SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q/A
(Amendment
No. 1)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30,
2014
or
☐ TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE EXCHANGE ACT
For the transition period from ________________
to __________________
Commission File No. 000-33053
|
FASTFUNDS
FINANCIAL CORPORATION |
|
|
(Exact name of registrant as specified in its charter) |
|
Nevada |
87-0425514 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
|
319
Clematis Street, Suite 400 |
|
|
West Palm Beach, FL 33401 |
|
|
(Address of principal
executive offices) (Zip code) |
|
|
|
|
|
(561)
514-9042 |
|
|
(Registrant's telephone
number, including area code) |
|
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a larger accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer"
in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☑ |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☑
The number of shares outstanding of the Registrant's
$0.0001 par value Common Stock as of August 15, 2014, was 5,131,706,641 shares
Explanatory Note
The sole purpose of this Amendment to the
Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 (the “10-Q”), is to furnish
the Interactive Data File exhibits. This Amendment has not been updated to reflect events
occurring subsequent to the filing of the 10-Q.
FASTFUNDS
FINANCIAL CORPORATION AND SUBSIDIARIES
SIX
MONTHS ENDED JUNE 30, 2014 and 2013
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Page |
Part
I. Financial Information |
|
|
|
Item
1. Financial Statements |
|
|
|
Condensed
Consolidated Balance Sheets at June 30, 2014 (Unaudited) and December 31, 2013 |
2 |
|
|
Condensed
Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (Unaudited) |
3 |
|
|
Condensed
Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (Unaudited) |
4 |
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited) |
5 |
|
|
Item
2. Management’s Discussion and Analysis |
22 |
|
|
Item
3. Quantitative and Qualitative Disclosures about Market Risks |
25 |
|
|
Item
4. Controls and Procedures |
25 |
|
|
Part
II. Other Information |
|
|
|
Item
1. Legal Proceedings |
27 |
|
|
Item
1A. Risk Factors |
27 |
|
|
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds |
27 |
|
|
Item
3. Defaults Upon Senior Securities |
27 |
|
|
Item
5. Other Information |
27 |
|
|
Item
6. Exhibits |
27 |
|
|
Item
7. Signatures |
|
|
|
FASTFUNDS
FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
June
30, | | |
December
31, | |
| |
2014 | | |
2013 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and
cash equivalents | |
$ | 132,581 | | |
$ | 2,057 | |
Accounts receivable | |
| 47,893 | | |
| 51,551 | |
Notes receivable, current
portion | |
| 63,320 | | |
| — | |
Deferred financing
costs | |
| 10,425 | | |
| 4,409 | |
Other
current assets | |
| 76 | | |
| 1,143 | |
| |
| | | |
| | |
Total
current assets | |
| 254,295 | | |
| 59,160 | |
| |
| | | |
| | |
Other assets | |
| 1,200 | | |
| 200 | |
Notes and interest receivable, net of current
portion | |
| 688,500 | | |
| — | |
Long term investments
(Note 4) | |
| 89,575 | | |
| 89,575 | |
| |
| | | |
| | |
Total
other assets | |
| 779,275 | | |
| 89,775 | |
| |
| | | |
| | |
Total
assets | |
$ | 1,033,570 | | |
$ | 148,935 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 735,902 | | |
$ | 724,387 | |
License fee payable | |
| 250,000 | | |
| 250,000 | |
Due to related party | |
| 75,000 | | |
| 75,000 | |
Accrued
expenses, including related parties $27,603 (2014) and $101,419 (2013) (Note 5) | |
| 3,486,417 | | |
| 3,481,723 | |
Convertible
promissory notes (Note 6), including related parties of $129,547 (2014) and $170,338 (2013) | |
| 2,237,141 | | |
| 2,282,932 | |
Litigation contingency
(Note 7) | |
| 2,484,922 | | |
| 2,484,922 | |
Convertible debentures
payable, net | |
| 845,911 | | |
| 333,082 | |
Derivative
liabilities (Note 6) | |
| 883,403 | | |
| 535,862 | |
| |
| | | |
| | |
Total
current liabilities | |
| 10,998,696 | | |
| 10,167,908 | |
| |
| | | |
| | |
Commitments and contingencies (Notes 4,
6,and 8) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' deficit (Note 9): | |
| | | |
| | |
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; Class A preferred stock, $0.001 par value; 1,000,000 shares authorized;
819,000 shares issued and outstanding | |
| 819 | | |
| 819 | |
Class
B preferred stock, $0.001 par value; 2,000,000 shares authorized; 1,791,667 shares issued and outstanding | |
| 1,792 | | |
| 1,792 | |
Class
C preferred stock, $0.001 par value; 1,000 shares authorized; 1,000 shares issued and outstanding (2014) | |
| 1 | | |
| — | |
Common
stock, $0.001 par value; 6,000,000,000 shares authorized; 4,507,937,980 (2014) and 1,192,337,212 (2013) shares issued and
outstanding | |
| 4,507,937 | | |
| 1,192,338 | |
Additional paid-in
capital | |
| 11,202,334 | | |
| 13,340,216 | |
Treasury stock, 30,000,000
shares of common stock | |
| — | | |
| — | |
Accumulated
deficit | |
| (25,735,628 | ) | |
| (24,611,757 | ) |
| |
| | | |
| | |
Total company stockholders'
deficit | |
| (10,022,745 | ) | |
| (10,076,592 | ) |
Less
noncontrolling interest | |
| 57,619 | | |
| 57,619 | |
Total
deficit | |
| (9,965,126 | ) | |
| (10,018,973 | ) |
| |
| | | |
| | |
Total
liabilities and stockholders' deficit | |
$ | 1,033,570 | | |
$ | 148,935 | |
| |
| | | |
| | |
See notes to condensed consolidated
financial statements. |
FASTFUNDS
FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
| |
Three
months ended June 30, | |
Six
months ended June 30, |
| |
2014 | |
2013 | |
2014 | |
2013 |
| |
| |
| |
| |
|
| |
| |
| |
| |
|
Fee
revenue, net | |
$ | 7,327 | | |
$ | 7,652 | | |
$ | 14,366 | | |
$ | 15,723 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of revenue: | |
| | | |
| | | |
| | | |
| | |
Processing fees | |
| 6,502 | | |
| 6,523 | | |
| 12,853 | | |
| 13,352 | |
Returned checks
(collected) | |
| (1,120 | ) | |
| (1,017 | ) | |
| (1,420 | ) | |
| (1,172 | ) |
Other | |
