NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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 100% wholly
owned subsidiary of the Company. Carbon is a 100% wholly owned subsidiary of CCC, which is privately held. Mr. Henry Fong, the
sole officer and 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 plans
to 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 holder
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 these consolidated financial statements
have been retroactively adjusted to reflect the stock split.
On
October 7, 2013, the Company formed Financiera Moderna, Inc. (“FM”) as a wholly-owned subsidiary to develop and market
financial products and services targeted for the Hispanic community. The spectrum of financial products to be offered includes
insurance, secured credit cards, debit cards, mortgage products and financial literacy tools.
On
November 7, 2013, FM signed a marketing and funding agreement (“the Marketing Agreement”) with Compra Vida (“CV”)
and Compra Casa (“CS”); development stage companies that formulate, develop and implement marketing programs to the
Spanish speaking U.S. market. On November 20, 2013, the Company remitted $15,000 to the principals of CV and CS pursuant to the
Marketing Agreement. Subsequently, the parties have agreed to terminate the Marketing Agreement, to allow CV and CS to revise
their marketing concept to implement a more direct to consumer approach. Accordingly, the parties are still negotiating the final
transaction. There is no assurance that these negotiations will be successful.
As
part of the initial transaction, FFFC issued 30,000,000 shares of common stock to the principals of CV and CS. Due to the termination
of that agreement and the ongoing negotiations the common stock has not been delivered and has been recorded as Treasury Stock,
pending the outcome of the final transaction.
On
March 5, 2013, the Company and its’ 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 and is offering 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.
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:
The
Company’s consolidated financial statements 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 $1,425,541 and $512,444 for the years ended December 31, 2013 and 2012, respectively and has a working capital deficit of $10,108,747
and accumulated deficit of $24,611,756 as of December 31, 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
Company has received $390,000 upon the issuance on convertible notes from January 1, 2014 through April 4, 2014.
Additionally,
the Company was 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. 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 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 consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the
United States of America (“USGAAP”). The consolidated financial statements of the Company include the Company and
its subsidiaries. All material inter-company 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 years
ended December 31, 2013 and 2012, as the impact of the potential common shares, which total
3,630,464,687
(2013) and 286,994,713 (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.
Fair
value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation
techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained
from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (“unobservable
inputs”).
Fair
value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily
uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market
approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset
or liability when compared with normal activity to identify transactions that are not orderly.
The
highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
The three
hierarchy levels are defined as follows:
Level 1 – Quoted
prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted
prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in
active markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 – Prices
or valuations that require inputs that are both significant to the fair value measurement and unobservable.
Credit
risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value.
The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s
own credit risk as observed in the credit default swap market.
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. The Company uses 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 years ended December 31, 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’s tax years subsequent to 2006 remain subject to examination by federal and
state tax jurisdictions.
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 December 31, 2013 and December 31, 2012 were $3,481,723 and $3,021,455,
respectively, and were comprised of:
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Legal
fees
|
$
|
215,218
|
|
$
|
215,218
|
|
Interest
|
|
2,896,763
|
|
|
2,427,746
|
|
Consultants
and advisors
|
|
166,600
|
|
|
175,750
|
|
Registration
rights
|
|
98,013
|
|
|
98,013
|
|
Other
|
|
105,119
|
|
|
104,728
|
|
|
|
|
|
|
|
|
|
$
|
3,481,723
|
|
$
|
3,021,455
|
5.
Promissory notes, including related parties and debenture payable:
Promissory
notes, including related parties at December 31, 2013 and December 31, 2012, consist of the following:
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Promissory
notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various,
including related parties of $173,113 (2013) and $333,363 (2012); interest rate ranging from 8% to 10%
[A]
|
$
|
192,213
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
$
|
2,282,932
|
|
$
|
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 year ended December 31, 2013 the Company
issued notes of $26,500 (including related parties of $5,200), made payments of $147,450 (including $140,450 to related parties),
converted $10,400 to shares of common stock and reclassed $28,000 to convertible notes on the balance sheet herein.
|
|
[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 $2,804,686
and $2,384,686 as of
December 31, 2013 and
2012, respectively 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 December 31, 2013 and 2012 consolidated balance sheets in promissory notes payable
and accrued expenses.
Debenture
payable:
2012
Notes
During
2012, the Company issued three convertible notes aggregating $105,000 (“2012 Asher Notes”) to Asher Enterprises, Inc.
