
|
|
|
2,090,719
|
|
|
|
$
|
2,379,382
|
|
|
$
|
2,442,282
|
|
|
[A]
|
Pursuant to a November 4, 2011 Board of director resolution,
these notes are convertible at conversion rates, determined at the discretion of the board of directors. During the six months
ended June 30, 2013 the Company issued notes of $20,300 (including related parties of $4,400), made payments of $72,800 (all to
related parties) and converted $10,400 to shares of common stock.
|
|
[B]
|
These
notes
payable
(the
“Promissory
Notes”)
originally
became
due
on
February
28,
2007.
The
Company
renewed
$283,000
of
the
Promissory
Notes
on
the
same
terms
and
conditions
as
previously
existed.
In
April
2007
the
Company,
through
a
financial
advisor,
restructured
$1,825,000
of
the
Promissory
Notes
(the
“Restructured
Notes”).
The
Company
has
accrued
an
expense
of
$36,500
to
compensate
the
financial
advisor
2%
of
the
Restructured
Notes
as
well
as
having
issued
150,000
shares
of
common
stock
to
the
financial
advisor.
The
Restructured
Notes
carry
a
stated
interest
rate
of
15%
(a
default
rate
of
20%)
and
matured
on
February
28,
2008.
The
Company
has
not
paid
the
interest
due
since
June
2007,
and
no
principal
payments
on
the
Promissory
Notes
have
been
made
since
2008
and
accordingly,
they
are
in
default.
Accrued
interest
on
these
notes
total
$2,594,686
and
is
included
in
accrued
expenses
on
the
consolidated
balance
sheets.
|
The
chairman of the board of the Company has personally guaranteed up to $1 million of the Restructured Notes and two other non-related
individuals each guaranteed $500,000 of the Restructured Notes. In consideration of their guarantees the Company granted warrants
to purchase a total of 1,600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The warrants were
valued at $715,200 using the Black-Scholes option pricing model and were amortized over the one-year term of the Restructured
Notes. The warrants expired in March 2010.
In
January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the
holders of the Restructured Notes) and the holders of the Restructured Notes. The claim is seeking $1,946,250 plus per diem interest
beginning January 22, 2008 at the rate of twenty percent (20%) per annum plus $37,000 due the financial advisor for unpaid fees.
The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and a judgment was entered on
August 18, 2009 in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972
in attorney’s fees and expenses. The Company is not aware of any payments being made by any of the guarantors and accordingly,
the Company includes these liabilities on the June 30, 2013 and December 31, 2012 balance sheets promissory notes payable and
accrued expenses.
Debenture
payable:
2012
Notes
During
2012, the Company issued three convertible notes aggregating $105,000 to Asher Enterprises, Inc. (“Asher” and “2012
Asher Notes”). Among other terms the 2012 Asher Notes are due nine months from their issuance date, bear interest at 8%
per annum, are payable in cash or shares at the Conversion Price as defined herewith, and are convertible at a conversion price
(the “Conversion Price”) for each share of common stock equal to 50% of the average of the lowest three trading prices
(as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding
the date of conversion. Upon the occurrence of an event of default, as defined in the Note, the Company is required to pay interest
at 22% per annum and the holders may at their option declare the 2012 Notes, together with accrued and unpaid interest, to be
immediately due and payable. In addition, the 2012 Notes provides for adjustments for dividends payable other than is shares of
common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company
or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company.
During the six months ended June 30, 2013, the holder of the Asher Notes converted an aggregate of $53,100 of principal and $1,200
of accrued and unpaid interest into 35,887,004 shares of common stock. The Company is currently in default as the Company does
not currently maintain sufficient authorized shares reserved for issuance under the 2012 Asher Notes The Company has received
a default and demand notice for 200% of the remaining outstanding principal due. As of June 30, 2013, the outstanding balance
of the 2012 Asher Notes is $40,900, which is past due.
On
October 9, 2012, the Company issued a $5,000 convertible promissory note to Carebourn Capital LP (“Carebourn”). The
Carebourn note is due on demand, bears interest at 8% per annum and has a conversion feature similar to the 2012 Asher Notes.