| 390 | | |
| 390 | | |
| 794 | | |
| 782 | |
| |
| | | |
| | | |
| | | |
| | |
Total
cost of revenue | |
| 5,772 | | |
| 5,896 | | |
| 12,227 | | |
| 12,962 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 1,555 | | |
| 1,756 | | |
| 2,139 | | |
| 2,761 | |
| |
| | | |
| | | |
| | | |
| | |
Selling, general
and administrative | |
| 167,277 | | |
| 64,914 | | |
| 346,602 | | |
| 108,426 | |
Loss from operations | |
| (165,722 | ) | |
| (63,158 | ) | |
| (344,463 | ) | |
| (105,665 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (624,135 | ) | |
| (434,893 | ) | |
| (1,105,935 | ) | |
| (640,966 | ) |
Derivative liability
(expense) income | |
| 359,063 | | |
| (123,445 | ) | |
| 313,027 | | |
| (118,904 | ) |
Interest
income | |
| 13,500 | | |
| — | | |
| 13,500 | | |
| — | |
Total
other expense | |
| (251,572 | ) | |
| (558,338 | ) | |
| (779,408 | ) | |
| (759,870 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (417,294 | ) | |
$ | (621,496 | ) | |
$ | (1,123,871 | ) | |
$ | (865,535 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share | |
$ | (0.01 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted
average number of common shares outstanding Basic and diluted | |
| 4,159,751,162 | | |
| 164,875,928 | | |
| 3,615,975,835 | | |
| 148,759,086 | |
| |
| | | |
| | | |
| | | |
| | |
See notes to condensed
consolidated financial statements. |
FASTFUNDS
FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX
MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
| |
2014 | |
2013 |
Cash flows from operating activities: | |
| | | |
| | |
Net
loss | |
$ | (1,123,871 | ) | |
$ | (865,535 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Issuance of preferred
stock as compensation | |
| 106,673 | | |
| — | |
Amortization of
discount on convertible notes | |
| 822,854 | | |
| 389,892 | |
Initial derivative
liability expense on convertible debentures | |
| 24,205 | | |
| 5,578 | |
Change in fair value
of derivative liabilities | |
| (337,232 | ) | |
| 113,323 | |
Amortization of
deferred financing costs | |
| 13,984 | | |
| 13,357 | |
| |
| | | |
| | |
Decrease (increase)
in assets: | |
| | | |
| | |
Accounts receivable | |
| 3,658 | | |
| (7,310 | ) |
Interest receivable | |
| (13,500 | ) | |
| — | |
Prepaid assets | |
| 1,067 | | |
| 30 | |
Increase in liabilities: | |
| | | |
| | |
Accounts payable | |
| 11,516 | | |
| 10,177 | |
Accrued
expenses | |
| 250,782 | | |
| 269,515 | |
Net cash used in
operating activities | |
| (239,865 | ) | |
| (70,973 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Payment on issuance
of note receivable | |
| (25,000 | ) | |
| — | |
Payments from issuance
of note receivable | |
| 1,680 | | |
| — | |
Payment
of security deposit | |
| (1,000 | ) | |
| — | |
Net cash used in
investing activities | |
| (24,320 | ) | |
| — | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Borrowings on convertible
notes | |
| 440,500 | | |
| 128,000 | |
Borrowings on notes
and loans payable, related | |
| 5,000 | | |
| 4,400 | |
Borrowings on notes
and loans payable, other | |
| — | | |
| 15,900 | |
Repayments on notes
and loans payable, related | |
| (45,791 | ) | |
| (72,800 | ) |
Repayments on notes
and loans payable, other | |
| (5,000 | ) | |
| — | |
Payment
of deferred financing costs | |
| — | | |
| (4,600 | ) |
Net cash provided
by financing activities | |
| 394,709 | | |
| 70,900 | |
| |
| | | |
| | |
Net increase (decrease) in cash and
cash equivalents | |
| 130,524 | | |
| (73 | ) |
Cash and cash equivalents,
beginning | |
| 2,057 | | |
| 218 | |
Cash and cash
equivalents, ending | |
$ | 132,581 | | |
$ | 145 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow
information: | |
| | | |
| | |
Cash
paid for interest | |
$ | 12,358 | | |
$ | — | |
Cash
paid for income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Schedule of Non-Cash Financing Activities: | |
| | | |
| | |
Conversion of
convertible notes to common stock | |
$ | — | | |
$ | 10,400 | |
Reclass
of derivative liability to equity upon conversion of convertible debt | |
$ | 533,259 | | |
$ | 100,709 | |
Issuance of convertible
debt for notes receivable | |
$ | 715,000 | | |
$ | — | |
Issuance of convertible
notes in settlement of accounts payable | |
$ | 217,127 | | |
$ | — | |
Issuance
of convertible promissory note for original issuer discount fee | |
$ | 95,000 | | |
$ | — | |
Conversion
of convertible debentures and accrued interest to common stock | |
$ | 537,786 | | |
$ | 118,686 | |
See notes to condensed
consolidated financial statements.
FASTFUNDS FINANCIAL CORPORATION
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.
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. Henry Fong, the Company’s sole officer and Director, 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 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 October 7, 2013, the Company
formed Financiera Moderna (“FM”), as a wholly-owned subsidiary to develop and market financial products and services
target 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 was to 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 closing of the transaction contemplated
by the Agreement (the “Closing”) was 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 has concluded its’ due diligence,
the closing conditions have not been met and at this time, the Company is no longer considering closing.
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 year
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 with 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.
On April 3, 2014, the Company and
its wholly-owned subsidiary CA announced the launch of GreenEnergyMedia.TV.
GreenEnergyMedia.TV caters to broadcasting real-time news and social media feeds relating exclusively to the medical and recreational
marijuana communities.GreenEnergyMedia.TV broadcasts stock quotations and intraday charts on
over 40 leading companies competing within the medical marijuana industry.
