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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[x] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
  SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended: DECEMBER 31, 2011
   
[¨] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934
  For transition period from            to           .

 

Commission File Number: 000-33053

 

FASTFUNDS FINANCIAL CORPORATION

(Name of Registrant in its charter)

 

NEVADA 87-0425514
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

 

319 CLEMATIS STREET, SUITE 400, WEST PALM BEACH, FLORIDA                       33401

                    (Address of principal executive offices)                                                     (Zip Code)

 

Issuer’s telephone number: (561) 514-9042

 

Securities registered under Section 12 (b) of the Exchange Act:

NONE

 

Securities registered under Section 12 (g) of the Exchange Act:

COMMON STOCK, $.001 PAR VALUE

(Title of Class)

 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

[ ] Yes No[x]

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. [ ]

 

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 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 Days: [x]Yes[ ] No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [x]

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer:

Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller Reporting Company [x]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

[ ]Yes [x]No

 

The aggregate market value of the voting stock held by non-affiliates of the Registrant was $97,500 based on the last sale price of the Registrant's common stock as of the last business day of the Registrants’ most recently completed second fiscal quarter, ($0.015 per share as of June 30, 2011) as reported on the Over-the-Counter Quotation Board.

 

The Registrant had 10,212,456 shares of common stock outstanding as of March 31, 2012.

 

Documents incorporated by reference: None

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FASTFUNDS FINANCIAL CORPORATION

FORM 10-K

 

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 REGISTRANT’S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING THE REGISTRANT’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 FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE REGISTRANT’S CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION, MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.[]

 

PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

(a)General development of business.

 

FastFunds Financial Corporation (“FastFunds”, “FFFC” or the “Company”) is a holding company, organized in Nevada in 1985, formerly operating through its wholly owned subsidiary Chex Services, Inc. (“Chex”). Chex is a Minnesota corporation formed in 1992, and prior to the Asset Sale described and defined in the paragraph below, provided financial services, primarily check cashing, automated teller machine (ATM) access and credit and debit card advances, to customers predominantly at Native American owned casinos and gaming establishments. FastFunds previously existed under the name “Seven Ventures, Inc.” On June 7, 2004, a wholly owned subsidiary of Seven Ventures, Inc. merged with and into Chex (the "Merger”). In the Merger, Hydrogen Power, Inc. (“HPI”), exchanged its 100% ownership of Chex for 7,700,000 shares of the Company’s common stock; representing approximately 93% of the Company’s outstanding common stock immediately following the Merger. On June 29, 2004, the Company changed its name to FastFunds Financial Corporation.

 

On December 22, 2005, FastFunds and Chex entered into an Asset Purchase Agreement with Game Financial Corporation, pursuant to which FastFunds and Chex agreed to sell substantially all the assets of Chex (the “Asset Sale”). Such assets also represent substantially all of the operating assets of FastFunds on a consolidated basis. On January 31, 2006, FastFunds and Chex completed the Asset Sale for $14 million. Additionally, FastFunds and Chex entered into a Transition Services Agreement with Game Financial pursuant to which FastFunds and Chex agreed to provide certain services to Game Financial to ensure a smooth transition of the sale of the cash access financial services business. HPI agreed to serve as a guarantor of FastFunds and Chex’s performance obligations under the Transition Service Agreement.

 

On February 28, 2006, HPI (then known as Equitex, Inc.), held a special meeting of shareholders at which two proposals were approved authorizing the acquisition of Hydrogen Power, Inc. (“Old HPI”), through a newly formed wholly-owned Equitex subsidiary as well as certain related common stock issuances. Per the terms of the transaction, as amended, Equitex was obligated to deliver $5 million to Old HPI as a condition to close. On March 14, 2006, FastFunds loaned Equitex the $5 million (the “$5 Million Loan”) for one year at 10% per annum interest. As security for the $5 Million Loan, Equitex pledged to FastFunds all of the common stock of Old HPI. In addition, FastFunds is to receive a profit interest from the operations of Old HPI equal to 10% of the net profit of Old HPI, as defined in the relevant loan documents.

 

On January 2, 2007, pursuant to the terms of a Redemption, Stock Sale and Release Agreement (the “Redemption Agreement”) by and between HPI and the Company, we (i) redeemed 8,917,344 shares of our common stock held by HPI, (ii) acquired from HPI an aggregate of 5,000,000 shares of common stock of Denaris Corporation, a Delaware corporation (“Denaris”), (iii) acquired from HPI an aggregate of 1,000 shares of common stock of Key Financial Systems, Inc., a Delaware corporation (“Key Financial”), and (iv) acquired from HPI an aggregate of 1,000 shares of common stock of Nova Financial Systems, Inc., a Delaware corporation (“Nova Financial”). Denaris is now a majority owned subsidiary, and Key Financial and Nova Financial are wholly owned subsidiaries of FFFC. Denaris and Key Financial are inactive entities with no operating or intellectual property assets. Nova has limited activity as well as limited assets. The shares of common stock of each entity transferred to us pursuant to the Redemption Agreement constituted all of HPI holdings in each entity. In consideration of the redemption and acquisition of the shares of Denaris, Key Financial and Nova Financial, we released HPI from all outstanding payment obligations, including obligations under the $5 Million Note dated March 14, 2006. The outstanding balance on the $5 Million Note, including principal and interest accrued, as of the date of the Redemption Agreement was $5,402,398. The Company received a fairness opinion from an unaffiliated third party with respect to this transaction.

 

After the closing of the Redemption Agreement, HPI held 3,500,000 shares of FFFC common stock, constituting approximately 34.3% of FFFC’ s outstanding common stock at December 31, 2010. These shares have been pledged as collateral on certain notes of HPI. During 2008, as a result of the assumption of this debt by HPI Partners, LLC., (“HPIP”) and the subsequent foreclosure by the debt holders upon HPIP, HPIP owns the 3.5 million shares. The principal managers of HPIP are Messrs. Fong and Olson. As of December 31, 2011, we held 1,541,858 shares of HPI common stock, constituting approximately 5.2% of HPI common stock. Pursuant to the Redemption Agreement, the Company and HPI each provided the other certain registration rights relating to the common stock of such party held by the other party.

 

On January 18, 2008, the Company filed a complaint in the Superior Court of Washington in King County (the “Superior Court”). The complaint was filed by FastFunds Financial Corporation, Daniel Bishop, Barbara M. Schaper, HP Services LLC, VP Development Corporation, and Gulfstream Financial Partners, LLC (collectively, the “Plaintiffs”) against Dilbagh Singh Gujral, Ricky Gurdish Gujral, Virendra Chaudhary, Hydrofuels Technology, Inc. (“GHTI”) and Hydrogen Power, Inc. (collectively, the “Defendants”).

 

Messrs. Chaudhary and Dilawari are directors of HPI. GHTI is the majority shareholder of HPI. Ricky Gurdish Gujral is the former chief executive officer of HPI. The complaint alleges fraud, misappropriation of corporate opportunity and breach of fiduciary duty by the Defendants relating to

 

 
 

   the merger of Equitex, Inc. and Hydrogen Power, Inc., the Sublicense Agreement with GHTI, and payments to Ricky Gurdish Gujral. The complaint seeks the appointment of a receiver to take possession of the property and assets of the Company and to manage and operate the Company pending completion of the action. The complaint also seeks damages in the excess of $3,000,000, exemplary damages, attorney’s fees plus interest and costs and any other relief the court finds just and proper. On January 25, 2008, the Superior Court appointed a receiver of HPI with respect to HPI’s assets. Some assets have been recovered by the Receiver. One of the defendants has filed a counterclaim asserting that the action is frivolous; the Plaintiffs have denied the counterclaim in its entirety. GHTI has sought arbitration regarding ownership of certain patent applications and other intellectual property. GHTI was granted a stay of this case until the arbitration is complete.

 

On March 25, 2010 the Defendants and Plaintiffs entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, which was approved by the receiver and the Court on September 23, 2010, the Defendants and Plaintiffs have agreed to release each other from the claims and to have no further suits against each other. Additionally, the Defendants have agreed to assign to the Receiver for the benefits of the Plaintiffs any and all rights, including but not limited to insurance payments and settlements for any and all officers and directors liability insurance policies.