On
October 17, 2012, the Company issued a $25,000 convertible promissory note to Continental Equities, LLC (“Continental”).
The Continental note is due on October 17, 2013, bears interest at 10% per annum. The conversion feature of the Continental note
equals 50% of the average of the three lowest closing bid prices during the thirty day trading period prior to the conversion.
The Company reserved 23,000,000 shares of common stock for the conversion of the Continental note. On March 26, 2013, Carebourn
acquired the Continental note from Continental. During the six months ended June 30, 2013, the Company issued 16,237,288 shares
of common stock to Carebourn Partners, LLC. (“Carebourn Partners”) and Carebourn Partners’ assignee upon the
conversion of $18,750 of the acquired Continental note. As of June 30, 2013 there is a balance of $6,250 on the Continental note.
On July 16, 2013, the Company issued 2,500,000 share of common stock to Carebourn Partners upon the conversion of the balance
of $6,250 of the Continental note.
On
October 24 and 29, 2012, the Company issued convertible promissory notes of $9,000 and $16,000, respectively, to GEL Properties,
LLC (“Gel”). The Gel notes mature on their two year anniversary and bear interest at 6% per annum. Gel is entitled,
at its’ option at any time to convert all or any amount of the principal face amount of the Gel note than outstanding into
shares of the Company’s common stock. The Company reserved 9,000,000 and 16,000,000 shares of common stock, respectively,
for the conversion of the Gel notes. The conversion feature of the Gel notes equals 50% of the lowest closing bid price of the
Company’s common stock for the five trading days including the day of conversion. During the six months ended June 30, 2013,
the Company issued 23,901,776 shares of common stock upon the conversion of in the aggregate $25,000 of the Gel notes.
On
November 1, 2012, the Company issued a convertible promissory note in the amount of $269,858 in exchange for previously accrued
legal fees. The note bears interest at 8% per annum and is convertible at a conversion price for each share of common stock equal
to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s
common stock for the ten trading days immediately preceding the date of conversion. During the six months ended June 30, 2013,
the Company issued 8,000,000 shares op common stock upon the conversion of $9,736 of the Note. The Company reduced the derivative
liability by $9,736 for the conversion.
On
December 24, 2012, the Company issued a $50,000 convertible promissory note to Flux Carbon Starter Fund, LLC (“Flux”).
The note matured on June 30, 2013 and bears interest at 12% per annum. The Flux note has a conversion price equal to 50% of the
lowest volume weighted average closing bid price for the 90 days preceding conversion. On June 24, 2013, Flux sold and assigned
the note to 112359 Factor Fund, LLC. (“Factor Fund”). During the six months ended June 30, 2013, the Company issued
15,289,040 shares of common stock to Factor Fund and Factor Funds transferee upon the conversion of $12,100 of principal and $3,189
of accrued and unpaid interest. As of June 30, 2013, the Flux note had a balance of $37,900. On July 23, 2013, the Company issued
7,600,000 shares of common stock to Factor Fund upon the conversion of $7,600 of the Flux note.
The
2012 Notes are summarized as follows:
Date
|
Lender
|
Initial
Amount
|
Balance
6/30/13
|
Interest
|
Maturity
|
a)
June 8
|
Asher
|
$30,000
|
$ -
|
8%
|
March
8, 2013
|
b)
June 25
|
Asher
|
42,500
|
8,400
|
8%
|
March
25, 2013
|
c)
August 23
|
Asher
|
32,500
|
32,500
|
8%
|
June
23, 2013
|
d)
October 9
|
Carebourn
|
5,000
|
5,000
|
8%
|
Demand
|
e)
October 17
|
Continental
|
25,000
|
6,250
|
10%
|
October
17, 2013
|
f)
October 24
|
GEL
Properties, LLC.
|
9,000
|
-
|
6%
|
October
24, 2014
|
g)
October 29
|
GEL
Properties, LLC
|
16,000
|
-
|
6%
|
October
29, 2014
|
h)
November 1
|
Schaper
note
|
269,858
|
260,112
|
8%
|
Demand
|
i)
December 24
|
Flux
Carbon Starter Fund, LLC
|
50,000
|
37,900
|
12%
|
June
30, 2013
|
Total
|
|
$479,858
|
$350,162
|
|
|
The
Company received net proceeds of $193,500, after debt issuance costs of $16,500. These debt issuance costs will be amortized over
the earlier of the terms of the Note or any redemptions and accordingly $4,074 and $10,648 has been expensed as debt issuance
costs (included in interest expense) for the three and six months ended June 30, 2013.