On April
29, 2014, Cannabis Live was launched, which will focus exclusively on hosting and broadcasting
video of on-demand events. As this area of GreenEnergyMedia.TV’s website progresses, the Company plans to include the development
of an exclusive interactive online channel. This future development will allow for several sources of revenue to be derived
for the Company; including premium access membership fees, sponsorship and endorsement fees, and advertising revenue.
On April
17, 2014, the Company and its wholly-owned subsidiary CA announced a Merchant Payment Processing Agreement
to offer a debit card payment solution for retail cannabis dispensaries. This program will be offered through CMFS, the Company's
49% owned subsidiary. This payment solution allows dispensaries to accept debit and credit cards by using the PIN number associated
with the card being used.
To date, none of the business activities
have generated any revenue.
Going concern and management’s
plans:
In the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2013, 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, 2014 and 2013 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 $1,123,871 for the six months ended June 30, 2014, and has a working capital deficit of $10,744,401 and an accumulated
deficit of $25,735,628 as of June 30, 2014. 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 was
to receive approximately $30,000 annually pursuant to the Preferred Stock it holds of an unaffiliated party (see Note 4), 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 received limited 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 and include the consolidated accounts
of Fastfunds Financial Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated
in consolidation. 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 15, 2014. Interim results of operations for the six months ended June 30, 2014 are not necessarily indicative of future
results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the
current period.
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.
Non-controlling 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 non-controlling 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 non-controlling 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 six month
periods ended June 30, 2014 and 2013, as the impact of the potential common shares, which total 3,850,826,600 and 187,947,614, respectively, would be anti-dilutive.
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. 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, 2014 and 2013.
The Company’s
stock option plan is more fully described in Note 9.
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.
On February 20, 2014, LG Capital
Funding, LLC (“LG”) issued a $40,000 collateralized secured promissory note to the Company as consideration for a convertible
note. See note 6. The note bears interest at the rate of 8% and is due no later than November 20, 2014, unless the Company does
not meet the current information requirements required under Rule 144 of the Securities Act of 1933, as amended. As of June 30,
2014, the outstanding principal balance of the note is $40,000.
On March 19, 2014, the Company advanced
$25,000 to Worldwide Marijuana Investments, Inc. (“WMI”) in exchange for a $25,000 promissory note. Interest of 12%
per annum is payable in monthly installments, along with a monthly principal amount of $500 beginning April 1, 2014 for twelve
months, at which time the remaining principal amount and interest will be due in full. As of June 30, 2014, the outstanding principal
amount on the promissory note is $23,320.
On March 27, 2014, Typenex Co-Investment,
LLC (“Typenex”) as partial consideration for the issuance of a $831,000 secured convertible promissory note (see note
6) from the Company, issued nine Buyer Notes to the Company in the aggregate of $675,000, each Buyer Note being $75,000. The Buyer
Notes bear interest at the rate of 8%. As of June 30, 2014, the balances owed the Company of $675,000 is included in Notes receivable
on the condensed consolidated financial statements included herein, as well as $13,500 of interest receivable.
4. |
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.
Accrued liabilities at June 30, 2014 and December 31, 2013 were $3,486,417 and $3,481,723, respectively,
and were comprised of:
| |
2014 | |
2013 |
Legal fees | |
$ | 23,594 | | |
$ | 215,218 | |
Interest | |
| 3,124,562 | | |
| 2,896,763 | |
Consultants and advisors | |
| 135,524 | | |
| 166,600 | |
Registration rights | |
| 98,013 | | |
| 98,013 | |
Other | |
| 104,724 | | |
| 105,119 | |
| |
$ | 3,486,417 | | |
$ | 3,481,723 | |
6. |
Convertible promissory notes, including related parties and
debenture payable: |
Promissory notes, including
related parties at June 30, 2014 and December 31, 2013, consist of the following:
| |
2014 | |
2013 |
| |
| | | |
| | |
Promissory notes payable: | |
| | | |
| | |
| |
| | | |
| | |
Various, including related parties of $129,547 (2014) and $170,338 (2013); interest rate ranging from 8% to 10% [A] | |
$ | 146,422 | | |
$ | 192,213 | |
| |
| | | |
| | |
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 | |
| |
$ | 2,237,141 | | |
$ | 2,282,932 | |
| [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, 2014 the Company issued notes of $5,000 (to related
parties) and made payments of $50,791 (including $45,791 to related parties). |
| [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 $3,014,686
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 $2,484,922 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, 2014 and December 31, 2013 balance sheets promissory notes payable and accrued expenses.
Debenture
payable:
2012 Notes
On October 9, 2012, the Company
issued a $5,000 convertible promissory note to Carebourn Capital LP (“Carebourn”). The Carebourn note was due on demand,
bears interest at 8% per annum and had a conversion feature similar to the 2013 Asher Notes (defined below). During the six months
ended June 30, 2014, the Company issued 4,849,217 shares of common stock upon conversion of the note and $696 of accrued and unpaid
interest. As of June 30, 2014, the note has been fully satisfied.
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. During the six months ended June 30, 2014, the Company issued 5,414,365 shares of common stock
for $3,411 of accrued and unpaid interest. As of June 30, 2014, the note has been fully satisfied.
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 was 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 had not been delivered within 3 business days,
the Notice of Conversion may be rescinded. Accrued but unpaid interest were also subject to conversion. No fractional shares or
scrip representing fractions of shares were to be issued on conversion, but the number of shares issuable were to be rounded to
the nearest whole share. Also in October 2012, the Company issued four (4) additional notes to Gel in the aggregate, as amended,
$85,000, and Gel issued the Company four secured promissory notes, one for $25,000 and three each in the amount of $20,000, initially
due June 21, 2013. Gel funded $65,000 of the notes to the Company during the year ended December 31, 2013, and the remaining $20,000
was funded on January 28, 2014. During the year ended December 31, 2013, the Company issued 288,467,551 shares of common stock
in satisfaction of $63,145 of the Gel 2012 Notes. As of December 31, 2013, the Company had $26,855 of principal amounts outstanding
to Gel. During the six months ended June 30, 2014, the Company issued 314,508,480 shares of common stock in satisfaction of $46,855
of the 2012 Gel Notes. As of June 30, 2014, the 2012 Gel Notes have been satisfied.