(“Asher”). 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 Asher 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 year ended December 31, 2012, Asher converted $11,000 of principal of the 2012 Asher Notes and the balance of the 2012
Asher Notes as of December 31, 2012 was $94,000. During 2013, the Company incurred an event of default on a portion of the 2012
Asher Notes as the Company did not maintain sufficient authorized shares reserved for issuance under the 2012 Asher Notes. The
default resulted in the Company increasing the 2012 Asher Notes by $40,900 (the “Default Principal”). During the year
ended December 31, 2013, the holder of the Asher Notes converted an aggregate of $134,900 of principal (including the Default
Principal) and $5,400 of accrued and unpaid interest into 179,342,389 shares of common stock. As of December 31, 2013,no amounts
remain outstanding on the 2012 Asher Notes.
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.
As of December 31, 2013, the outstanding balance of the Carebourn note is $5,000, which is past due.
On
October 17, 2012, the Company issued a $25,000 convertible promissory note to Continental Equities, LLC (“Continental”).
On March 26, 2013, Carebourn acquired the Continental note from Continental. During the year ended December 31, 2013, the Company
issued 18,737,288 shares of common stock to Carebourn Partners, LLC. (“Carebourn Partners”) and Carebourn Partners’
assignee upon the conversion of the acquired Continental note. No amounts remain open as of December 31, 2013.
On
October 24 and 29, 2012, the Company issued convertible promissory notes of $9,000 and $16,000 (“the 2012 Gel Notes”)
respectively, to GEL Properties, LLC (“Gel”)
The conversion price for the 2012 Gel
Notes is equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s
shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share,
for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares
have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest shall be
subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share.
During the year ended December 31, 2013, the Company issued
23,901,776 shares of common stock upon the conversion of the 2012 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 year ended December 31, 2013, the
Company issued 419,203,501 shares of common stock upon the conversion of $103,188 of the Note. As of December 31, 2013, the balance
of the note is $166,670.
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 year ended December 31, 2013, the Company issued 82,923,686
shares of common stock to Factor Fund and Factor Funds transferee upon the conversion of $50,000 of principal and $4,149 of accrued
and unpaid interest. No amounts remain open as of December 31, 2013.
The
Company received net proceeds of $193,500 for the 2012 Notes, after debt issuance costs of $16,500. These debt issuance costs
have been amortized over the earlier of the terms of the Note or any redemptions and accordingly $5,757 and $10,743 has been expensed
as debt issuance costs (included in interest expense) for the years ended December 31, 2012 and 2013, respectively.
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, and in the case of an event
of default increases to 12% per annum (“the Default Rate”). 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 $4,600. These debt issuance costs were amortized over the earlier of the terms
of the Note or any redemptions and accordingly $4,600 has been expensed as debt issuance costs (included in interest expense)
for the year ended December 31, 2013. The Mach 2013 Note matured November 14, 2014, is in default, and the Default Rate was effective
at that date. The balance of the March 2013 Note is $46,000 as of December 31, 2013.
The
following notes issued in 2013, bear interest at 8% per annum and other than as described below have a conversion feature similar
to the 2012 Asher Notes. The notes issued in 2013 are referred to as the 2013 Notes.
On
April 8, 2013, the Company issued convertible a convertible promissory note to Schaper for $5,000. The outstanding principal balance
on this note is $5,000 as of December 31, 2013.
On
April 26, 2013, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. The outstanding
principal balance on this note is $50,000 as of December 31, 2013.
On
June 3, 2013, the Company issued a $15,000 convertible promissory note to Gel, under the same terms and conditions as the 2012
Gel Notes. During the year ended December 31, 2013, the Company issued 35,665,775 shares of common stock in full satisfaction
of this note.
On
June 6, 2013 ($12,000), July 12, 2013 ($12,500) and August 9, 2013 ($6,250) the Company issued convertible promissory notes to
Carebourn Partners. Each of these notes remain unpaid as of December 31, 2013.
On
August 9, 2013, the Company issued a $6,250 note to Linrick Industries, LLC. The outstanding principal balance on this note is
$6,250 as of December 31, 2013.
On
August 22, 2013, the Company issued a $6,000 convertible promissory note to Schaper. The outstanding principal balance on this
note is $6,000 as of December 31, 2013.
On
September 3, 2013, the Company issued a $32,500 convertible promissory note to Asher. The outstanding principal balance on this
note is $32,500 as of December 31, 2013.