 

From time to time we evaluate opportunities for strategic investments or acquisitions that would complement our current services and products, enhance our technical capabilities or otherwise offer growth opportunities. As a result, acquisition discussions and, in some cases, negotiations may take place and future investments or acquisitions involving cash, debt or equity securities or a combination thereof may result. FastFunds Financial Corporation maintains its principal office at 319 Clematis Street, Suite 400, West Palm Beach, Florida. You can reach us by telephone at (514) 514-9042.

 

(b)Financial information about segments.

 

Through January 31, 2006, we operated in one industry segment, cash disbursement services. We currently have limited operations.

 

(c)Narrative description of business.

 

Nova was formed to design, market and service credit card products aimed at the sub-prime market consisting mainly of consumers who may not qualify for traditional credit card products. Nova processes payments on a single remaining portfolio which provides the company with limited operations. Nova continues to receive residual payments on approximately 300 cards still active in the Merrick Bank portfolio at December 31, 2011. The Merrick Bank portfolio should continue to see a decline in active accounts in 2011.

 

Subsequent to the Asset Sale, the Company has not conducted limited operations and is the process of locating a business to acquire. The Company currently has no full-time employees.

 

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ITEM 1A. RISK FACTORS

 

The purchase of shares of the Company’s common stock is very speculative and involves a very high degree of risk. An investment in the Company is suitable only for the persons who can afford the loss of their entire investment. Accordingly, investors should carefully consider the following risk factors, as well as other information set forth herein, in making an investment decision with respect to securities of the Company.

 

RISKS ASSOCIATED WITH OUR COMPANY AND HISTORY:

 

We have a limited operating business and therefore limited revenues. We have also posted significant losses in each of the past two fiscal years.

 

In January 2006, we sold substantially all of our operating business, owned by Chex, to Game Financial Corporation. The Company currently has a limited operating business and therefore limited revenues. In addition, we have posted significant losses in each of our past two fiscal years including $781,294 for the year ended December 31, 2011 and $844,877 for the year ended December 31, 2010. As a result, any investment in the Company must be considered purely speculative.

 

The Company’s balance sheet contains certain notes payable, which are currently in default/were due February 28, 2008.

 

Chex previously relied on promissory notes (the “Notes”) issued to private investors to provide operating capital for its business. As of December 31, 2011, the balance of the Notes was $2,090,719. These Notes were due in February 2007 and at that time the Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. The Company has failed to pay interest and the principal amount of these notes. The Company received complaints filed from several of these note holders. The Company has not responded to these complaints and accordingly the plaintiffs were awarded default judgments. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Notes (the “Restructured Notes”). The Restructured Notes carry a stated interest rate of 15% and matured on February 28, 2008. The Company has not paid the interest on the Notes since June 30, 2007 and did not repay the Notes on their maturity date and does not currently have sufficient capital to repay the Notes. 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 has been entered in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The judgment was entered on August 18, 2009. The Company has not made any payments of principal or interest since the judgment.

 

 

Chex is a guarantor of certain debt of HPI, and the Company’s entire investment in Chex (i.e., its ownership of all outstanding Chex stock) is subject to a security interest securing such obligation. Furthermore, all of the assets of Chex are subject to a security interest for the same debt.

 

In March 2004, HPI closed on $5 million of debt financing and issued convertible promissory notes in that principal amount to two financial institutions (the “Lenders”). The proceeds from the promissory notes were immediately thereafter loaned to Chex. The promissory notes are collateralized, among other things, by all of the assets of Chex, and by the 3,500,000 shares of Company common stock owned by HPI. In conjunction with the Asset Sale, the holders of the promissory notes consented to the sale of certain assets that secured their notes. In contemplation of the Redemption Agreement described above, on December 29, 2006, HPI and the Company obtained the consent of the Lenders to complete the transactions contemplated by the Redemption Agreement. Contemporaneously with receipt of the consent, HPI and the Company entered into a Note and Security Amendment Agreement dated December 29, 2006 with the Lenders, pursuant to which it was agreed to amend certain terms of the Convertible Promissory Note dated March 8, 2004 in favor of Lenders in the principal amount of $5,000,000 to increase the interest rate applicable to the Convertible Promissory Notes from 7% per annum to 10% per annum and the default interest rate from 10% to 13%. Accordingly, if HPI defaults on the obligations specified under the promissory notes, and if Chex cannot cure such defaults, the Company’s remaining assets could be lost. During 2008 as a result of the assumption of this debt by HPI Partners, LLC., (“HPIP”) and the subsequent foreclosure by the debt holders upon HPIP. HPIP owns the 3.5 million shares. The principal managers of HPIP are Messrs. Fong and Olson. Mr. Fong is the Chairman and CEO of FFFC and Mr. Olson the secretary of FFFC, until his resignation on September 30, 2011.

 

We may require additional financing to complete any merger, but we are uncertain whether such financing will be available to us.

 

We will require additional capital to continue or to expand our business plans. We have not identified any potential candidate business with which to merge, therefore, we cannot be certain that business will have revenues from operations that will generate cash flow sufficient to finance our operations and growth thereafter. In addition, we require additional financing to complete any potential merger to eliminate our current debt, or for working capital purposes to operate our business both now, and in the future, including any operations following a successful acquisition, if any.

 

Additional financing could be sought from a number of sources, including but not limited to additional sales of equity or debt securities, or loans from banks, other financial institutions or affiliates of the Company. If additional funds are raised by the issuance of our equity, then the ownership interest of our existing stockholders will be diluted. If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations (i.e., negative operating covenants), and such securities may have rights senior to those of the holders of our existing common stock. It is also possible that financing will not be available to us on terms acceptable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our business including the potential acquisition of an operating company.

 

There are currently outstanding securities convertible into or exchangeable for an aggregate of 2,610,951 shares of our common stock which, if converted or exchanged, will substantially dilute our existing stockholders.

 

The Company currently has outstanding notes and securities convertible into or exchangeable for an aggregate of 2,610,951 shares of common stock under certain conditions. In addition, the effective conversion and exercise prices of such securities significantly lower than the current market value of our common stock. If these securities are converted into or exchanged for common stock, their issuance would have a substantial

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dilutive effect on the percentage ownership of our current stockholders. These securities consist of: (i) options to purchase 330,000 shares of our common stock at an average purchase price of $1.03 per share; (ii) warrants to purchase an aggregate of 1,447,618 shares of our common stock at a weighted average purchase price of $0.03 per share, and 833,333 shares of common stock pursuant to the conversion terms of a $25,000 outstanding convertible promissory note

 

Our common stock trades only in an illiquid trading market, which generally results in lower prices for our common stock.

 

Trading of our common stock is conducted on the Over-The-Counter Bulletin Board. This has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and the lack of security analysts’ and the media’s coverage of our Company and its common stock. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.

 

We have not paid dividends to date, and have no intention of paying dividends to our stockholders.

 

To date, we have not paid any cash dividends and do not anticipate the payment of cash dividends in the foreseeable future. Accordingly, the only return on an investment in our common stock, if any, may occur upon a subsequent sale of the shares of common stock.

 

ITEM 2. PROPERTIES.

 

Effective January 31, 2011 the Company leased office space in West Palm Beach, FL. on a month to month basis for $900 per month. As of January 1, 2012 the Company began to utilize office space of a Company controlled by our Acting President.

 

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ITEM 3. LEGAL PROCEEDINGS.

 

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters may have a material adverse impact either individually or in the aggregate on our consolidated results of operations, financial position or cash flows.

 

In January 2008 the Company and three guarantors received a complaint filed by Grace Capital, LLC (as agent) and individual noteholders in the Fourth Judicial District in the County of Hennepin, in the State of Minnesota. The complaint seeks payment of principal and interest of $1,946,250 as of January 22, 2008, plus default per diem interest at the rate of twenty percent (20%) per annum and $37,000 for unpaid fees to Grace Capital, LLC. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and had a judgment entered in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The judgment was entered on August 18, 2009.

 

Pursuant to the terms of the Asset Sale, the Company owed Game Financial Corporation (“Game”) approximately $300,000. The parties agreed to settle the balance due for $275,000. The Company didn’t make any payments as stipulated in the settlement, and subsequently, Game filed a complaint against the Company. The Company has agreed to a judgment of $275,000 plus interest and attorney fees for a total of $329,146.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

None.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

 

(a)Market Information.