On November 1, 2012, the Company
issued a convertible promissory note to David Schaper (“Schaper”) 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 was $166,670. During the six months ended June 30, 2014, the Company issued 1,344,201,542 shares of common stock upon
the conversion of $163,670 of the Note. As of June 30, 2014, the balance of the note is $3,000.
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, was
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 March 2013 Note matured November 14, 2013,
is in default, and the Default Rate was effective at that date. During the six months ended June 30, 2014, the Company issued 78,000,000
shares of common stock upon conversion of $3,900 of the note. The balance of the March 2013 Note is $42,100 as of June 30, 2014.
The following
notes issued in 2013, bear interest at 8% per annum and other than as described below are 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. The notes issued
in 2013 are referred to as the 2013 Notes.
On April 8, 2013,
the Company issued a convertible promissory note to Schaper for $5,000. During the six months ended June 30, 2014, the Company
issued 100,000,000 shares of common stock upon the conversion of the note. As of June 30, 2014, the note has been satisfied.
On April 26, 2013, the Company issued
a convertible promissory note for $50,000 to an unaffiliated accredited investor. During the six months ended June 30, 2014, the
Company issued 167,359,375 shares of common stock upon the conversion of the note and $3,555 of accrued and unpaid interest. As
of June 30, 2014, the note has been fully satisfied.
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.
During the six months ended June 30, 2014, the Company issued 86,757,922 shares of common stock upon the conversion of these notes
and $1,024 of accrued and unpaid interest. As of June 30, 2014, the note has been satisfied.
On August 9, 2013,
the Company issued a $6,250 note to Linrick Industries, LLC. During the six months ended June 30, 2014, the Company issued 10,268,561
shares of common stock upon the conversion of the note and $250 of accrued and unpaid interest in full satisfaction of this note.
On August 22,
2013, the Company issued a $6,000 convertible promissory note to Schaper. During the six months ended June 30, 2014, the Company
issued 40,000,000 shares of common stock upon conversion of $4,000 of this note. The outstanding principal balance on this note
is $2,000 as of June 30, 2014.
On September 3, 2013 ($32,500) and
October 17, 2013 ($37,500), the Company issued convertible promissory notes to Asher Enterprises, Inc. (“Asher” and
“2013 Asher Notes”). Among other terms the 2013 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 2013 Notes, together with accrued and unpaid interest, to be immediately
due and payable. In addition, the 2013 Notes provide for adjustments for dividends payable other than in 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, 2014, the Company issued 114,682,540 shares of common stock upon conversion of $70,000
of the notes and $2,800 of accrued and unpaid interest. As of June 30, 2014, these notes
have been satisfied.
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.
During the six months ended June 30, 2014, the Company issued 75,676,800 shares of common stock upon the conversion of the note
and $284 of accrued and unpaid interest in full satisfaction of this note.
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. During the six months ended June 30, 2014, the Company issued 100,000,000 shares upon conversion of the note.
As of June 30, 2014, the note has been fully satisfied.
On October 18,
2013, the Company issued four (4) convertible notes each in the amount of $25,625 to Gel (the 2013 Gel Notes). The conversion price
for the 2013 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. Also on October 18, 2013, Gel issued the Company
four secured promissory notes, each in the amount of $25,000, due April 21, 2014. The Company received the $100,000 on March 6,
2014. During the six months ended June 30, 2014, the Company issued 237,777,779 shares upon conversion of $46,000 of the notes.
As of June 30, 2014, the four convertible promissory notes in the aggregate of $56,500 of principal amount owed Gel was outstanding.
On November 19,
2013, the Company issued a $16,500 convertible note to Carebourn Capital L.P. During the six months ended June 30, 2014, the Company
issued 67,766,920 shares upon the conversion of the note. As of June 30, 2014, the note has been satisfied.
On November 22, 2013, the Company
issued a $35,000 (the Fong Note) and $30,000 (the Hollander Note) convertible note to Mr. Fong and Mr. Hollander, respectively,
for the cancellation of accrued and unpaid fees. During the six months ended June 30, 2014, the Company issued 230,000,000 shares
of common stock in satisfaction of $22,000 of the Hollander note. The outstanding principal balances of the Fong and Hollander
notes as of June 30, 2014 are $35,000 and $8,000 respectively.
2014 Notes
On January 28, 2014, the Company
issued a convertible promissory note to Mr. Fong for $25,500 in satisfaction of accrued and unpaid fees due Mr. Fong. Also on January
28, 2014, the Company entered into a Debt Settlement and Release Agreement (the “DSR”) with Mr. Fong and Mary Virginia
Knight (“Knight”) or Knight assigns. Pursuant to the DSR, the Company has issued 300,000,000 shares of common stock
to the Knight assign, in cancellation and satisfaction of $15,000 of the convertible note due Mr. Fong. As of June 30, 2014, the
outstanding principal balance of this note is $10,500.
On February 10, 2014, the Company issued two (2) convertible promissory notes in the amounts of $95,814
and $95,813 in exchange for previously accrued legal fees. The notes bear interest at 8% per annum and are 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. As of June 30, 2014, the balances of the notes are outstanding.
On February 4, 2014 ($32,500) and
March 5, 2014 ($27,500), the Company issued convertible promissory notes to Asher, under the same terms and conditions as the
2013 Asher Notes. The Company received $55,000 cash after debt issuance costs of $5,000. The debt issuance costs will be amortized
over the earlier of the twelve month term of the Note or any redemptions and accordingly $2,500 and $3,611 has been expensed as
debt issuance costs (included in interest expense) for the three and six months ended June 30, 2014, respectively. As of June
30, 2014, the outstanding principal balance of these notes is $60,000.
On February
20, 2014, the Company issued two (2) convertible promissory notes, each in the amount of $40,000 to LG Capital (“LG”).
The Company received $38,000 cash and a $40,000 secured promissory note after debt issuance costs of $2,000. The debt issuance
costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $1,000 and $1,389
has been expensed as debt issuance costs (included in interest expense) for the three and six months ended June 30, 2014, respectively.
As of June 30, 2014, the outstanding principal balance of these notes is $80,000.