On
October 7, 2013, the Company issued a $3,500 convertible note to AU Funding, LLC in exchange for the cancellation of accounts
payable of $3,500. The outstanding principal balance on this note is $3,500 as of December 31, 2013.
On
October 7, 2013, the Company issued a $5,000 convertible note to Corizona Mining Partners, LLC in exchange for the cancellation
of $5,000 of accounts payable. The outstanding principal balance on this note is $5,000 as of December 31, 2013.
On
October 18, 2013, the Company issued a $10,000 and $20,000 convertible note to Gel, under the same terms and conditions as the
2012 Gel Notes. During the year ended December 31, 2013, the Company issued 228,900,000 shares of common stock in satisfaction
of $23,145 of these two notes. The outstanding principal balance on the notes is $6,855 as of December 31, 2013.
On
November 19, 2013, the Company issued a $16,500 convertible note to Carebourn Capital L.P. The outstanding principal balance on
this note is $16,500 as of December 31, 2013.
On
November 22, 2013, the Company issued a $35,000 and $30,000 convertible note to Mr. Fong and Mr. Hollander, respectively, for
the cancellation of accrued and unpaid fees. The outstanding principal balances of the notes are $35,000 and $30,000 respectively,
as of December 31, 2013.
On
December 31, 2013, the Company issued a $20,000 convertible note to Gel, under the same terms and conditions as the 2012 Gel Notes.
The outstanding principal balance on this note is $20,000 as of December 31, 2013.
The
Company has determined that the conversion features 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
embedded conversion features included in the 2012 Notes resulted in initial debt discounts of $479,858 and an initial loss on
the valuation of derivative liabilities of $27,154 for an initial derivative liability balance of $507,012. During the year ended
December 31, 2012, Asher converted $11,000 of the 2012 Notes and the Company reduced the derivative liability by $8,761 for the
conversion. As of December 31, 2012, the Company revalued the balance of $468,857 of the 2012 Notes and based on their fair value
of $489,408, adjusted the derivative liability balance by $8,845 for the 2012 Notes. During the year ended December 31, 2013,
noteholders converted in the aggregate $338,088 of the 2012 Notes and the Company reduced the derivative liability by $318,814
for the conversions. As of December 31, 2013 the Company revalued the balance of $171,670 of the 2012 Notes and based on their
fair value of $172,604, increased the derivative liability balance by $1,010 for the 2012 Notes.
The
embedded conversion features included in the 2013 Notes resulted in an initial debt discount of $397,000 and an initial loss on
the valuation of derivative liabilities of $27,132 for a derivative liability initial balance of $424,132. During the year ended
December 31, 2013, noteholders converted in the aggregate $47,745 of the 2013 Notes and the Company reduced the derivative liability
by $47,745 for the conversions. As of December 31, 2013 the Company revalued the balance of $349,255 of the 2013 Notes and based
on their fair value of $363,260, decreased the derivative liability balance by $13,127 for the 2013 Notes.
The
fair value of the 2012 and 2013 Notes as of their dates of issuance, settlement and in their entirety as of December 31, 2013
was calculated utilizing the following assumptions:
|
Issuance
Date
|
Initial
Term
|
Assumed
Conversion Price at Issuance
|
Volatility
Percentage
|
Risk-free
Interest
Rate
|
|
6/8/12
|
9
months
|
$0.0103
|
380%
|
0.09
|