2013
Notes
On
March 14, 2013 the Company issued a convertible promissory note for $46,000 to an accredited investor (the “March 2013 Note”).
The March 2013 Note, is due eight months from issuance and bears an interest rate of 8% per annum. The conversion feature of the
2013 Note is a 50% discount to the average of the three lowest day closing bid prices for the ten trading days prior to conversion.
The Company received net proceeds of $41,400, after debt issuance costs of $4,000. These debt issuance costs will be amortized
over the earlier of the terms of the Note or any redemptions and accordingly $2,300 and $2,709 has been expensed as debt issuance
costs (included in interest expense) for the three and six months ended June 30, 2013.
On
April 8, 2013 and April 26, 2013, the Company issued convertible promissory notes for $5,000 and $50,000, respectively.
On
June 3, 2013, the Company issued a $15,000 convertible promissory note to Gel
On
June 6, 2013, the Company issued a $12,000 convertible promissory note to Carebourn Partners.
The
notes issued in April and June 2013, bear interest at 8% per annum and each has a conversion feature similar to the 2012 Asher
Notes. The March 2013 Note and the notes issued in April and June 2013 are referred to as the 2103 Notes. The beneficial conversion
features included in the 2013 Notes resulted in initial debt discount of $128,000 and an initial loss on the valuation of derivative
liabilities of $5,578 for a derivative liability initial balance of $133,578. As of June 30, 2013 the Company revalued the balance
of $128,000 of the 2013 Notes and based on their fair value of $133,120, adjusted the derivative liability balance by $458 for
the 2013 Notes.
The
Company has determined that the conversion feature of the 2012 and 2013 Notes represent embedded derivatives since the Notes are
convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt
under EITF 00-19 and the embedded conversion features must be bifurcated from the debt hosts and accounted for as derivative liabilities.
Accordingly, the fair value of these derivative instruments have been recorded as liabilities on the consolidated balance sheet
with the corresponding amounts recorded as a discounts to the Notes. Such discounts will be accreted from the date of issuance
to the maturity dates of the Notes. The change in the fair value of the liabilities for derivative contracts will be recorded
to other income or expenses in the consolidated statement of operations at the end of each quarter, with the offset to the derivative
liability on the balance sheet.
The
beneficial conversion features included in the 2012 Notes resulted in initial debt discounts of $210,000 and an initial loss on
the valuation of derivative liabilities of $27,154 for a derivative liability initial balance of $237,154. During the year ended
December 31, 2012, Asher converted $11,000 of the 2012 Notes. The Company reduced the derivative liability by $8,761 for the conversion.
As of December 31, 2012, the Company revalued the balance of $199,000 of the 2012 Notes and based on their fair value of $219,548,
adjusted the derivative liability balance by $8,845 for the 2012 Notes. During the six months ended June 30, 2013, noteholders
converted in the aggregate $119,950 of the 2012 Notes. The Company reduced the derivative liability by $90,973 for the conversions.
As of June 30, 2013 the Company revalued the balance of $90,050 of the 2012 Notes and based on their fair value of $231,565, adjusted
the derivative liability balance by $102,990 for the 2012 Notes.