 

Our common stock is not listed on any exchange; however, market quotes for the Company’s common stock (under the symbol FFFC) may be obtained from the Over-the-Counter Bulletin Board Service. The bulletin board service is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter securities. The table below states the quarterly high and low bid prices for the common stock as reported by the bulletin board service. However, such Over-the-Counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.

 

     
Quarter Ended High Low
2011    
March 31, 2011 $0.18 $0.025
June 30, 2011 $0.17 $0.015
September 30, 2011 $0.10 $0.015
December 31, 2011 $0.09 $0.015

 

     
Quarter Ended High Low
2010    
March 31, 2010 $0.18 $0.06
June 30, 2010 $0.15 $0.06
September 30, 2010 $0.13 $0.04
December 31, 2010 $0.10 $0.04

 

(b)Holders.

 

The number of record holders of our common stock as of April 4, 2012 was 146 according to our transfer agent. This figure excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name.

 

(c)Dividends.

 

FastFunds has not declared nor paid cash dividends on our common stock during the previous two fiscal years, nor do we anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to fund our limited operations.

 

(d)Securities Authorized for Issuance Under Equity Compensation Plans.

 

We have the following securities authorized for issuance under our equity compensation plans as of December 31, 2011, including options outstanding or available for future issuance under our 2004 Stock Option Plan.

 

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Equity Compensation Plan Information
             
Plan category   Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plan
    (a)   (b)   (c)
             
Equity compensation plans not approved by security holders   330,000   $          1.03   1,345,000
             
Total   330,000   $          1.03   1,345,000

 

Recent Sales of Unregistered Securities

 

None.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

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, 2010 and 2009. The financial statements presented for the year ended December 31, 2011 and 2010 include FastFunds, Chex, Collection Solutions, FastFunds International Limited, Key, Nova and Denaris.

 

In light of the foregoing, and the Company’s sale of substantially all of its assets in January 2006, the historical data presented below is not indicative of, and therefore, not useful for purposes of predicting future results. You should read this information in conjunction with the audited consolidated financial statements of the Company, including the notes to those statements (Item 8), and the following “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

 

The Company’s financial statements for the year ended December 31, 2011 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 $10,123,000, and an accumulated deficit of $22,616,153 as of December 31, 2011. Moreover, it presently has no 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.

 

 

(a)Liquidity and Capital Resources

 

For the year ended December 31, 2011, net cash used in operating activities was $16,437 compared to $32,310 for the year ended December 31, 2010. Net loss for the year ended December 31, 2011 was $781,294 compared to a net loss of $844,877 for the year ended December 31, 2010. The net loss for 2010 included selling general and administrative expenses of $279,566 compared to $244,417 in 2011 and interest expense of $472,750 in 2010 compared to $494,904 in 2011. The 2010 non cash adjustments to the net loss included the depreciation and amortization of $100,800, compared to $51,766 in 2011. Additional 2011 non cash adjustments included $18,703 for the amortization of the discount on a convertible promissory, $21,667 for the change in the fair market value of the same convertible promissory note and $1,944 for the amortization of deferred financing costs.

.

Cash provided by financing activities for the year ended December 31, 2011 was $14,645 compared to $33,934 for the year ended December 31, 2010. During the year ended December 31, 2010, the Company issued $102,603 of notes payable and repaid $67,412 of notes payable. In 2011, the Company issued a $25,000 convertible promissory, $30,095 of notes payable, repaid $37,950 of notes payable and paid $2,500 of financing fees related to the convertible promissory note.

 

For the year ended December 31, 2010, net cash increased $253 compared to $1,624 for the year ended December 31, 2010. Ending cash at December 31, 2011, was $253 compared to $2,045 at December 31, 2010.

 

Other sources available to us that we may utilize include the sale of equity securities as well as the exercise of stock options and/or warrants, all of which may cause dilution to our stockholders. We may also be able to borrow funds from related and/or third parties.

 

(b)Results of operations.

 

Critical Accounting Policies and Estimates

 

Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Moreover, except as described below, we do not employ any critical accounting policies that are selected from among available alternatives or require the exercise of significant management judgment to apply.

 

We believe that the following are some of the more critical accounting policies that currently affect our financial condition and results of operations:

 

1)     stock based compensation; and,

2)     income taxes, deferred taxes

 

Stock Based Compensation

 

Share-based compensation expense is based on the estimated fair value at the grant date of the portion of share-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the

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Black-Scholes option pricing model. The assumptions used in the Black-Scholes option pricing model, particularly the Company’s estimates of expected term and volatility, are based in some respects on management’s judgments and historical trends. Compensation expense for the share-based payment awards granted subsequent to December 31, 2005, are based on the grant date fair value estimated under ASC 718 “Compensation- Stock Compensation.”

 

Income Taxes, Deferred Taxes

 

The operations of the Company for periods subsequent to the acquisition of the Company by HPI (then known as Equitex) 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 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 return 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.

 

In prior years the Company recorded a valuation allowance to reduce its deferred tax assets to the amount, if any, then deemed more likely than not to be realized. The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. During 2006, the Company removed its deferred tax valuation allowance and utilized the remainder of its deferred tax assets related to net operating losses to offset the taxable gain resulting from the Asset Sale. In addition, during 2006 the Company utilized a portion of HPI’s net operating losses to offset the remainder of 2006 taxable income resulting in a payable due to HPI.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements.  This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers.  Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  We are currently evaluating the impact of this ASU, however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

 

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310):  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  The ASU amends FASB Accounting Standards Codification Topic 310, Receivables, to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses.  As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class of financing receivables, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses.  This ASU is effective for interim and annual reporting periods ending on or after December 15, 2010.  The adoption of this standard may require additional disclosures, but we do not expect the adoption to have a material effect on our consolidated financial statements.

 

On December 21, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-29, which impacts any public entity that enters into business combinations that are material on an individual or aggregate basis. The guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenues and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred at the beginning of the prior annual period when preparing the pro forma financial information for both the current and prior reporting periods. The guidance also requires that pro forma disclosures be accompanied by a narrative description regarding the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in reported pro forma revenues and earnings. This guidance is effective for business combinations consummated in periods beginning after December 15, 2010.  We do not believe the adoption of this guidance will have a material impact on our Consolidated Financial Statements.

 

 

Results of operations

 

Results of continuing operations for the year ended December 31, 2011 vs. December 31, 2010

 

REVENUES

 

Total revenues for 2011 were $44,225 compared to $53,104 for 2010. Revenues for the year ended December 31, 2011 and 2010 consist of credit card income on Nova’s remaining credit card portfolio.

8
 

 

 

OPERATING EXPENSES

 

Operating expenses were $37,765 for the year ended December 31, 2011 compared to $44,865 for 2010. The operating expenses for the year ended December 31, 2011 and 2010 primarily consisted of expenses related to third party servicing fees of Nova’s remaining credit card portfolio.

 

CORPORATE OPERATING (INCOME) EXPENSES

 

Corporate operating expenses for 2011 were $296,183 and $380,366 for 2010. The expenses were comprised of the following:

 

  2011 2010
     
Amortization $51,766 $100,800
Stock-based compensation --  
Accounting, legal and consulting 225,242 240,296
Other 19,175 31,270
     
  $296,183 $380,366

 

Accounting, legal and consulting expenses decreased for the year ended December 31, 2011. The decrease was primarily as a result of a decrease to the monthly fee being accrued for our Acting President form $10,000 a month to $6,000 per month effective July 1, 2011. Current expenses include consulting expenses of $6,000 and $25,000 accrued annually for Director fees. Amortization expenses are related to a consulting agreement with a former officer of Chex, and as of December 31, 2011 have been fully amortized.

 

Other costs included in corporate operating expenses decreased for the year ended December 31, 2011 compared to the year ended December 31, 2010. The decrease was primarily attributable to a decrease in rent expense of approximately $10,000.

 

OTHER INCOME (EXPENSE)

 

Other expense, net for the year ended December 31, 2011 was $491,571 compared to expenses of $472,750 for the year ended December 31, 2010. The 2011 expenses include $21,667 for the fair market value change of the derivative liability related to the convertible promissory note. Income of $25,000 from the dividend received related to the Paymaster long term investment offset these costs. Interest expense for the year ended December, 2011 and 2010 is summarized as:

 

  2011 2010
     
Notes payable, other $454,773 $432,486
Notes payable, related parties 40,131 40,264
     
  $494,904 $472,750

 

INCOME TAX EXPENSE

 

There was no income tax expense recorded for the years ended December 31, 2011 and 2010.