On March 3, 2014,
the Company issued a $52,500 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 8%
and is convertible at a 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding
conversion. The conversion price cannot exceed $0.0035 (250% of the market price as of the date of the executed term sheet by
the parties). The Company received $50,000 after debt issuance costs of $2,500 which will be amortized over the six month term
of the Note or any redemptions and accordingly $1,250 and $1,625 has been expensed as debt issuance
costs (included in interest expense) for the three and six months ended June 30, 2014, respectively. As of June 30, 2014, the
outstanding principal balance of this note is $52,500.
On March 6, 2014 the Company issued
a $50,000 convertible promissory note to Gel, under the same terms and conditions as the 2012 Gel Notes. As of June 30, 2014, the
outstanding principal balance of this note is $50,000.
On March 27, 2014, the Company
issued an $831,000 secured convertible promissory note (the “Note”) to Typenex (the “Lender”). The
Typenex Note carries an original issuer discount of $75,000. In addition, the Company
agreed to pay $6,000 to cover the Lender’s legal and other fees. At the option of the Lender, the note converts at
$0.0025 per share. The conversion by the Lender of any portion of the Outstanding Balance shall only be exercisable in ten
(10) tranches (each, a “Tranche”), consisting of an initial Tranche in an amount equal to $88,500 and nine
(9) additional Tranches, each in the amount of $82,500, plus any interest, costs, fees or charges accrued thereon or added
thereto under the terms of this Note. The Note carries a 10% interest rate and matures on the seventeenth month after
funding. Typenex funded $75,000 on April 1, 2014 (the “Funding Date”) and also delivered nine (9) secured
promissory notes to the Company, each in the amount of $75,000. Each payment received will constitute an “Issue
Date”. The Company also granted Typenex the right to purchase at any time on or after each Issue Date until the date
which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration
Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”) of the
Company’s common stock, par value $0.001 per share equal to $41,250 divided by 55% of the average of the three
lowest days closing price, with an exercise price of $0.0025. As of the Funding Date, the approximate warrant value based on
the Black Scholes warrant calculation formula was $85,700. The Company recorded the amount as a discount to the convertible
promissory note and will amortize the discount to interest expense over the life of the loan. For the three months ended June
30, 2014, the Company expensed $22,872, included in interest expense. The recalculated warrant value as of June 30, 2014
was $93,721 and the Company recorded an expense of $8,012 included in derivative liability expense as of June 30, 2014.
Pursuant to certain defaults and
remedies clauses contained in the terms and conditions of the Typenex Note, the Company estimated the value of the conversion feature
to be $474,000 based on the Black Scholes formula. The calculation included the conversion factor to be 55% of the average of the
lowest three days closing prices of the 20 trading days immediately preceding conversion. The Company recorded the $474,000 as
a discount to the Typenex Note and will amortize the discount to interest expense, over the life of the loan. For the three and
six months ended June 30, 2014, the Company recorded interest expense of $123,240. The Company revalued the conversion feature
as of June 30, 2014 to be $100,765 and recorded a credit to derivative liability expense of $373,235, the change in fair value of
the convertible note.
On April 1,
2014 ($15,000) and April 23, 2014 ($12,500), the Company issued convertible promissory notes to Carebourn Capital. The notes bear
interest at 8% per annum and mature nine months from the date of issuance. The conversion price of the notes is equal to a 50%
discount to the average of the three lowest day closing prices for the ten trading days immediately preceding conversion. As of
June 30, 2014, the principal balance of the notes remain outstanding.
On May 16, 2014, the Company issued
a $27,000 convertible promissory note, bearing interest at 12% per annum, to WHC Capital, LLC (“WHC”). Pursuant to
the terms of the note, WHC conversion price will be equal to 50% of the lowest intra-day trading price for the Company’s
common stock during the twenty trading days immediately preceding a conversion. The Company received $25,000 after debt issuance
costs of $2,000, which will be amortized over the earlier of the one year term of the Note or any redemptions. Accordingly, $533
has been expensed for the three and six months ended June 30, 2014, as debt issuance costs (included in interest expense). As of
June 30, 2014, the principal balance of $27,000 remains outstanding.
The Company has
determined that the conversion features of the 2012, 2013 and 2014 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 fair value of the conversion
features embedded in the 2014 Notes as of their dates of issuance and in their entirety as of June 30, 2014 was determined to approximate
their fair intrinsic value due to the terms of conversion.
The inputs used to estimate the
fair value of the derivative liabilities are considered to be level 1 inputs within the fair value hierarchy.
A summary of the derivative liabilities
related to convertible notes as of December 31, 2013 and June 30, 2014 is as follows:
Fair Value | |
Derivative Liability Balance 1/1/14 | |
Initial Derivative Liability | |
Redeemed convertible notes | |
Fair value change -
six months ended 6/30/14 | |
Derivative Liability Balance
6/30/14 |
2012 Notes | |
$ | 172,602 | | |
| — | | |
$ | (168,670 | ) | |
$ | 2,068 | | |
$ | 6,000 | |
2013 Notes | |
$ | 363,260 | | |
$ | 103,000 | | |
$ | (364,589 | ) | |
$ | 2,024 | | |
$ | 103,695 | |
2014 Notes | |
| — | | |
$ | 1,115,032 | | |
| — | | |
$ | (341,324 | ) | |
$ | 773,708 | |
Total | |
$ | 535,862 | | |
$ | 1,268,827 | * | |
$ | (533.259 | ) | |
$ | (337,232 | ) | |
$ | 833,403 | |
| · | Expenses of $24,205 related to the initial derivative
liability, equal to the excess of the liabilities over the face value of the related notes is included in derivative liability
income of $313,027 for the
six months ended June 30, 2014. |
A summary of debentures payable as of December
31, 2013 and June 30, 2014 is as follows:
Face Value | |
Balances 1/1/14 | |
Issuance of new convertible notes | |
Amortization of discount on convertible Notes | |
Debenture conversions six months ended 6/30/14 | |
Balances 6/30/14 |
2012 Notes | |
$ | 171,670 | | |
| — | | |
| — | | |
$ | 168,670 | | |
$ | 3,000 | |
2013 Notes | |
$ | 349,255 | | |
$ | 102,500 | | |
| — | | |
$ | 340,155 | | |
$ | 111,600 | |
2014 Notes | |
| — | | |
$ | 1,365,127 | | |
| — | | |
| — | | |
$ | 1,365,127 | |
Note discount | |
$ | (187,843 | ) | |
$ | (1,268,827 | ) | |
$ | 822,854 | | |
| — | | |
$ | (633,816 | ) |
Total | |
$ | 333,082 | | |
$ | 758,500 | | |
$ | 677,333 | | |
$ | 508,825 | | |
$ | 845,911 | |
7. |
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, 2014 and December 31, 2013.