The
fair value of the 2103 Notes on their issuance dates and as of June 30, 2013 was calculated utilizing the following assumptions:
Issuance
Date
|
Fair
Value
|
Term
|
Assumed
Conversion Price
|
Market
Price on Grant Date
|
Volatility
Percentage
|
Interest
Rate
|
6/8/12
|
$33,415
|
9
months
|
$0.0103
|
$0.023
|
380%
|
0.09
|
6/25/12
|
47,063
|
9
months
|
$0.0066
|
$0.0127
|
341%
|
0.09
|
8/23/12
|
35,550
|
9
months
|
$0.05
|
$0.025
|
295%
|
0.09
|
10/9/12
|
5,664
|
9
months
|
$0.0076
|
$0.0035
|
292%
|
0.16
|
10/17/12
|
28,071
|
12
months
|
$0.00435
|
$0.0087
|
295%
|
0.17
|
10/24/12
|
13,688
|
12
months
|
$0.00267
|
$0.0055
|
305%
|
0.18
|
10/29/12
|
17,146
|
12
months
|
$0.0025
|
$0.0055
|
306%
|
0.18
|
11/1/12
|
269,858
|
6
months
|
$0.003
|
$0.006
|
297%
|
0.10
|
12/24/12
|
56,557
|
6
months
|
$0.00197
|
$0.004
|
303%
|
0.12
|
3/14/13
|
$48,298
|
9
months
|
$0.001978
|
$.0045
|
338%
|
.12
|
4/8/13
|
5,200
|
6
months
|
$0.0025
|
$0.005
|
297%
|
.10
|
4/26/13
|
52,000
|
12
months
|
$0.00165
|
$0.0033
|
308%
|
.11
|
6/3/13
|
15,600
|
2
years
|
$0.0035
|
$0.0007
|
320%
|
.13
|
6/6/13
|
12,480
|
9
months
|
$0.00305
|
$0.0061
|
338%
|
.11
|
6/30/13
|
635,601
|
3-23
months
|
0.003217
|
-
|
293%
|
.06-.15
|
The
inputs used to estimate the fair value of the derivative liabilities are considered to be level 2 inputs within the fair value
hierarchy.
A
summary of the derivative liabilities related to convertible notes as of December 31, 2012 and June 30, 2013 is as follows:
Fair Value
|
|
Derivative
Liability Balance
12/31/12
|
|
Initial Derivative Liability
|
|
Redeemed convertible notes
|
|
Fair value change- six months ended 6/30/13
|
|
Derivative Liability Balance 6/30/13
|
|
2012 Notes
|
|
|
$
|
489,406
|
|
|
|
—
|
|
|
$
|
(100,709
|
)
|
|
$
|
113,784
|
|
|
$
|
502,481
|
|
|
2013 Notes
|
|
|
|
—
|
|
|
$
|
133,578
|
|
|
|
—
|
|
|
|
(458
|
)
|
|
|
133,120
|
|
|
Total
|
|
|
$
|
489,406
|
|
|
$
|
133,578
|
*
|
|
$
|
(100,709
|
)
|
|
$
|
113,326
|
*
|
|
$
|
635,601
|
|
*
$5,578 included in the initial derivative liability is included in derivative liability expense of $118,904 for the six months
ended June 30, 2013.
A
summary of debentures payable as of December 31, 2012 and June 30, 2013 is as follows:
|
|
Balances
12/31/12
|
|
Issuance of new convertible notes
|
|
Amortization of discount on convertible
notes
|
|
Debenture conversions six months ended 6/30/13
|
|
Balances 6/30/13
|
2012 Notes, face value
|
|
$
|
468,858
|
|
|
|
|
|
|
|
—
|
|
|
$
|
(118,686
|
)
|
|
$
|
350,172
|
|
2013 Notes, face value
|
|
|
—
|
|
|
|
128,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
128,000
|
|
Note discount
|
|
|
(394,119
|
)
|
|
|
(128,000
|
)
|
|
|
389,892
|
|
|
|
—
|
|
|
|
(132,227
|
)
|
Total
|
|
$
|
74,739
|
|
|
$
|
—
|
|
|
$
|
389,892
|
|
|
$
|
(118,686
|
)
|
|
$
|
345,945
|
|
6.