 

OFF BALANCE SHEET ARRANGEMENTS

 

None

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company has limited exposure to market risks related to changes in interest rates. The Company does not currently invest in equity instruments of public or private companies for business or strategic purposes.

 

The principal risks of loss arising from adverse changes in market rates and prices to which the Company and its subsidiaries are exposed relate to interest rates on debt. The Company has only fixed rate debt. The Company has $2,795,019 of debt outstanding as of December 31, 2011, of which $2,090,719 has been borrowed at fixed rates ranging from 10% to 15%. This fixed rate debt is subject to renewal quarterly or annually and was due February 28, 2008.

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

The financial statements are listed under Item 15.

 

9
 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

N/A

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

A review and evaluation was performed by the Company's management, including the Company's Acting Chief Executive Officer (the "CEO") who is also the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO /CFO has concluded that as of December 31, 2011 disclosure controls and procedures, were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

 

Management’s Report on Internal Controls over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.

 

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

 

Our CEO and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2011 as described below.

  

We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:

 

Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.

 

Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.

 

Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.

 

We are committed to improving the internal controls and will (1) consider to use third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.

 

We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of this material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

 

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

 

Changes in Internal Control over Financial Reporting

 

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

10
 

 ITEM 9B. OTHER INFORMATION

 

None

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

(a)(b)(c)Identification of directors, executive officers and certain significant persons

 

Name   Age   Offices Held   Length of service
             
Henry Fong   76   Chairman   Since June 2004
             
Thomas B. Olson   45   Secretary   From June 2004 through September 30, 2011
             
Barry Hollander   54   Acting Chief Executive Officer   Since January 2007

 

Our directors hold office until the next annual meeting of the stockholders and until their respective successors have been elected and qualified. Officers are appointed by our Board of Directors and hold office until their successors are duly elected and qualified.

 

No arrangement exists between any of the above officers and directors pursuant to which any one of those persons was elected or appointed to such office or position.

 

(d)Family relationships.

 

None.

 

(e)Business experience.

 

HENRY FONG

Mr. Fong became the Company’s chairman and chief executive officer upon the effectiveness of the Merger. Mr. Fong has served in a variety of roles for other public corporations. Mr. Fong has been President and a Director of China Nuvo Solar Energy, Inc. (“China Nuvo”) since March 2002. China Nuvo is an alternative energy company that is publicly traded. Mr. Fong has been president and a director of Alumifuel Power Corporation, (“Alumifuel”) formerly, Inhibiton Therapeutics, Inc. since its inception in May 2004. Alumifuel is a publicly held company developing hydrogen generation products. Mr. Fong has been the president, CEO and director of Techs Loanstar, Inc., (“Techs”) since February 2010. Techs’ is a publicly traded company in the social network industry and has been the president, treasurer and a director of Hydrogen Power, Inc., formerly Equitex, Inc. from its inception in January 1983 to January 2007. Mr. Fong has been president and a director of Equitex 2000, Inc. since its inception in 2001. From 1959 to 1982 Mr. Fong served in various accounting, finance and budgeting positions with the Department of the Air Force. During the period from 1972 to 1981 he was assigned to senior supervisory positions at the Department of the Air Force headquarters in the Pentagon. In 1978, he was selected to participate in the Federal Executive Development Program and in 1981, he was appointed to the Senior Executive Service. In 1970 and 1971, he attended the Woodrow Wilson School, Princeton University and was a Princeton Fellow in Public Affairs. Mr. Fong received the Air Force Meritorious Civilian Service Award in 1982. Mr. Fong has passed the uniform certified public accountant exam. In March 1994, Mr. Fong was one of twelve CEOs selected as Silver Award winners in FINANCIAL WORLD magazine’s corporate American “Dream Team.”

 

THOMAS B. OLSON

Mr. Olson became the Company’s secretary upon the effectiveness of the Merger. Mr. Olson also served as secretary of Equitex from January 1988 to April 2007, and has been a director of Chex since May 2002. From March 2002 through his resignation on December 15, 2010 Mr. Olson had been the secretary of China Nuvo Solar Energy, Inc., a publicly traded alternative energy company. Mr. Olson has been Secretary of Equitex 2000, Inc. since its inception in 2001. Mr. Olson has been secretary of Alumifuel since its inception in May 2004. Mr. Olson has attended Arizona State University and the University of Colorado at Denver. Mr Olson resigned on September 30, 2011.

 

BARRY HOLLANDER

Mr. Hollander has been our Acting Chief Executive Officer since January 2007. Mr. Hollander has been the Chief Financial Officer of SurgLine, International, Inc., formerly, China Nuvo Solar Energy, Inc. since May 2002 and the Chief Financial Officer of Techs Loanstar, Inc. since February 2010. Mr. Hollander has a BS degree from Fairleigh Dickinson University and passed the uniform certified public accountant exam.

 

(f)Involvement in certain legal proceedings.

 

None.

 

(g)Promoters and control persons.

 

None.

 

(h) Audit committee financial expert.

 

See (i) below.

 

(i) Identification of the audit committee

 

The Company does not currently have an audit committee of the board of directors, as none is required, and the board believes it can effectively

 

11
 

serve in that function and, therefore, currently does. Management believes that certain individuals on the board of directors may have the necessary attributes to serve as a financial expert on an audit committee, if required.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires executive officers and directors and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater-than-10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. We believe that during 2011, based solely on a review of the copies of such forms furnished to us during 2011 and written representations from the executive officers, directors and greater-than-10% beneficial owners of our common stock, have complied with all Section 16 filing requirements.

 

CODE OF ETHICS

 

We have adopted a Code of Ethics for our senior financial management, which includes our chief executive officer and chief financial officer as principal executive and accounting officers, that has been filed as an exhibit to this report.

 

12
 

 

ITEM 11. EXECUTIVE COMPENSATION.

 

Compensation Discussion and Analysis

 

Equity Compensation

 

Mr. Barry Hollander became Acting Chief Executive Officer in January 2007, filling a vacancy. Prior to that appointment, Mr. Hollander was providing functions related to accounting, finance and general operations of the Company as a consultant. Pursuant to the Board of Directors resolution, The Company through June 30, 2011 has been accruing a monthly management fee for Mr. Hollander of $10,000 per month and beginning July 1, 2011, $6,000 per month, and is paid when cash flow is available. During the year ended December 31, 2011 Mr. Hollander received $7,500. As of December 31, 2011, Mr. Hollander is owed $349,900 for these services.

 

Cash Incentive Bonuses

 

We had no cash incentive bonus program in effect for 2011.

 

Severance and Change-in-Control Benefits

 

We had no provisions for mandatory severance benefits in the event of a termination of change of control of the Company.

 

We have no plan or arrangement with respect to any officer’s of the Company that will result from a change in control of the Company or a change in the individual’s responsibilities following a change in control. For descriptions of applicable employment agreements and arrangements, please refer to the above paragraph (a) of this Item.

 

Other Benefits

 

Through the Asset Sale on January 31, 2006, our executives were eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance on the same basis as our other employees.

 

We currently have no benefit plan.

 

13
 

 

Summary Compensation Table

 

The following table sets forth information regarding compensation paid to our officers during the years ended December 31, 2011 and 2010:

 

Name and Principal Position Year

Salary

($)

Bonus

($)

All Other Compensation

($)

Total ($)
(a) (b) (c) (d) (i) (j)

Barry Hollander (1)

Acting Chief Executive Officer

2011

2010

$0

$0

$0

$0

$96,000

$120,000

$96,000

$120,000

 

(1)Mr. Hollander became the acting chief executive officer on January 2, 2007 to fill a vacancy and the Company accrued fees of $10,000 per month through June 30, 2011 and $6,000 per month beginning July 1, 2011. During the year ended December 31, 2011 Mr. Hollander received payments of $7,500. Included in accrued liabilities related parties at December 31, 2011 are unpaid fees to Mr. Hollander of $349,900.

 

Grant of Plan-Based Awards

 

None.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

None.