|
6/25/12
|
9
months
|
$0.0066
|
341%
|
0.09
|
|
8/23/12
|
9
months
|
$0.05
|
295%
|
0.09
|
|
10/9/12
|
9
months
|
$0.0076
|
292%
|
0.16
|
|
10/17/12
|
12
months
|
$0.00435
|
295%
|
0.17
|
|
10/24/12
|
12
months
|
$0.00267
|
305%
|
0.18
|
|
10/29/12
|
12
months
|
$0.0025
|
306%
|
0.18
|
|
11/1/12
|
6
months
|
$0.003
|
297%
|
0.10
|
|
12/24/12
|
6
months
|
$0.00197
|
303%
|
0.12
|
|
3/14/13
|
9
months
|
$0.001978
|
338%
|
0.12
|
|
4/8/13
|
6
months
|
$0.0025
|
297%
|
0.10
|
|
4/26/13
|
12
months
|
$0.00165
|
308%
|
0.11
|
|
6/3/13
|
2
years
|
$0.0035
|
320%
|
0.13
|
|
6/6/13
|
9
months
|
$0.00305
|
338%
|
0.11
|
|
7/12/13
|
9
months
|
$0.0023
|
236%
|
0.12
|
|
8/9/13
|
9
months
|
$0.00125
|
238%
|
0.11
|
|
8/22/13
|
9
months
|
$0.0029
|
245%
|
0.13
|
|
9/3/13
|
9
months
|
$0.0004
|
236%
|
0.14
|
|
10/7/13
|
9
months
|
$0.00055
|
267%
|
0.10
|
|
10/18/13
|
9
months
|
$0.002
|
274%
|
0.14
|
|
11/19/13
|
9
months
|
$0.0002
|
292%
|
0.10
|
|
11/22/13
|
9
months
|
$0.00015
|
294%
|
0.10
|
|
12/31/13
|
1-8
months
|
$0.0001
|
327%
|
.02-.10
|
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 2013 is as follows:
|
Fair
Value
|
Derivative
Liability
Balance
12/31/11
|
Initial
Derivative Liability
|
Redeemed
convertible notes
|
Fair
value change- year ended 12/31/12
|
Derivative
Liability Balance 12/31/12
|
|
2011
Notes
|
$46,667
|
-
|
$(44,890)
|
$(1,777)
|
$ -
|
|
2012
Notes
|
-
|
$507,012
|
(8,761)
|
(8,845)
|
489,406
|
|
Total
|
$46,667
|
$507,012
|
$(53,651)
|
$(10,622)
|
$489,406
|
|
Fair
Value
|
Derivative
Liability
Balance
12/31/12
|
Initial
Derivative Liability
|
Redeemed
convertible notes
|
Fair
value change- year ended 12/31/13
|
Derivative
Liability Balance 12/31/13
|
|
2012
Notes
|
$489,406
|
-
|
$(317,814)
|
$1,010
|
$172,602
|
|
2013
Notes
|
-
|
$424,132
|
(47,745)
|
(13,127)
|
363,260
|
|
Total
|
$489,406
|
$424,132*
|
$(365,559)
|
$(12,117)*
|
$535,862
|
* $68,032 included
in the initial derivative liability is included in derivative liability expense of $55,913 for the year ended December 31, 2013
.
A summary of
debentures payable as of December 31, 2012 and December 31, 2013 is as follows:
|
|
Balances
12/31/11
|
Issuance
of new convertible notes
|
Amortization
of discount on convertible
Notes
|
Debenture
conversions year ended 12/31/12
|
Balances
12/31/12
|
|
2011
Notes, face value
|
$ 25,000
|
$ -
|
$ -
|
$ (25,000)
|
$ -
|
|
2012
Notes, face value
|
-
|
479,858
|
-
|
(11,000)
|
468,858
|
|
Note
discount
|
(6,297)
|
(479,858)
|
92,036
|
-
|
(394,119)
|
|
Total
|
$ 18,703
|
$ -
|
$ 92,036
|
$ (36,000)
|
$ 74,739
|
|
|
Balances
12/31/12
|
Increase
to face value due to default
|
Issuance
of new convertible notes
|
Amortization
of discount on convertible
Notes
|
Debenture
conversions year ended 12/31/13
|
Balances
12/31/13
|
|
2012
Notes, face value
|
$ 468,858
|
$40,900
|
$ -
|
$ -
|
$(338,088)
|
$
171,670
|
|
2013
Notes, face value
|
-
|
-
|
397,000
|
-
|
(47,745)
|
349,255
|
|
Note
discount
|
(394,119)
|
-
|
(397,000)
|
603,276
|
-
|
(187,843)
|
|
Total
|
$ 74,739
|
$40,900
|
$ -
|
$603,276
|
$(385,833)
|
$333,082
|
|
|
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 December
31, 2013 and 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 leased through February 28, 2014, by a Company controlled by our former
Acting President. Effective January 1, 2013 the monthly rent is approximately $1,066. The lease, as amended, expires in April
2014, and the Company has made arrangements to lease new space from the same company through March 31, 2015 for a monthly rent
of $600.
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.