Commitments and contingencies:
Litigation:
The
Forest County Potawatomi Community (“FCPC”) has initiated an action against Chex, an inactive subsidiary of the Company,
in the FCPC tribal court asserting that Chex breached a contract with FCPC during the 2002 to 2006 time period. Chex is inactive
and did not defend this action. On October 1, 2009 a judgment was entered against Chex in the FCPC Tribal Court in the amount
of $2,484,922. The Company has included $2,484,922 in litigation contingency on the consolidated balance sheets as of June 30,
2013 and December 31, 2012.
The
Company is involved in various claims and legal actions arising in the ordinary course of business. The ultimate disposition of
these matters may have a material adverse impact either individually or in the aggregate on future consolidated results of operations,
financial position or cash flows of the Company.
Operating
lease:
Effective
January 1, 2012 the Company is utilizing space in an office rented by a Company controlled by our Acting President. Effective
January 1, 2013 the monthly rent is approximately $1,066.
7. Income
taxes:
The
operations of the Company for periods subsequent to its acquisition by HPI and through August 2004, at which time HPI’s
ownership interest fell below 80% are included in consolidated federal income tax returns filed by HPI. Subsequent to August 2004
and through January 29, 2006 the Company will file a separate income tax return. As of January 30, 2006, HPI’s ownership
interest again exceeded 80% and the operations of the Company will be included in a consolidated federal income tax from that
date through October 29, 2006 when the ownership fell below 80%. As of October 30, 2006, the Company will be filing separate income
tax returns. For financial reporting purposes, the Company’s provision for income taxes has been computed, and current and
deferred taxes have been allocated on a basis as if the Company has filed a separate income tax return for each year presented.
M
anagement assesses the
realization
of its deferred tax assets to determine if it is more likely than not that the Company's deferred tax assets will be realizable.
The Company adjusts the valuation allowance based on this assessment.
At
December 31, 2006, the Company had utilized all of its net operating loss carryforwards available for federal and state income
tax purposes. As of June 30, 2013, the Company had a tax net operating loss carry forward of approximately $5,041,000. Any unused
portion of this carry forward expires in 2029. Utilization of this loss may be limited in the event of an ownership change pursuant
to IRS Section 382.
8. Stockholders’
deficiency:
Common
stock:
On
March 5, 2013 the Company issued 6,636,364 shares of common stock to Asher upon the conversion of $7,300 of the 2012 Notes. The
shares were converted at an average conversion price of approximately $0.0011 per share.
On
March 19, 2013 Carbon exchanged 16,000,000 shares of common stock for the issuance of 266,667 shares of class B preferred stock.
On
March 19, 2013 the Company issued 5,789,474 shares of common stock to Asher upon the conversion of $11,000 of the 2012 Notes.
The shares were converted at an average conversion price of approximately $0.0019 per share.
On
March 29, 2013 the Company issued 5,442,857 shares of common stock upon the conversion of $8,200 of promissory notes.
On
April 16, 2013 the Company issued 6,380,952 shares of common stock to Asher upon the conversion of $12,200 of the 2012 Notes and
accrued and unpaid interest of $1,200.The shares were issued at an average conversion price of approximately $0.0021 per share.
On
April 24, 2013, and May 13, 2013, the Company issued 2,500,000 and 6,500,000 shares of common stock, respectively, to GEL. The
shares were issued pursuant to the terms of their note agreement and delivered to the holder to a creditor in possession (“CPE”)
escrow. Conversion notices were received on May 9 and May 13, 2013 whereby Gel converted $2,000 and $1,000, respectively, of their
note and received 1,212,121 and 689,655 shares of common stock, respectively, from the CPE escrow. On May 23 and May 28, 2013,
Gel received 3,700,000 shares and 3,398,230 shares of common stock, respectively, upon the conversion of $3,700 and $3,398 respectively.
The shares were issued $0.01 per share.
On
April 30, 2013, the Company issued 6,352,941 shares of common stock to Asher upon the conversion of $10,800.The shares were issued
at a conversion price of approximately $0.0017 per share.
On
April 30, 2013, the Company issued 4,237,288 shares of common stock to Carebourn Partners upon the conversion of $5,000 of the
Continental note acquired by Carebourn. The shares were issued at a conversion price of approximately $0.0012 per share.