 

  Option Awards Stock Awards
Name

Number of Securities Under-lying Unexer-cised Options

(#)

Exer-cisable

Number of Securities Under-lying Unexer-cised Options

(#)

Unexer-cisable

Equity Incentive Plan Awards: Number of Securities Under-lying Unexer-cised Unearned Options

(#)

Option Exercise Price

($)

Option Expiration

Date

Number of Securities That Have Not Vested

(#)

Market Value of Securities That Have Not Vested

($)

Equity Incentive Plan Awards: Number of Unearned Securities or Other Rights That Have Not Vested

(#)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Securities or Other Rights That Have Not Vested

($)

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Henry Fong 90,000 0 0 $0.75 2/29/2017 0 $0 0 $0

 

Option Exercises and Stock Vested Table

 

None.

 

Non-Qualified Deferred Compensation Plans

 

We have no non-qualified deferred compensation plans currently in effect.

 

Director Compensation

 

14
 

The following table shows the compensation earned by each of our non-officer directors for the year ended December 31, 2011.

 

Name Fees Earned or Paid in Cash ($) Stock Awards ($)

Option Awards ($)

(2)

Non-Equity Incentive Plan Compensation ($) Change in Pension Value and Non-Qualified Deferred Compensation Earnings All Other Compensation Total ($)
(a) (b) (c) (d) (e) (f) (g) (h)

Henry

Fong

$25,000           $25,000

 

(1)   Amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2011 in accordance with SFAS 123(R) of stock option awards, and may include amounts from awards granted in and prior to fiscal year 2008. Assumptions used in the calculation of this amount for employees are identified in Note 2 to our annual financial statements for the year ended December 31, 2011 included elsewhere in this Annual Report.

 

The 2011 amounts were not paid and are included in accrued expenses on the 2011 balance sheet. In September 2005 the Board of Directors of the Company authorized a new compensation plan to all Directors of the Company, which includes the grant of 30,000 options to each director on an annual basis, as well as annual compensation of $25,000 to each director, to be paid in monthly installments. Beginning with the monthly fee due September 1, 2006, the Board of Directors temporarily suspended the monthly payment and accordingly, at December 31, 2011, $204,159 is included in accrued liabilities representing the total amount that remains unpaid in the aggregate. Additionally, members of the board of directors receive reimbursement for expenses incurred in attending board meetings or for other services related to their responsibilities as board members.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

(a) Security Ownership of Certain Beneficial Owners and Security Ownership of Management.

 

The following table contains information at March 31, 2012, as to the beneficial ownership of shares of our common stock by each person who, to our knowledge at that date, was the beneficial owner of five percent or more of the outstanding shares of the class, each person who is a director or a named executive officer of the Company under the summary compensation table and all persons as a group who are current executive officers and directors, and as to the percentage of outstanding shares so held by them at March 31, 2012. The number of shares beneficially held is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Including the number of shares below does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of the shares.

 

Name and Address of Beneficial Owner   Shares of Common Stock Owned (1)   Shares of Common Stock Underlying Options (1)     Total   Percentage of Common Stock Owned (2)
                   

HPI Partners, LLC.

7315 E. Peakview Ave.

Englewood, Co. 80111

  3,500,000   0     3,500,000   34.3%
                   

Henry Fong

7315 E Peakview Ave

Englewood CO 80111

  148,725   90,000     238,725   2.3%
                   

 

 

Name and Address of Beneficial Owner   Shares of Common Stock Owned (1)   Shares of Common Stock Underlying Options (1)     Total   Percentage of Common Stock Owned (2)
                   

Barry Hollander

319 Clematis St #400

West Palm Beach FL 33401

  28,546   0     28,546   0.3%
                   
All officers and directors as a group (three persons)   206,212   120,000     326,212   3.0%

 

(1) The beneficial owners exercise sole voting and investment power.

(2) As of March 28, 2012, 10,212,456 shares of our common stock were outstanding.

 

(c)Changes in control. None

 

15
 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

(a) Transactions with Related Persons.

 

None.

 

Transactions with Directors

 

DIRECTOR INDEPENDENCE

 

Our board of directors has one director and has no standing sub-committees at this time due to the associated expenses and the small size of our board. We are not currently listed on a national securities exchange that has requirements that a majority of the board of directors be independent, however, the board has determined that Aaron A. Grunfeld, until his resignation on November 8, 2008, was an “independent” under the definition set forth in the listing standards of the NASDAQ Stock Market, Inc., which is the definition that our board has chosen to use for the purposes of the determining independence.

 

In performing the functions of the audit committee, our board oversees our accounting and financial reporting process. In this function, our board performs several functions. Our board, among other duties, evaluates and assesses the qualifications of the Company’s independent auditors; determines whether to retain or terminate the existing independent auditors; meets with the independent auditors and financial management of the Company to review the scope of the proposed audit and audit procedures on an annual basis; reviews and approves the retention of independent auditors for any non-audit services; reviews the independence of the independent auditors; reviews with the independent auditors and with the Company’s financial accounting personnel the adequacy and effectiveness of accounting and financial controls and considers recommendations for improvement of such controls; reviews the financial statements to be included in our annual and quarterly reports filed with the Securities and Exchange Commission; and discusses with the Company’s management and the independent auditors the results of the annual audit and the results of our quarterly financial statements. While we do not currently have a standing compensation committee, our non-employee director considers executive officer compensation, and our entire board participates in the consideration of director compensation. Our non-employee board members oversee our compensation policies, plans and programs. Our non-employee board members further review and approve corporate performance goals and objectives relevant to the compensation of our executive officers; review the compensation and other terms of employment of our Chief Executive Officer and our other executive officers; and administer our equity incentive and stock option plans. Each of our directors participates in the consideration of director nominees. In addition to nominees recommended by directors, our board will consider nominees recommended by shareholders if submitted in writing to our secretary. Our board believes that any candidate for director, whether recommended by shareholders or by the board, should be considered on the basis of all factors relevant to our needs and the credentials of the candidate at the time the candidate is proposed. Such factors include relevant business and industry experience and demonstrated character and judgment.

 

16
 

 

Indebtedness of management.

 

Mr. James Welbourn, one of the Company’s former directors (resigned January 2, 2007) had a note payable to the Company at December 31, 2010 in the amount of $51,766, which is presented as a reduction of stockholders’ equity in the Company’s balance sheet as of December 31, 2010. In conjunction with the Asset Sale, the Company agreed to compensate the director $100,800 annually in consideration of a five year non-compete agreement and a release, whereby the director waived his right to future commissions that he was previously entitled to. Such compensation is being applied to reduce the note payable. As of December 31, 2011 the note balance was zero.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

R.R. Hawkins & Associates International a PC (“Hawkins”) served as our independent registered public accounting firm for December 31, 2011 and 2010.

 

Audit Fees

 

Fees billed and expected to be billed by Hawkins for audit services related to the year ended December 31, 2011 and 2010 were approximately $7,000, respectively, which includes out-of-pocket costs incurred in connection with these services.

 

Audit-Related Fees

 

Fees billed by Hawkins for audit-related services related to the years ended December 31, 2011 and 2010 were approximately $7,500 each year. The fees were associated with the review of the quarterly financial statements of the Company.

 

Tax Fees

 

Fees billed and expected to be billed by Hawkins for tax return preparation services related to the year ended December 31, 2011 were approximately $0.

 

All Other Fees

 

The Company incurred no other fees to Hawkins for 2011 and 2010.

 

Preapproval Policy

 

Pursuant to our Audit Committee Charter, before the accountant is engaged by us to render audit or non-audit services, our audit committee approves the engagement. In absence of a standing audit committee, such approval is made by our entire board of directors.

16
 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES

 

YEARS ENDED DECEMBER 31, 2011 and 2010

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

  Page
Reports of Independent Registered Public Accounting Firm F-1
   
Consolidated financial statements:  
   
      Consolidated balance sheets F-2
   
      Consolidated statements of operations F-3
   
      Consolidated statements of stockholders’ equity deficiency F-4
   
      Consolidated statements of cash flows F-5
   
      Notes to consolidated financial statements F-6 – F-25

 

17
 

Board of Directors

FastFunds Financial Corp.