Income
tax expense for 2013 and 2012 is as follows:
|
|
2013
|
|
2012
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
$
|
-
|
|
$
|
-
|
|
|
State
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
241,000
|
|
|
272,000
|
|
|
State
|
|
26,000
|
|
|
30,000
|
|
|
Valuation
allowance
|
|
(267,000)
|
|
|
(302,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
The
following is a summary of the Company’s deferred tax assets and liabilities at December 31, 2013 and 2012:
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Deferred
tax assets - current:
|
|
|
|
|
|
|
Stock-based
compensation and other
|
$
|
874,000
|
|
$
|
874,000
|
|
Net
operating loss carry forwards
|
|
821,000
|
|
|
554,000
|
|
|
|
1,695,000
|
|
|
1,428,000
|
|
|
|
|
|
|
|
|
Less
valuation allowance
|
|
(1,695,000)
|
|
|
(1,428,000)
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
$
|
-
|
|
$
|
-
|
A
reconciliation between the expected tax expense (benefit)
and the effective tax rate for
the years ended December 31, 2013 and 2012 are as
follows:
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
(34
|
%)
|
|
|
(34
|
%)
|
|
State
taxes, net of federal income tax
|
|
|
(4
|
%)
|
|
|
(4
|
%)
|
|
Effect
of change in valuation allowance
|
|
|
(7
|
%)
|
|
|
(21
|
%)
|
|
Non
deductible expenses and other
|
|
|
45
|
%
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
As
of December 31, 2013, the Company had a tax net operating loss carry forward of approximately $5,229,000
.
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’
deficit:
Common
stock:
On
May 25, 2012 the Company issued 15,000,000 shares of restricted common stock in satisfaction of $367,500 of accrued and unpaid
fees to Barry Hollander, the Company’s Acting President. The shares were issued at $0.02 per share. Mr. Hollander agreed
to forgive the remaining $67,500.
On
May 25, 2012, the Company issued 15,000,000 shares of restricted common stock in satisfaction of $308,549, comprised of accrued
and unpaid fees owed to Mr. Henry Fong, a Director of the Company, legal fee reimbursement and accrued and unpaid interest on
loans from Mr. Fong. The shares were issued at $0.02 per share. Mr. Fong agreed to forgive the remaining $8,549.
On
May 25, 2012, pursuant to the Agreement in Note 1 above, the Company issued 90,000,000 shares of restricted common stock to Carbon
Capture Corporation (“CCC”) in exchange for 100% of the common stock of their wholly owned subsidiary, Advanced Technology
Development, Inc.
On
May 25, 2012 the Company issued 1,410,255 shares of common stock to Asher upon the conversion of $5,500 of the 2011 Note. The
shares were issued at an average price of approximately $0.0039 per share.
On
June 14, 2012 the Company issued 1,434,264 shares of common to stock to Asher upon the conversion of $12,000 of the 2011 Note.
The shares were issued at an average price of approximately $0.0084 per share.
On
June 27, 2012 the Company issued 507,246 shares of common stock to Asher upon the conversion of $7,000 of the 2011 Note. The shares
were issued at an average price of approximately $0.0138 per share.
In
June 2012, the Company issued 3,200,000 shares of common stock pursuant to the exercise of warrants to purchase 3,200,000 shares
of common stock. The exercise price of the warrants was $0.01 and the Company received $32,000.
On
July 9, 2012 the Company issued 142,857 shares of common stock to Asher upon the conversion of the remaining balance of $500 of
the 2011 Note and accrued and unpaid interest of $1,000. The shares were issued at an average price of approximately $0.0105 per
share.
On
October 9, 2012 the Company issued 35,714 shares of restricted common stock to Carebourn in consideration of fees related to the
issuance of the Company’s $5,000 convertible note to Carebourn. The shares were valued at $0.014 per share and the Company
recorded interest expense of $500 for the year ended December 31, 2012.
In
October and December 2012, the Company issued 819,000 shares of Series A Preferred stock and 297,667 shares of Series B Preferred
stock to CCC in exchange for their cancellation of 67,000,000 shares of common stock.
On
December 10, 2012 the Company issued 6,111,111 shares of common to stock to Asher upon the conversion of $11,000 of the June 2012
Note. The shares were issued at an average price of approximately $0.0018 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.
Pursuant to the terms and conditions of the preferred stock (see Preferred Stock below), the Company determined there was not
any additional costs to be recognized.
On
June 5, 2013, an affiliate exchanged 10,500,000 shares of common stock for the issuance of 175,000 shares of Class B preferred
stock. Pursuant to the terms and conditions of the preferred stock (see Preferred Stock below), the Company determined there was
not any additional costs to be recognized.
On
August 6, 2013, Carbon exchanged 7,000,000 shares of common stock for the issuance of 116,666 shares of class B preferred stock.
Pursuant to the terms and conditions of the preferred stock (see Preferred Stock below), the Company determined there was not
any additional costs to be recognized.