Also
on April 30, 2013, the Company issued 1,247,143 shares of common stock upon the conversion of $2,200 of a note payable. The shares
were issued at a conversion price of approximately $0.00176 per share.
On
May 20, 2013, the Company issued 7,636,364 shares of common stock to Asher upon the conversion of $8,400.The shares were issued
at a conversion price of approximately $0.0011 per share.
On
May 23, 2013, the Company issued 3,090,909 shares of common stock to Asher upon the conversion of $3,400. The shares were issued
at a conversion price of approximately $0.0011.
On
May 28, 2013, the Company issued 14,901,770 shares of common stock to Gel upon the conversion of $14,902. The shares were issued
$0.01 per share.
On
May 31, 2013, the Company issued 7,000,000 shares of common stock to Carebourn Partners upon the conversion of $7,700. The shares
were issued at a conversion price of approximately $0.0011.
On
June 4, 2013, the Company issued 5,000,000 shares of common stock to Linrick Industries, LLC. (“Linrick”) upon the
conversion of $6,050 of the Continental note acquired by Carebourn Partners. Carebourn Partners sold and assigned $6,050 of the
Continental note they had previously acquired to Linrick.
On
June 5, 2013, the Company issued 175,000 shares of Class B preferred stock in exchange for the cancellation and return to treasury
of 10,500,000 shares of common stock from a related party.
On
June 25, 2013, the Company issued 8,000,000 shares of common stock to Incipix Partners, LLC. (“Incipix”) upon the
conversion of $9,736. The shares were issued at approximately $0.0012 per share On June 5, 2013; Incipix acquired $50,000 of a
convertible promissory note from an unaffiliated third party.
On
June 28, 2013, The Company issued 7,690,040 shares of common stock to Factor Fund’s transferee upon the conversion of $4,501
of principal and accrued and unpaid interest of $3,189. The shares were issued at $0.01 per share. Also on June 28, 2013, the
Company issued 7,599,000 shares of common stock to Factor Fund upon the conversion of $7,599. The shares were issued at $0.01
per share.
Preferred
stock
The
Company is authorized to issue 5,000,000 shares of preferred stock. On October 19, 2012,
the
Board of Directors approved the filing of a Certificate of Designation (“COD”) establishing the designations, preferences,
limitations and relative rights for 1,000,000 shares of the Company’s Class A Preferred Stock.
As
of June 30, 2013 there are 819,000 shares of Class A preferred stock outstanding. The shares have been pledged as collateral by
CCC (the sole holder of the shares) subsequently pledged the 819,000 shares of Class A Preferred stock they own as collateral
in conjunction with the issuance of the $50,000 convertible note issued to Flux Carbon Starter Fund, LLC.
The
COD for Class A Preferred stock states; each share of the Class A Preferred Stock shall be entitled to a number of votes determined
at any time and from time to time determined as follows: any holder of Class A Preferred Stock can vote such shares as if converted
based on the Conversion Rights in below. The Class A Preferred Stock shall have a right to vote on all matters presented or submitted
to the Corporation’s stockholders for approval in pari passu with holders of the Corporation’s common stock, and not
as a separate class. Each share of the Class A Preferred Stock shall automatically convert (the “Conversion”) into
shares of the Corporation’s common stock at the moment there are sufficient authorized and unissued shares of common stock
to allow for the Conversion. The number of shares of common stock to which a holder of Class A Preferred Stock shall be entitled
upon a conversion shall equal the product obtained by (a) multiplying the number of fully diluted common shares by twenty five
hundredths (0.25), then (b) multiplying the result by a fraction, the numerator of which will be the number of shares of Class
A Preferred stock being converted and the denominator of which will be the number of authorized shares of Class A Preferred stock.
As of June 30, 2013 there are 819,000 shares of Class A Preferred stock outstanding.
On
December 14, 2012,
Board of Directors approved the filing of a COD establishing the designations,
preferences, limitations and relative rights of the Company’s Class B Preferred Stock. The COD allows the Board of Directors
in its sole discretion to issue up to 2,000,000 shares of Class B Preferred Stock.