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 utilized space in an office leased through February 2014, by a Company controlled by its former Acting President. Effective
January 1, 2013 the monthly rent became $1,066. The lease, as amended, expired in April 2014, when the Company began leasing the
same space directly from the landlord on a month to month basis for $1,206 per month.
Marketing agreement:
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. As of June 1, 2014, Aeson and Company agreed to transition
from the marketing agreement whereby the Company hired the principal of Aeson and entered into an employment agreement. The Company
compensated Aeson $9,000 during the term of the marketing agreement.
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. Management
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.
As
of June 30, 2014, 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.
9. |
Stockholders’
deficiency: |
Common stock:
During the six
months ended June 30, 2014, the Company issued 3,315,600,688 shares of common stock upon the conversion of $508,825 of debentures
payable and $28,961 of accrued and unpaid interest.
Preferred stock:
There were no
shares of Class A or B preferred stock issued during the six months ended June 30, 2014.
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. The Class C preferred stock provides no other rights to their holder(s)
other than voting rights.
The Company valued the 1,000 shares
of Class B preferred stock at $106,673, based on an estimated control premium that may be realized upon the sale of common stock,
primarily similar to voting control as of the grant date.
Stock options and warrants:
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, 2014.
All options outstanding at June
30, 2014 are fully vested and exercisable. A summary of outstanding balances at June 30, 2014 and December 31, 2013 is as follows:
| |
| |
| |
Weighted- | |
|
| |
| |
Weighted- | |
Average | |
Aggregate |
| |
Options | |
Average
exercise price | |
Remaining contractual life | |
Intrinsic
Value |
| |
| |
| |
| |
|
| Outstanding at January 1, 2014 | | |
| 990,000 | | |
$ | 0.34 | | |
| 1.98 | | |
$ | 0 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Outstanding at June 30, 2014 | | |
| 990,000 | | |
$ | 0.34 | | |
| 1.73 | | |
$ | 0 | |
On April 1, 2014, the
Company issued a warrant to purchase shares of common stock of the Company equal to $41,250 divided by 55% of the average of
the three lowest days closing price, and an exercise price of $0.0025. The warrants expire April 30, 2019 (see note 6).
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.
11. |
Related party transactions: |
Management and director fees:
For the three and six months ended
June 30, 2014, the Company accrued expenses of $22,500 and $37,500, respectively, for Mr. Fong, the Company’s President and
Chairman. Mr. Fong received $35,076 in cash payments for the six months ended June 30, 2014. In January 2014, the Company issued
a convertible note to Mr. Fong in payment of $25,500 of accrued and unpaid fees. As of June 30, 2014, Mr. Fong is owed $2,424 for
these services, included in accrued expenses on the balance sheet.
Preferred Stock:
On January 21, 2014, the Company
issued 1,000 shares of Class C preferred stock to Mr. Fong. 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.
Acquisition
of Carbon Capture:
On May 25, 2012, the Company’s
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. During the year ended December 31, 2013, Carbon 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 6, the Company
has issued notes payable to various related parties. The balances of December 31, 2013 and June 30, 2014, and the activity for
the six months ended June 30, 2014 follows:
Noteholder | |
Balance 1/1/14 | |
Additions | |
Payments | |
Balance 6/30/14 |
Gulfstream Financial Partners (1) | |
$ | 1,750 | | |
$ | — | | |
$ | 1,750 | | |
$ | — | |
HPI Partners (1) | |
| 144,725 | | |
| — | | |
| 30,000 | | |
| 114,725 | |
AFPW (1) | |
| 6,953 | | |
| — | | |
| 6,953 | | |
| — | |
Henry Fong (1) | |
| 2,088 | | |
| 5,000 | | |
| 7,088 | | |
| — | |
HF Services (1) | |
| 4,150 | | |
| — | | |
| — | | |
| 4,150 | |
SurgLine Int’l (1) | |
| 10,672 | | |
| — | | |
| — | | |
| 10,672 | |
Total | |
$ | 170,338 | | |
$ | 5,000 | | |
$ | 45,791 | | |
$ | 129,547 | |
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. |
From July
1, 2014, through August 14, 2014, the Company has issued 653,769,777 shares of common stock in satisfaction of $90,000 of convertible
promissory notes and $1,399 of accrued and unpaid interest.
On July 8, 2014, The Company announced
the formation of The 420 Development Corporation, a newly formed wholly owned subsidiary of the Company that will focus exclusively
on the acquisition of operational companies that support the development of the ever-expanding cannabis industry. The 420
Development Corporation will seek to identify acquisition candidates within the industry that will add significant shareholder
value once completed.
On July 11, 2014, The Company, and
Auctus Private Equity Fund, LLC (“Auctus”) entered into a Securities Purchase Agreement, providing for the issuance
of an 8% Convertible Promissory Note in the principal amount of $42,750, that matures on April 11, 2015. The Company received $37,500.
Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 22% per annum from
the due date until the same is paid.
On July 16, 2014, the Company
cancelled the 30,000,000 shares of common stock that were issued to the principals of CV and CS. See Note 1.
On July 16, 2014, the
Company received $50,000 from the same investor as the March 2013 Note (see Note 6). The Company and the investor have not
finalized the terms of this advance.
On July 22, 2014, the Company entered
into a convertible promissory note for $52,500 with Carebourn Capital. The note matures on April 22, 2015, and carries an interest
rate of 12% per annum. The company received proceeds of $50,000.