West Palm Beach, Florida

 

Report of Independent Registered Public Accounting Firm

 

We have audited the accompanying balance sheets of FastFunds Financial Corp. as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ equity deficiency, and cash flows for each of the two years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FastFunds Financial Corp. as of December 31, 2011 and 2010, and the results of its operations, and its cash flows for each of the two years in the period ended December 31 2011 in conformity with U.S. generally accepted accounting principles.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred net losses since inception, which raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

/s/ R.R. Hawkins & Associates International, a PC

Los Angeles, CA

April 10, 2012

F-1
 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                   
CONSOLIDATED BALANCE SHEETS
                   
 
                   
                   
                   
          December 31,   December 31,
          2011   2010
                   
               
ASSETS
                 
Current assets:            
  Cash and cash equivalents   $               253   $              2,045
  Accounts receivable, net of allowance of $75 (2011) and $165 (2010)              71,992                68,974
  Current portion of notes and advances receivable (Note 3)              50,000              139,575
  Other current assets                   770                     213
                   
      Total current assets             123,015              210,807
                   
                   
Accounts receivable             105,000              105,000
Intangible and other assets                   200                     200
Long term investments (Note 4)              89,575                         -
                   
                    194,775              105,200
                   
          $         317,790   $          316,007
                   
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
                   
Current liabilities:            
  Cash overdraft   $                   -   $                     -
  Accounts payable             774,800              777,141
  Due to HPI (Note 7)              75,000                75,000
  Accrued expenses, including related parties $674,609 (2011) and $569,459 (2010) (Note 5)          3,441,199            2,765,062
  Promissory notes and current portion of long-term debt (Note 5), including related parties              
    of $423,208 (2011) and $498,963 (2010)          2,756,652            2,764,507
  Litigation contingency (Note 7)          2,484,922            2,484,922
  Debenture payable, net              18,703      
  Derivative liabilities (Notes 6 and 8)             694,667              648,000
                   
      Total current liabilities        10,245,943            9,514,632
                       
                   
Commitments and contingencies (Notes 5, 6,and 7)            
                   
Stockholders' equity deficiency (Note 8):            
  Preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued and            
    outstanding            
  Common stock, $.001 par value; 250,000,000 shares authorized; 19,129,800 shares issued            
    and 10,212,456 shares outstanding              19,130                19,130
  Additional paid-in capital        17,216,715          17,216,715
  Notes, advances and interest receivable, related parties                       -               (51,766)
  Common treasury stock at cost; 8,917,344 shares         (4,547,845)           (4,547,845)
  Accumulated deficit       (22,616,153)         (21,834,858)
                   
      Total stockholders' equity deficiency         (9,928,153)           (9,198,625)
                   
          $         317,790   $          316,007

See notes to consolidated financial statements  

F2
 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                   
CONSOLIDATED STATEMENTS OF OPERATIONS
                   
 
                   
                   
         For the years ended December 31,   
        2011     2010  
                   
                   
Fee revenue, net  $             44,225    $             53,104  
                     
Operating expenses:            
  Processing fees              35,132                42,107  
  Returned checks (collected)              (2,210)                (6,951)  
  Other               4,843                 9,709  
                   
      Total operating expenses              37,765                44,865  
                   
      Gross profit               6,460                 8,239  
                   
Selling, general and administrative            244,417              279,566  
Depreciation and amortization              51,766              100,800  
                   
Loss from operations   (289,723)             (372,127)  
                   
Other income (expense):            
  Interest expense including related party interest of $10,047              
    (2011) and $28,864 (2010)            (494,904)             (472,750)  
  Dividend and fee income               25,000        
  Derivative liability expense             (21,667)        
      Total other expense           (491,571)             (472,750)  
                   
                   
Net loss  $          (781,294)    $          (844,877)  
                     
Net loss per share  $  (0.08)    $  (0.08)  
                   
Weighted average number of common shares outstanding            
    Basic and diluted       10,212,456         10,212,456  

 See notes to consolidated financial statements

F-3
 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                                             
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY DEFICIENCY
                                             
YEAR ENDED DECEMBER 31, 2011
                                             
                                             
                                             
                      Notes,                  
                        advances and                
                  Additional   and interest             Total
        Common stock   paid-in   receivable,   Common stock   Accumulated   stockholders'
        Shares   Amount   capital   related parties   treasury   deficit   equity deficiency
                                             
Balances, January 1, 2011         19,129,800    $        19,130    $       17,216,715    $           (51,766)    $      (4,547,845)    $     (21,834,858)    $          (9,198,625)
                                             
Decrease in notes and advances receivable due from related                                        
  Parties, net (Note 7)                                 51,766                               51,766
                                               
  Net loss                                         (781,294)                (781,294)
                                             
Balances, December 31, 2011         19,129,800    $        19,130    $       17,216,715    $                     -    $      (4,547,845)    $     (22,616,153)    $          (9,928,153)

 See notes to consolidated financial statements

F-4
 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                       
CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
YEARS ENDED DECEMBER 31, 2011 AND 2010 
                       
                       
              2011   2010
cash flows from operating activities:            
  Net loss   $ (781,294)   $         (844,877)
  Adjustments to reconcile net loss to net cash used in operating activities:            
    Amortization of non compete agreement     51,766              100,800
    Amortization of discount on convertible note     18,703      
    Fair market value change in derivative liability     21,667      
    Amortization of deferred financing costs     1,944      
    Decrease (increase) in assets:            
      Accounts receivable     (3,018)                 4,249
      Other current assets     0                 4,000
    Increase (decrease) in liabilities            
      Accounts payable     (2,341)                (8,423)
      Accrued expenses     676,136              711,941
                       
Net cash used in operating activities              (16,437)              (32,310)
                       
Cash flows from investing activities:            
  Repayments on notes and interest receivable                       -                        -
                       
Net cash provided by investing activities                       -                        -
                       
Cash flows from financing activities:            
  Increase (decrease in) in checks issued in excess of cash in bank                       -                (1,257)
  Issuance of convertible promissory note               25,000      
  Borrowings on notes and loans payable               30,095              102,603
  Repayments on notes and loans payable              (37,950)              (67,412)
  Payment of deferred financing costs               (2,500)                        -
Net cash provided by financing activities               14,645               33,934
                       
Net increase in cash and cash equivalents               (1,792)                 1,624
Cash and cash equivalents, beginning                2,045                    421
                       
Cash and cash equivalents, ending   $               253   $             2,045
                       
Supplemental disclosure of cash flow information:            
                       
  Cash paid for interest   $                   -   $                    -
                       
  Cash paid for income taxes   $                   -   $                    -
                       
Supplemental disclosure of non-cash investing and financing activities:            

 See notes to consolidated financial statements

F-5
 

 

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.

 

FFFC’s wholly-owned subsidiaries (collectively referred to as the “Company”) include the following:

 

Chex, a Minnesota corporation, provided financial services prior to the sale of substantially all of Chex’s assets (the “Asset Sale”), see below, which primarily consisted of check cashing, automated teller machine (ATM) access, and credit card advances to customers primarily at Native American owned casinos and gaming establishments.

 

Collection Solutions, Inc. (“Collection Solutions”), a Minnesota corporation, formed for the purpose of providing collection services for the Company, customers of the Company, and other entities both within and outside the gaming industry. Collection Solutions is licensed as a collection agency in Minnesota.

 

FastFunds International, Inc. (“FFI”), a Delaware corporation based in London. FFI was formed to build a presence in Europe for the Company’s stored value card program.

 

FFC FastFunds (Cyprus) Limited (“FFC”), formed in September 2004, under the Laws of Cyprus. FFC was formed to have a presence in Cyprus to work with a financial institution regarding the issuance of stored value cards throughout Europe.

 

FastFunds International Limited (“FFIL”), formed in October 2004 with the Registrar of Companies for England and Wales. FFIL was formed in order to have a local presence in the European community.

 

Nova Financial Services, Inc. (“Nova”) and Key Financial Services, Inc. (“Key”) were formed to design, market and service credit card products aimed at the sub-prime market; both companies are wholly-owned by the Company. Nova processes payments on a remaining portfolio, which provides the Company with limited operations. Key ceased "run-off" operations in the fourth quarter of 2003.

 

Denaris Corporation ("Denaris"), was formed to develop and market a prepaid re-loadable stored value card program, which was designed to offer customers, particularly immigrants, a convenient alternative to traditional bank accounts; 77%-owned by the Company; Denaris generated no revenues through December 31, 2011.