The COD for
Class B Preferred stock states; each share of the Class B Preferred Stock shall be entitled to a number of votes determined at
any time and from time to time determined as follows: any holder of Class B Preferred Stock can vote such shares as if converted
based on the Conversion Rights in below. The Class B Preferred Stock shall have a right to vote on all matters presented or submitted
to the Corporation’s stockholders for approval in pari passu with holders of the Corporation’s common stock, and not
as a separate class. Each share of the Class B Preferred Stock shall automatically convert (the “Conversion”) into
shares of the Corporation’s common stock at the moment there are sufficient authorized and unissued shares of common stock
to allow for the Conversion. The Class B Preferred Stock will convert in their entirety, simultaneously to equal the amount of
shares of common stock resulting from the amount of series B Preferred Stock outstanding multiplied by sixty (60). The Conversion
shares will be issued pro rata so that each holder of the Class B Preferred Stock will receive the appropriate number of shares
of common stock equal to their percentage ownership of their Class B Preferred Stock. As of June 30, 2013 there are 1,675,000
shares of Class B Preferred stock outstanding.
On
March 19, 2013 Carbon exchanged 16,000,000 shares of common stock for the issuance of 266,667 shares of class B preferred stock.
On
April 29, 2013 the Company issued 935,666 shares of Class B preferred stock to Carbon to replace the 819,000 Series A preferred
stock they pledged as collateral to Flux. Carbon now owns 1,500,000 shares of Class B preferred stock. Pursuant to the certificate
of designation of the Class B preferred stock, each share converts to 60 shares of common stock. Accordingly, Carbon will be issued
90,000,000 shares of common stock upon the conversion of their 1,500,000 shares of Class B preferred stock.
On
June 5, 2013, the Company issued 175,000 shares of Class B preferred stock in exchange for the cancellation and return to treasury
of 10,500,000 shares of common stock from a related party.
Stock
options:
The
Company has a stock option plan (the “Plan”) which was approved by the Board of Directors in July 2004 and which permits
the grant of shares to attract, retain and motivate employees, directors and consultants of up to 1.8 million shares of common
stock. Options are generally granted with an exercise price equal to the Company’s market price of its common stock on the
date of the grant and vest immediately upon issuance.
There
were no options granted during the three and six months ended June 30, 2013.
All
options outstanding at June 30, 2013 are fully vested and exercisable. A summary of outstanding balances at June 30, 2013 and
December 31, 2012 is as follows:
|
|
|
|
Weighted-
|
|
Weighted-
|
|
Aggregate
|
|
|
|
|
Average
|
|
Average
|
|
Intrinsic
|
|
|
Options
|
|
exercise price
|
|
Remaining contractual life
|
|
Value
|
|
Outstanding at January 1, 2013
|
|
|
|
990,000
|
|
|
$
|
0.34
|
|
|
|
2.98
|
|
|
$
|
0
|
|
|
Outstanding at June 30, 2013
|
|
|
|
990,000
|
|
|
$
|
0.34
|
|
|
|
2.48
|
|
|
$
|
0
|
|
9.
Prior events:
Asset
sale:
On
December 22, 2005, FFFC and Chex entered into an Asset Purchase Agreement (the “APA”) with Game Financial Corporation
(“Game”), pursuant to which FFFC and Chex agreed to sell all of its cash access contracts and certain related assets,
which represented substantially all the assets of Chex. Such assets also represented substantially all of the operating assets
of the Company on a consolidated basis. On January 31, 2006, FFFC and Chex completed the sale (the “Asset Sale”) for
$14 million pursuant to the APA and received net cash proceeds of $12,642,784, after certain transaction related costs and realized
a pre-tax book gain of $4,145,835. As a result of the Asset Sale, the Company has no substantial continuing operations. Therefore,
the Company is not reporting and accounting for the sale of Chex’s assets as discussed in discontinued operations.