On July 24, 2014, The Company announced
the closing of the Brawnstone Security, LLC (“Brawnstone”) acquisition. Under the terms of the agreement, the Company
owns a 70% interest in Ohio-based Brawnstone. Brawnstone is a licensed armed security, private investigation, security technology
solution provider and tactical training company servicing active accounts with several Government affiliated HUD housing establishments,
schools, and industrial facilities across the Ohio region. Pursuant to the terms of the Definitive Agreement, the Company agreed
to purchase a 70% interest in Brawnstone for $160,000. Details of the Definitive Agreement including the Membership Interest Purchase
Agreement can be found in the 8-K filed by the Company on July 23, 2014.
Management has determined that there
are no further events subsequent to the balance sheet date that should be disclosed in these financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
THIS REPORT MAY CONTAIN CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE SECURITIES AND EXCHANGE COMMISSION
IN ITS RULES, REGULATIONS AND RELEASES, WHICH REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS
CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS,
AND FUTURE OPERATIONAL PLANS, FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY
BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS "MAY", "WILL",
"EXPECT", "BELIEVE", "ANTICIPATE", "INTENT", "COULD", "ESTIMATE", "MIGHT",
OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S
CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON THE VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY RELATED
TO THE COMPANY'S OPERATIONS, MERGERS OR ACQUISITIONS, GOVERNMENTAL REGULATION, THE VALUE OF THE COMPANY'S ASSETS AND ANY OTHER
FACTORS DISCUSSED IN THIS AND OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
GENERAL
FastFunds Financial Corporation (“FFFC”)
is a holding company and through January 31, 2006 operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”).
As disclosed in the December 31, 2013 10-K, FFFC also has several other non-operating wholly-owned subsidiaries. FFFC and its subsidiaries
are referred to as (the “Company”).
OVERVIEW
The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes
thereto for the years ended December 31, 2013 and 2012. The condensed consolidated financial statements presented for the three
and six months ended June 30, 2014 and 2013 include FFFC and its subsidiaries.
The historical data presented below is not
indicative of future results. You should read this information in conjunction with the audited consolidated financial statements
of the Company, including the notes to those statements for the year ended December 31, 2013, filed with the SEC on April 15, 2014,
and the following “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.
The Company’s financial statements for
the three and six months ended June 30, 2014 and 2013 have been prepared on a going concern basis, which contemplates the realization
of its remaining assets and the settlement of liabilities and commitments in the normal course of business. The Company has incurred
significant losses since its inception and has a working capital deficit of approximately $10,744,401 and an accumulated deficit
of approximately $25,735,628 as of June 30, 2014. Moreover, it presently has minimal ongoing business operations or sources of
revenue, and little available 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. There can be no assurance that the Company will have adequate resources
to fund future operations 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. 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.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2014, net
cash used in operating activities was $239,865 compared to $70,973 for the six months ended June 30, 2013. Net loss was $1,123,871
and $865,535 for the six months ended June 30, 2014 and 2013, respectively. Included in the net loss for the six months ended June
30, 2014 was $836,838 for the amortization of note discounts and deferred financing costs related to convertible notes and $106,673
of stock compensation expense related to the issuance of 1,000 shares of Class C preferred stock. The current period loss also
included an initial derivative liability expense of $24,205 as a result of the fair value of newly issued convertible notes, operating
expenses of approximately $240,000 and interest expense of $269,097 related to convertible promissory notes and convertible debentures.
These amounts were partially offset by a credit to derivative liability expense of $337,232 due to the change in fair value of
derivative liabilities.
The net loss for the six months ended June
30, 2013 was impacted by $403,249 for the amortization of debt discounts and deferred financing costs
related to convertible notes. Also included in the 2013 period is an initial derivative liability expense of $5,578 as a result
of the fair value of newly issued convertible notes, $113,323 for the fair value change in derivative liabilities, and an increase
in accrued expenses of $269,515.
Net cash used in investing activities for the
six months ended June 30, 2014, primarily consisted of a payment of $25,000 in exchange for a note receivable. There was no investing
activity for the six months ended June 30, 2013.
Net cash provided by financing activities for
the six months ended June 30, 2014 was $394,709 compared to $70,900 for the six months ended June 30, 2013. During the six months
ended June 30, 2014, the Company received $440,500 from the issuance of convertible notes and $5,000 from the issuance of notes
payable related parties. The Company repaid $50,791 of notes payable ($45,791 related parties). The 2013 amount was comprised of
$128,000 received from the issuance of convertible notes and $20,300 from the issuance of notes payable
($4,400 from related parties). The Company repaid $72,800 of related party notes payable and paid $4,600 of deferred financing
fees.
For the six months ended June 30, 2014, cash
and cash equivalents increased by $130,524 compared to a decrease of $73 for the three months ended June 30, 2013. Ending cash
and cash equivalents at June 30, 2014 was $132,581 compared to $145 at June 30, 2013.
We have limited cash and cash equivalents on
hand and need to raise funds to continue to be able to support our operating expenses and to meet our other obligations as they
become due.
REVENUES
Total revenues for the three and six months
ended June 30, 2014 were $7,327 and $14,366 compared to $7,652 and $15,723 for the three and six months ended June 30, 2013. Revenues
in all periods consist of credit card income on Nova’s remaining portfolio.
COSTS OF REVENUES
Costs of revenues for the three and six months
ended June 30, 2014, were $5,772 and $12,227 compared to $5,896 and $12,962 for the three and six months ended June 30, 2013. Expenses
were primarily comprised of costs related to third party servicing fees of Nova’s remaining credit card portfolio.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
Corporate operating expenses for the three
and six months ended June 30, 2014 were $167,277 and $346,602 compared to $64,914 and $108,426 for the three and six months
ended June 30, 2013, respectively. The expenses were comprised of the following:
| |
Three months ended June 30, | |
Six months ended June 30, |
| |
2014 | |
2013 | |
2014 | |
2013 |
Accounting and legal | |
$ | 12,474 | | |
$ | 7,200 | | |
$ | 29,149 | | |
$ | 12,200 | |
Stock compensation expense | |
| — | | |
| — | | |
| 106,673 | | |
| — | |
Management and director fees | |
| 22,500 | | |
| 30,000 | | |
| 37,500 | | |
| 60,000 | |
Consulting and other professional | |
| 98,825 | | |
| 15,942 | | |
| 124,425 | | |
| 19,442 | |
Transfer agent and filing fees | |
| 2,967 | | |
| 4,294 | | |
| 11,757 | | |
| 5,123 | |
Other | |
| 30,511 | | |
| 7,478 | | |
| 37,098 | | |
| 11,661 | |
| |
$ | 167,277 | | |
$ | 64,914 | | |
$ | 346,602 | | |
$ | 108,426 | |
Effective October 1, 2012, the Company has
agreed to compensate Mr. Fong $5,000 per month for services being provided. On June 1, 2014, the Company increased Mr. Fong’s
monthly compensation to $12,500 (management and director fees). Accounting and legal fees for the three and six months ended June
30, 2014, were $12,474, respectively. Stock compensation expense is as a result of 1,000 shares of Class C preferred stock issued
to Mr. Fong.