F-6
 

 

 

1. Business and organization, asset sale, and going concern and management’s plans (continued):

 

Business and organization (continued):

 

Collection Solutions, FFI, FFC, FFIL, Denaris and Key generated no revenues and had no significant operations for the years ended December 31, 2011 and 2010. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Going concern and management’s plans:

 

The Company’s financial statements for the year ended December 31, 2011 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 has incurred significant losses since its inception and has a working capital deficit of approximately $10,123,000, and an accumulated deficit of approximately $22,616,000 as of December 31, 2011. Moreover, it presently has no significant ongoing business operations or sources of revenue and little resources with which to obtain or develop new operations.

 

The Company currently plans to receive $30,000 annually pursuant to the Preferred Stock it holdsof an unaffiliated party (see footnote 4), as well as some cash from the Nova remaining credit card portfolio. 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 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:

 

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 (credit card) receivables and revenue recognition:

 

Accounts (credit card) receivables are stated at cost plus refundable and earned fees (the balance reported to customers), reduced by allowances for refundable fees and losses. Management believes that part of this receivable will not be collected in the next twelve months and accordingly has reclassified a portion of the receivable as non-current on the accompanying balance sheet. Fees (revenues) are accrued monthly

on active credit card accounts and included in credit card 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

F-7
 

 

 

 

2. Summary of significant accounting policies (continued):

 

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.

 

Basis of presentation:

 

The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“USGAAP”). The consolidated financial statements of the Company include the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated.

 

Notes and advances receivable:

 

The Company has made notes and advances to various officers, affiliates and employees of the Company under various loan agreements (Notes 3 and 9). The notes and advances made to officers were made prior to the acquisition of Chex by HPI in December 2001. The Company’s allowance for doubtful notes receivable is adjusted based on the Company’s assessment of the collectability of each individual note and advance receivable, as well as the aging of the notes and advances receivable. After all attempts to collect a note receivable have failed, the note receivable is written-off against the allowance. Based on management’s evaluation of repayment intentions, and in consideration of SAB topic 4-E regarding receivables due from a former director, $51,766 is presented as a reduction of stockholders’ equity at December 31, 2010.

 

F-8
 

 

 

Property, equipment and leaseholds (continued):

 

Office equipment, furniture and vehicles 3 to 7 years
Computer hardware and software 3 to 5 years
Leasehold improvements 7 years

 

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 periods ended December 31, 2011 and 2010, as the impact of the potential common shares, which total 2,610,951 (2011) and 2,213,824 (2010), would be antidilutive and decrease loss per share. Therefore, there is no diluted loss per share presented in 2011 and 2010.

 

 

F-9
 

 

 

 

 

2. Summary of significant accounting policies (continued):

 

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 receivables from related parties are not practicable to estimate, based upon the related party nature of the underlying transactions.

 

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. The fair value of the notes payable to related parties (presented as a reduction in stockholders’ equity deficiency) are not practicable to estimate, based on the related party nature of the underlying transactions.

 

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.

 

 

F-10
 

 

2. Summary of significant accounting policies (continued):

 

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.

 

During the year ended December 31, 2009 the Company issued 1,447,618 options to purchase shares of common stock at $0.03 per share (the market value of the common stock on the date of the grant). The options were valued at $41,333 based upon the black Scholes option pricing model (approximately a $0.0285 grant date fair value per option. These options were fully-vested at the date of the grant. There were no options granted during the year ended December 31, 2011. .

 

The fair value of options and warrants granted to purchase FFFC and HPI common stock were estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions for 2009.

 

  2009
   
Expected dividend yield 0
Expected stock price volatility 351%
Risk fee interest rate 4.5%
Expected life of options 1-2 years

 

The Company’s stock option plan is more fully described in Note 9.

 

Reclassifications:

 

Certain minor reclassifications to amounts reported in the 2010 consolidated financial statements have been made to conform to the 2011 presentation.

 

 

F-11
 

 

2.Summary of significant accounting policies (continued):

 

Recently issued accounting pronouncements:

 

 

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”.  The amendment results in a consistent definition of fair value and ensures the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (“IFRS”). This amendment changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This amendment will be effective for the Company on January 1, 2012. Based on current operations, the adoption is not expected to have a material effect on our consolidated financial position or results of operations.

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-05, “Comprehensive Income (Topic 220), and Presentation of Comprehensive Income”.  ASU 2011-05 amends the presentation of other comprehensive income and the Statement of Consolidated Operations. Under this amendment, entities will be required to present the total of comprehensive income, the components of net income,  and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which reporting option is selected, the Company is required to present on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented.   The current option to report other comprehensive income and its components in the statement of changes in equity has been eliminated. This amendment will be effective for the Company on January 1, 2012 and full retrospective application is required. We do not anticipate that this amendment will have a material impact on our financial statements.

 

Effecting certain sections covered under ASU 2011-05,  in December, 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220)”, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in ASU 2011-05”.  The pronouncement is effective for fiscal years and interim periods beginning January 1, 2012 with retrospective application for all comparative periods presented.  The Company’s adoption of the new standard is not expected to have a material effect on our consolidated financial position or results of operations.

 

In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment”.  ASU 2011-08 amends the required annual impairment testing of goodwill by providing an entity an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If, after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test under Topic 350-24 and Topic 350-20-35-9 is unnecessary.  However, if an entity concludes otherwise, then it is required to perform the impairment testing under Topic 350-24 by calculating the fair value of the reporting unit and comparing the results with the carrying amount.  If the fair value exceeds the carrying amount, then the entity must perform the second step test of measuring the amount of the impairment test under Topic 350-20-35-9.

 

An entity has the option to bypass the qualitative assessment and proceed directly to the two step goodwill impairment test.  Additionally, the entity has the option to resume with the qualitative testing in any subsequent period.  The amendment will be effective for the Company on January 1, 2012. Based on

 

 

F-12
 

2.Summary of significant accounting policies (continued):

 

Recently issued accounting pronouncements (continued):

 

current operations, the adoption is not expected to have a material effect on our consolidated financial position or results of operations.

 

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities”.  The guidance in this update requires us to disclose information about offsetting and related arrangements to enable users of our financial statements to understand the effect of those arrangements on our financial position.  The pronouncement is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented.  Our adoption of the new standard is not expected to have a material effect on our consolidated financial position or results of operations.

 

 

3. Notes and interest receivable:

 

Notes and interest receivable at December 31, 2011 and 2010, consist of the following:

 

  2011   2010
Note receivable, ISI; interest at 6%; matured April 2007; currently in default $ 50,000   $ 50,000
           
Note receivable (Denaris) from Paymaster Jamaica (see Redemption Agreement) (Note 1); interest at 10%, collateralized by a pledge of Paymaster Jamaica common shares by Paymaster Jamaica's president; note matured in August 15, 2008; currently in default; payments of interest only due semi-annually beginning August 15, 2003 through maturity (received payments of $100,000 through December 31, 2010); a valuation allowance of $250,000 has been recorded against this receivable at December 31, 2010 [A]   -     339,575
           
Note receivable from Coast ATM, LLC; interest at 10%; maturity November 2005; a valuation allowance of $50,000 has been recorded against this receivable at December 31, 2011 and 2010, respectively; in default and non-performing [B]   50,000     50,000
    100,000     439,575
Less current maturities   (50,000)     (139,575)
           
Notes and interest receivable, net of current portion, before valuation allowance   50,000     300,000
Less valuation allowance   (50,000)     (300,000)
           
Notes and interest receivable, long-term $ 0   $ 0

 

[A] On March 30, 2011, the Company and Paymaster agreed to restructure the Note receivable (“Term Sheet”). Pursuant to the Term Sheet, the parties agreed to convert the remaining balance of the Note receivable into Cumulative Convertible Redeemable Preference Shares with a value of $400,000, with

 

3. Notes and interest receivable (continued):

 

an annual dividend of 7.5% over thirty-six (36) months. Additionally, the company has certain conversion rights and redemption rights.

[B]

The Company is no longer accruing interest on these non-performing loans due to uncertainty as to substantial collection.

 

Changes in the allowance for notes and interest receivable for the years ended December 31, 2011 and 2010 are as follows:

  2011   2010  
             
Balances, beginning of year $ 300,000   $ 300,000  
Additions charged to costs and expenses            
  (deducted from notes receivable)   -     -  
Deductions credited to costs and expenses            
  (added to notes receivable)   -     -  
Reclassification of the allowance to long term investments (See footnote 4)            
  settlements   (250,000)     -  
             
Balances, end of year $ 50,000   $ 300,000  

 

4. Long term investments:

 

On March 30, 2011, the Company and Paymaster agreed to restructure the Note receivable. Pursuant to the agreement, the parties agreed to convert the remaining balance 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.