On
November 27, 2013, the Company issued 15,000,000 shares of common stock to Mr. Rodriquez and 15,000,000 shares of common stock
to Mr. Slentz for marketing services.
During
the year ended on December 31, 2013, the Company issued 1,057,202,553 shares of common stock upon the conversion of $385,833 of
debentures payable and $9,549 of accrued and unpaid interest.
During
the year ended on December 31, 2013, the Company issued 6,690,000 shares of common stock upon the conversion of $10,400 of notes
payable.
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 December 31, 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 December 31, 2012 and 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 December 31, 2012 and 2013 there are
297,667 and 1,791,667, respectively, shares of Class B Preferred stock outstanding.
In
October 2012 1,000,000 shares of Class A Preferred Stock Shares were issued to CCC
in exchange
for their cancellation of 60,000,000 shares of common stock. Pursuant to the terms and conditions of the preferred stock, the
Company determined there were not any additional costs to be recognized.
On
December 14, 2012,
the Company issued 181,000 shares of Class B Preferred stock to CCC, in
exchange for CCC cancelling 181,000 shares of Class A Preferred Stock. Pursuant to the terms and conditions of the preferred stock,
the Company determined there were not any additional costs to be recognized.
Also
on December 14, 2012 the Company issued 116,667 shares of Class B Preferred stock in exchange for the
CCC cancelling 7,000,000 shares of common stock.
Pursuant to the terms and conditions of the preferred stock, the Company
determined there were not any additional costs to be recognized.
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.
Pursuant to the terms and conditions of the preferred stock, the Company determined there were not any additional costs to be
recognized.
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. Pursuant to the terms and conditions of the preferred stock, the Company determined
there were not any additional costs to be recognized.
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. Pursuant to the terms and conditions of the preferred stock, the Company
determined there were not any additional costs to be recognized.
On
August 6, 2013, Carbon exchanged 7,000,000 shares of common stock for the issuance of 116,667 shares of class B preferred stock.
Pursuant to the terms and conditions of the preferred stock, the Company determined there were not any additional costs to be
recognized.
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 years ended December 31, 2013 and 2012.
All
options outstanding at December 31, 2013 are fully vested and exercisable. A summary of outstanding balances at December 31, 2012
and 2013 is as follows:
|
|
|
|
Weighted-
|
|
Weighted-
|
|
Aggregate
|
|
|
|
|
Average
|
|
Average
|
|
Intrinsic
|
|
|
Options
|
|
exercise
price
|
|
Remaining
contractual life
|
|
Value
|
|
Outstanding
at December 31, 2012
|
990,000
|
|
$0.34
|
|
2.98
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2013
|
990,000
|
|
$0.34
|
|
1.98
|
|
$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 liabilities on the balance sheet presented herein). FFFC and Chex have agreed to indemnify HPI.
10
. Related
party transactions:
Management
and director fees:
During
the years ended December 31, 2012 and 2013 the Company accrued expenses of $71,025 and $60,000, respectively, for the services
of Mr. Barry Hollander as our Acting President (resigned January 22, 2014). Mr. Hollander received $38,425 and $42,950 in cash
payments for the years ended December 31, 2012 and 2013, respectively. In November 2013, the Company issued a convertible promissory
note to Mr. Hollander in payment of $30,000 of accrued and unpaid fees. As of December 31, 2013, Mr. Hollander is owed $2,050
for these services, included in accrued expenses on the balance sheet.
For
the years ended December 31, 2012 and 2013, the Company accrued expenses of $21,250 and $60,000, respectively, for our Chairman,
Mr. Fong’s services. Mr. Fong received $14,500 in cash payments for the year ended December 31, 2013. In November 2013,
the Company issued a convertible promissory note to Mr. Fong in payment of $35,000 of accrued and unpaid fees. As of December
31, 2013, Mr. Fong is owed $25,500 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 December 31, 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. Pursuant to the terms and conditions of the preferred stock, the Company determined
there were not any additional costs to be recognized.