Consulting and other professional fees increased
for the three and six months periods ended June 30, 2014, compared to the three and six months ended June 30, 2013. The current
period expenses included $13,175 (three months) and $24,175 (six months) of costs related to Cannabis Angel initiatives, $7,000
(three months) and $12,000 (six months) as part of a marketing agreement to increase the Company’s social media presence,
$52,400 (three months) and $55,250 (six months) in investor relations costs and $26,250 and 433,000 in additional outside services
costs. The 2013 periods include consulting expenses of $15,600 (six months) and investor relations costs of $942 (three months)
and $$4,442 (six months).
The increase in transfer agent and filing fees
costs for the six months ended June 30, 2014, compared to the six months ended June 30, 2013, were related to State of Nevada costs
for increasing the authorized shares of common stock as well as transfer agent costs for the issuance of shares of common stock
upon conversion of debentures.
General and other administrative costs for
the three and six months ended June 30, 2014 were $ 30,511 and $37,098, respectively, compared to $11,772 and $16,784,
respectively for the three and six months ended June 30, 2013. Expenses for the six months ended June 30, 2014 include rent expense
of $3,340 (three months) and $6,534 (six months), travel expense of $7,964 (three months) and $9,923 (six months), internet expenses
of $2,311 (three months and $9,160 (six months), moving expense of $3,800 (six months) and other general and administrative costs
of $7,681. Expenses for the six months ended June 30, 2013, include rent expense of $3,323 (three months) and $6,400 (six months),
transfer agent and filing fees of $7,244 (three months) and $8,073 (six months) and other general and administrative costs of $1,030.
OTHER INCOME (EXPENSE)
Other expense, net for the three and six months
ended June 30, 2014 was $251,572 and $779,408, respectively, compared to $558,338 and $759,870 for the three and six months ended
June 30, 2013, respectively. The three and six months ended June 30, 2014, included derivative
liability income of $359,063 and $313,027. The credit (income) was predominantly a result of the change in fair value of the conversion
features in the Typenex note of $373,235 for the three and six months ended June 30, 2014, based on the Black Scholes valuation
as of June 30, 2014.
Other expense, for the three months ended June
30, 2013 was comprised of interest expense of $434,893 and derivative liability expenses of $123,445. For the six months ended
June 30, 2014, other expenses were comprised of interest expense of $640,966 and $118,904 of derivative liability expense.
Interest expense for each of the periods is
as follows:
| |
Three months ended June 30, | |
Six months ended June 30, |
| |
2014 | |
2013 | |
2014 | |
2013 |
Interest on face value | |
$ | 151,947 | | |
$ | 116,795 | | |
$ | 269,097 | | |
$ | 237,716 | |
Amortization of note and OID discounts | |
| 463,497 | | |
| 311,724 | | |
| 822,854 | | |
| 389,983 | |
Amortization deferred financing costs | |
| 8,691 | | |
| 6,374 | | |
| 13,984 | | |
| 13,357 | |
Total | |
$ | 624,135 | | |
$ | 434,893 | | |
$ | 1,105,935 | | |
$ | 640,966 | |
CONTRACTUAL OBLIGATIONS
Not Applicable
CRITICAL ACCOUNTING POLICIES
Our financial statements have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and
expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to income taxes, contingencies and litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Our significant accounting policies are described
in more detail in our 2013 Annual Report on Form 10-K.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
The Company maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that
are designed to ensure that information required to be disclosed in the Company’s filings under the Exchange Act is recorded,
processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated
to allow our management to make timely decisions regarding required disclosure. Our President, who serves as our principal executive
officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report and he determined that our disclosure controls and procedures were not effective due to a control
deficiency. During the period the Company did not have additional personnel to allow segregation of duties to ensure the completeness
or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until
we acquire or merge with another company.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2014, there were no changes in the Company's internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.
Changes in Internal Control over Financial
Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2014,
the Company issued 546,779,359 shares of common stock upon the conversion of $153,228 of debentures payable and $6,027 of accrued
and unpaid interest. The shares were issued at approximately $0.0003 per share.
Item 3. Defaults upon Senior Securities
None.
Item 4. Other Information
None.
Item 5. Exhibits
Exhibit Number |
Description |
|
|
31.1 |
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith) |
|
|
32.1 |
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith) |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
FastFunds Financial Corporation |
|
(Registrant) |
|
|
Date: August 20, 2014 |
By: /s/ Henry Fong |
|
Henry Fong |
|
Chief Executive Officer |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14
OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Henry Fong, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of FastFunds Financial Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods
presented in this report; |
| 4. | The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's
most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the Company's internal control over financial reporting; |
| 5. | The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent
functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information;
and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's
internal control over financial reporting. |
Date: August 20, 2014 |
/s/ Henry Fong |
|
Henry Fong |
|
Chief Executive Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of
FastFunds Financial Corporation (the "Company") on Form 10-Q for the period ended June 30, 2014, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"). I, Henry Fong, Chief Executive Officer, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| 2) | The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company, as of, and for the periods presented in the Report. |
|
/s/ Henry Fong |
|
Henry Fong |
|
Chief Executive Officer |
|
August 20, 2014 |
|
|
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION
906 HAS BEEN PROVIDED TO FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES AND WILL BE RETAINED BY FASTFUNDS FINANCIAL CORPORATION
AND SUBSIDIARIES AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.