Additionally,
FFFC and Chex entered into a Transition Services Agreement
(the “TSA”) with
Game pursuant to which FFFC and Chex agreed to provide certain services to Game to ensure a smooth transition of the sale of the
cash-access financial services business.
Pursuant
to the APA and the TSA, FFFC and Chex owed Game approximately $300,000. Game, FFFC and Chex agreed to settle the balance due for
$275,000 (included in accounts payable on the balance sheet presented herein) with payment terms. FFFC and Chex have not made
any of the payments stipulated in the settlement and subsequently Game filed a complaint against Chex, FFFC and Hydrogen Power
Inc. (“HPI”) seeking approximately $318,000. The Company has agreed to a judgment of $329,146, comprised of the $275,000,
attorney fees of $15,277 (included in accounts payable on the balance sheet presented herein, and attorney fees of $38,869 (included
in accrued expenses on the balance sheet presented herein). FFFC and Chex have agreed to indemnify HPI.
10.
Related party transactions:
Management
and director fees:
During
the three and six months ended June 30, 2013 the Company accrued expenses of $15,000 and $30,000, respectively, for the
services of Mr. Barry Hollander as our Acting President. Mr. Hollander received $19,500 in cash payments for the six months
ended June 30, 2013. As of June 30, 2013, Mr. Hollander is owed $25,500 for these services included in accrued expenses on
the balance sheet.
For
the three and six months ended June 30, 2013, the Company accrued expenses of $15,000 and $30,000, respectively, for our Chairman,
Mr. Fong’s services. Mr. Fong received $5,500 in cash payments for the six months ended June 30, 2013. As of June 30, 2013,
Mr. Fong is owed $39,500 for these services included in accrued expenses on the balance sheet.
Acquisition
of Carbon Capture:
On
May 25, 2012, the Company’s newly formed subsidiary ATD acquired Carbon Capture USA (“Carbon”) from Carbon Capture
Corporation, a Colorado corporation ("CCC"). CCC is privately held by Mr. Henry Fong, a director of the Company and
is the control person of CCC. Pursuant to the Agreement, ATD acquired from CCC all of the issued and outstanding common stock
of Carbon in exchange for ninety million (90,000,000) newly issued unregistered shares of the Company’s common stock. As
of June 30, 2013, Carbon has exchanged the 90,000,000 shares of common stock for 1,500,000 shares of Class B preferred stock.
The Class b preferred stock automatically converts to 90,000,000 shares of common stock whenever there are sufficient shares of
common stock to allow for the conversion.
Notes
payable:
As
disclosed in Note 5, the Company has issued notes payable to various related parties. During the six months ended June 30,
2013 the Company issued notes to the related parties of $4,400 and made payments of $72,000 to the related party noteholders.
As of June 30, 2013 a balance of $264,963 is owed to the related party noteholders as of June 30, 2013 accrued interest
of $14,614 is included in accrued expenses on the balance sheet.
Preferred
stock:
On
June 5, 2013, the Company issued 175,000 shares of Class B preferred stock in exchange for the cancellation and return to treasury
of 10,500,000 shares of common stock from a related party.
11.
Subsequent events:
On
July 11, 2013, the Company issued a convertible promissory note with a face value of $12,500 to a credited investor.
On
July 16, 2013, the Company issued 2,500,000 shares of common stock to Carebourn upon the conversion of $6,250 of the Continental
note acquired by Carebourn. The shares were issued at a conversion price of approximately $0.0025 per share.
On
July 23, 2013, the Company issued 7,600,000 shares of common stock to Flux’s assignee upon the conversion of $7,600 of a
note payable. The shares were issued at a conversion price of approximately $0.001 per share.
On
August 6, 2013 the Company issued 116,667 shares of Class B preferred stock to Carbon in exchange for the cancellation of 7,000,000
shares of the Company’s common stock.
On
August 9, 2013, the Company issued two convertible promissory notes, each with a face value of $6,250 to accredited investors.
On
August 14, 2013, the Company issued 10,562,712 shares of common stock upon the conversion of $12,781 of the Schaper note.
Management
has determined that there are no further events subsequent to the balance sheet date that should be disclosed in these financial
statements.