Notes
payable:
As
disclosed in Note 5, the Company has issued notes payable to various related parties. The balances of December 31, 2012 and 2013,
and the activity for the years ended December 31, 2102 and 2013 follows:
|
Noteholder
|
|
Balance
1/1/13
|
|
Additions
|
|
Payments
|
|
Sold
|
|
Balance
12/31/13
|
|
Gulfstream
Financial Partners (1)
|
|
$
|
25,900
|
|
|
$
|
3,000
|
|
|
$
|
27,150
|
|
|
$
|
—
|
|
|
$
|
1,750
|
|
|
HPI Partners (1)
|
|
|
169,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
144,725
|
|
|
AFPW (1)
|
|
|
102,603
|
|
|
|
1,900
|
|
|
|
97,550
|
|
|
|
—
|
|
|
|
6,953
|
|
|
Henry Fong (2)
|
|
|
17,538
|
|
|
|
300
|
|
|
|
15,750
|
|
|
|
—
|
|
|
|
2,088
|
|
|
HF Services (1)
|
|
|
4,150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,150
|
|
|
Barry Hollander (2)
|
|
|
2,775
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,775
|
|
|
SurgLine Int’l
(1)
|
|
|
10,672
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,672
|
|
|
Total
|
|
$
|
333,363
|
|
|
$
|
5,200
|
|
|
$
|
140,450
|
|
|
$
|
25,000
|
|
|
$
|
173,113
|
|
All
of the notes are due on demand and have interest rates of 8% to 10% per annum.
|
|
(1)
|
Mr.
Henry
Fong,
an
officer
and
director
of
the
Company,
is
also
an
officer,
director
or
control
person
of
these
entities.
|
|
|
(2)
|
An
officer
or
director
of
the
Company.
|
Preferred
stock:
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.
On
August 6, 2013, Carbon exchanged 7,000,000 shares of common stock for the issuance of 116,667 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.
11.
Subsequent
events:
Between
January 1, 2014 and March 31, 2014, the Company issued 2,468,821,039 shares of common stock upon the conversion of $340,597 debentures
payable and $22,934 of accrued and unpaid interest. The shares were issued at approximately $0.00015 per share.
Between
January 1, 2014 and April 4, 2014, the Company issued new convertible notes for in the aggregate $411,000 and has received proceeds
of $390,000.
Effective
January 21, 2014, the Board of Directors of the Company approved the issuance of 1,000 shares of Class C Preferred Stock (as defined
and described below) (the “Class C Preferred Stock Shares”) to Mr. Fong or his assigns in consideration for services
rendered to the Company and continuing to work for the Company without receiving significant payment for services and without
the Company having the ability to issue shares of common stock as the Company does not have sufficient authorized but unissued
shares of common stock to allow for any such issuances.
As
a result of the issuance of the Class C Preferred Stock Shares to Mr. Fong, or his assigns and the Super Majority Voting Rights
(described below), Mr. Fong obtained voting rights over the Company’s outstanding voting stock which provides him the right
to vote up to 51% of the total voting shares able to vote on any and all shareholder matters. As a result, Mr. Fong
will exercise majority control in determining the outcome of all corporate transactions or other matters, including the election
of Directors, mergers, consolidations, the sale of all or substantially all of the Company’s assets, and also the power
to prevent or cause a change in control. The interests of Mr. Fong may differ from the interests of the other stockholders and
thus result in corporate decisions that are adverse to other shareholders. Additionally, it may be impossible for shareholders
to remove Mr. Fong as an officer or Director of the Company due to the Super Majority Voting Rights.
On
January 21, 2014, the Company formed Cannabis Angel, Inc. (“CA”) as a wholly-owned subsidiary. CA was formed to assist
and provide angel funding, business development and consulting services to Cannabis related projects and ancillary ventures. CA
has entered into the following agreements:
-
On January
28, 2014, CA entered into a one year Consulting Agreement with Singlepoint, Inc. (“Singlepoint”) (the “Singlepoint
Agreement”). The Singlepoint Agreement automatically renews for succeeding one year periods, provided, that the CA can terminate
the Singlepoint Agreement at any time during the initial one term or thereafter by giving Singlepoint not less than five (5) days
notice to terminate. CA is to provide consulting services including strategy and business planning, marketing and sales support,
define and support for product offerings, acquisition strategy and funding strategy.
-
On February
7, 2014, CA entered into a one year consulting agreement with Colorado Cannabis Business Solutions, Inc (“CCBS”).
CA is to provide consulting services to CCBS relating to business opportunities, corporate finance activities and general business
development, in exchange for 9.9% ownership in CCBS.
-
On February
18, 2014, CA entered into a month to month consulting agreement Halfar Consulting GmbH (“Halfar”). Halfar will consult
with CA regarding corporate services including identifying and assisting CA with due diligence on potential European business
partners engaged in cannabis related businesses. CA has agreed to compensate Halfar $12,000 for these services.
-
On March 5,
2014, CA entered into a five (5) year Strategic Alliance Agreement (“SAA”) with Worldwide Marijuana Investments, Inc.
(“Worldwide”). Pursuant to the SAA, Worldwide and CA have agreed to market and perform certain complementary business
consulting services. The SAA automatically renews for successive one year terms, unless either party gives written notice of termination
at least thirty (30) days prior to any expiration. The SAA can also be terminated by mutual agreement, or at any time by sixty
(60) day written notice from either party.
On
February 17, 2014, the Company and CA entered into a consulting agreement with Merchant Business Solutions, Inc.
(“MBS”). CA will provide consulting services to MBS regarding seeking potential business opportunities,
financial opportunities, and general business development in exchange for 49% of Cannabis Merchant Financial Solutions, Inc.
a new subsidiary of MBS.
On
February 25, 2014, the Company and CA entered into an Asset Purchase Agreement (the “APA”) with Green
Information Systems, Inc. (“GIS”). Pursuant to the APA the Company and CA will acquire from GIS certain domain
names and trade names, including
www.greenenergytv.com.
The
closing of the APA
has not yet occurred
.
Also
on February 25, 2014, the Company entered into a six (6) month agreement with Aeson Ventures, LLC. Pursuant to the agreement Aeson
will develop an online marketing service and redevelop and thereafter maintain Company websites. The Company compensated Aeson
$4,500 upon signing the agreement and has agreed to a monthly fee of $2,250 thereafter. Additionally, Aeson will receive 20,000,000
shares of Company common stock, upon the completion of the six month agreement. After the initial six month term, the agreement
becomes a month to month employment agreement, which either party can terminate with written notice to the other.
Management
has determined that there are no further events subsequent to the balance sheet date that should be disclosed in these financial
statements.
|
|
2.
|
Financial
Statements Schedules.
|
Financial
statements and exhibits – Schedule 11, Valuation and Qualifying Accounts, are omitted because the information is included
in the consolidated financial statements and notes.
|
2.1
|
Asset Purchase Agreement among Game Financial
Corporation, Chex Services, Inc. and FastFunds Financial Corporation, dated as of December 22, 2005
(incorporated by reference
to Exhibit 10.1 to the registrant’s Current Report filed on December 27, 2005).
|
|
|
|
|
3.1
|
Articles of Incorporation of FastFunds Financial Corporation
(incorporated
by reference to Exhibit 3.(I) of the registrant's Registration Statement on Form 10-SB filed on August 7, 2001).
|
|
|
|
|
3.2
|
Bylaws of FastFunds Financial Corporation
(incorporated by reference
to Exhibit 3 of the registrant's Registration Statement on Form 10-SB filed on August 7, 2001).
|
|
|
|
|
9.1
|
Voting Agreement between Game Financial Corporation, FastFunds Financial
Corporation and Equitex, Inc., dated December 22, 2005
(incorporated by reference to Exhibit 10.2 to the registrant’s
Current Report filed on December 27, 2005).
|
|
|
|
|
10.7
|
Transition Service Agreement between Game Financial Corporation,
Chex Services, Inc. and FastFunds Financial Corporation, dated as of January 31, 2006
(incorporated by reference to Exhibit
10.1 to the registrant’s Current Report filed on February 6, 2006).
|
|
|
|
|
10.8
|
$5 million Secured Promissory Note of Equitex, Inc. in favor of
FastFunds Financial Corporation, dated as of March 14, 2006
(incorporated by reference to Exhibit 10.2 to the registrant’s
Current Report filed on March 20, 2006).
|
|
|
|
|
10.9
|
Stock Pledge Agreement between Equitex, Inc. and FastFunds Financial
Corporation, dated as of March 14, 2006
(incorporated by reference to Exhibit 10.2 to the registrant’s Current Report
filed on March 20, 2006).
|
|
|
|
|
10.10
|
Agreement (for profit participation) between Equitex, Inc. and FastFunds
Financial Corporation, dated as of March 14, 2006
(incorporated by reference to Exhibit 10.3 to the registrant’s
Current Report filed on March 20, 2006).
|
|
|
|
|
14.1
|
Code of Ethics
|
|
|
|
|
21.1
|
List of Subsidiaries
(Filed herewith)
.
|
|
|
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302
of Sarbanes-Oxley Act of 2002 (
filed herewith
).
|
|
|
|
|
32.1
|
Certifications under Section 906 of Sarbanes-Oxley Act of 2002 (
filed
herewith
).
|