 

5. Accrued liabilities:

 

Accrued liabilities at December 31, 2011 and 2010 were $3,441,199 and $2,765,062 respectively, and were comprised of:

 

  2011   2010
           
Legal fees $ 474,576   $ 415,607
Interest   2,030,380     1,579,101
Accounting fees   -     7,458
Consultants and advisors   506,950     388,050
Director’s fees   204,159     179,159
Registration rights   98,013     98,013
Other   127,121     97,674
           
  $ 3,441,199   $ 2,765,062

 

6. Promissory notes, including related parties and current portions of long-term debt and debenture payable:

 

Promissory notes, including related parties and current portions of long-term debt at December 31, 2011 and 2010, consist of the following:

 

  2011   2010
           
Promissory notes payable:          
           
Various, including related parties of $423,208 (2011) and $498,463 (2010); interest rate ranging from 8% to 10% $ 665,933   $ 673,788
           
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 [A]   2,090,719     2,090,719
           
  $ 2,756,652   $ 2,764,507

 

The weighted average interest rate on short-term borrowings was 17.1 %, 17.1% and 17.8% in 2011, 2010 and 2009, respectively.

 

[A] These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. At that time, the Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. The Company has failed to pay interest and the principal amount of these notes. The Company received complaints filed from several of these note holders. The Company has not responded to these

      complaints and accordingly the plaintiffs were awarded default judgments. 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 (Note 7). 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 September 30, 2007 and no principal payments on the Promissory Notes have been made in and accordingly, they are in default.

 

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 are being amortized over the one-year term of the Restructured Notes. The warrants were never exercised and expired in March 2010.

F-13
 

 

6. Promissory notes, including related parties and current portions of long-term debt (continued):

 

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. On August 18, 2009, a judgment has been entered in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The Company is not aware of any payments having been make by any of the guarantors and accordingly, the company continues to include these liabilities on its December 31, 2011 balance sheet.

 

Debenture payable:

 

In June 2011, the Company entered into a note agreement with an unafilliated investor for the issuance of a convertible promissory note in the amount of $25,000 (the “Note”). Among other terms the Note is due nine months from its issuance date, bears interest at 8% per annum, 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 Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the Note provides for adjustments for dividends payable other than is shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. The Company may at its own option prepay the Note and must maintain sufficient authorized shares reserved for issuance under the Note.

 

We received net proceeds of $22,500 after debt issuance costs of $2,500 paid for lender legal fees. These debt issuance costs will be amortized over the terms of the Note, and accordingly $1,944 has been expensed as debt issuance costs (included in interest expense) during the period ended December 31, 2011.

 

We have determined that the conversion feature of the Note represents an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Accordingly, the Note is not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of this derivative instrument has been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the Note. Such discount will be accreted from the date of issuance to the maturity dates of the Note. The change in the fair value of the liability for derivative contracts will be recorded to other income or expenses in the consolidated statement of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The beneficial conversion feature included in the Note resulted in an initial debt discount of $25,000 and an initial loss on the valuation of derivative liabilities of $19,286 for a derivative liability initial balance of $44,286. The fair value of the Note was calculated at issue date utilizing the following assumptions:

 

 

 

 

Issuance Date

 

 

 

 

Fair Value

 

 

 

 

Term

 

 

Assumed Conversion Price

 

 

 

Market Price on Grant Date

 

 

 

Volatility Percentage

 

 

 

Interest

Rate

6/8/11 $44,286 9 months $0.0175 $0.035 380% 4.72%

 

 

 

 

At December 31, 2011, the Company revalued $25,000, the balance of the 2010 Convertible Note. For the period from their issuance to December 31, 2011, the Company increased the derivative liability of $44,286 by $2,381 resulting in a derivative liability balance of $46,667 at December 31, 2011. Also included in the derivative liability balance is $648,000 related to the HPI stock price guaranty settlement.

 

The fair value of the Note was calculated at December 31, 2011 utilizing the following assumptions:

 

 

Fair Value

 

Term

Assumed Conversion  Price

 

Volatility Percentage

 

Interest Rate

$46,667   9 months $0.03 554% 0.02%

 

 

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 other income (expenses) for the year ended December 31, 2009.

 

The Company is involved in various claims and legal actions (as described in footnotes 1 and 5) 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 February 1, 2011 through December 31, 2011 the Company rented office space in West Palm Beach, FL., for $900 per month. Effective January 1, 2012 the Company is utilizing space in an office rented by a Company controlled by our Acting President.

 

Rent expense for the years ending December 31, 2011 and 2010 was approximately $13,050 and $23,058

 

Consulting agreement:

 

In conjunction with the Asset Sale, an officer signed a five-year non-compete agreement with the buyer and also signed a release, waiving his right to any future commissions that he was previously entitled to. The Company agreed to compensate the officer $100,800 annually, over the five-year term of the non-compete agreement. Such compensation is to be applied to reduce the loan and interest receivable from the officer. If the officer breaches his non-compete agreement, the officer is no longer entitled to compensation and will be liable for any amount remaining on the loan. Accordingly, during 2011 and 2010, the Company recorded consulting expenses of $51,766 and $100,800 respectively, and the interest and note receivable from the officer has been reduced by $51,766 for 2011 (Note 9). As of December 31, 2011 the loan balance was zero.

 

 

8. Income taxes:

 

The operations of the Company for periods subsequent to its acquisition by HPI and through August 2004, at which time HPI’s ownership interest fell below 80% are included in consolidated federal income tax returns filed by HPI. Subsequent to August 2004 and through January 29, 2006 the Company will file a separate income tax return. As of January 30, 2006, HPI’s ownership interest again exceeded 80% and the operations of the Company will be included in a consolidated federal income tax from that date through October 29, 2006 when the ownership fell below 80%. As of October 30, 2006, the Company will be filing separate income tax returns. For financial reporting purposes, the Company’s provision for income taxes has been computed, and current and deferred taxes have been allocated on a basis as if the Company has filed a separate income tax return for each year presented. 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.

 

Income tax expense for 2011 and 2010 is as follows:

 

  2011   2010  
             
Current:            
  Federal $ -   $ -  
  State   -     -  
             
    -     -  
             
Deferred:            
  Federal   1,007,000     1,028,000  
  State   119,000     21,000  
  Valuation allowance   (1,126,000)     (1,149,000)  
             
    -     -  
             
  $ -   $ -  

 

The following is a summary of the Company’s deferred tax assets and liabilities at December 31, 2011 and 2010:

 

F-14
 

 

 

8.Income taxes (continued):

 

  2011   2010
           
Deferred tax assets - current:          
  Stock-based compensation and other $ 874,000   $ 874,000
  Net operating loss carry forwards   252,000     275,000
    1,126,000     1,149,000
           
Less valuation allowance   (1,126,000)     (1,149,000)
           
Net deferred tax assets $ -   $ -

 

A reconciliation between the expected tax expense (benefit) and the effective tax rate for the years ended December 31, 2011 and 2010 are as follows:

 

    2011   2010  
           
Statutory federal income tax rate   (34%)   (34%)  
State taxes, net of federal income tax   (4%)   (4%)  
Effect of change in valuation allowance   -   -  
Non deductible expenses and other   38%   38%  
           
    0%   0%  

 

At December 31, 2006, the Company had utilized all of its net operating loss carryforwards available for federal and state income tax purposes. For the year ended December 31, 2011, the Company had a tax net operating loss carry forward of approximately $3,720,000. 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. The Company’s valuation allowance decreased $23,000 during the year ended December 31, 2011.

 

9. Stockholders’ equity deficiency:

 

 

Stock options:

 

The Company has a stock option plan (the “Plan”) which was approved by the Board of Directors in July 2004 and which permits the grant of shares to attract, retain and motivate employees, directors and consultants of up to 1.8 million shares of common stock. Options are generally granted with an exercise price equal to the Company’s market price of its common stock on the date of the grant and vest immediately upon issuance. In 2005, the Company granted to officers and directors 385,000 options

F-15
 

 

 

9. Stockholders’ equity deficiency (continued):

 

Stock options (continued):

 

under the Plan to purchase shares of common stock at an exercise price of $1.10 per share (the market value of the common stock at the date of the grant).

 

There were no options granted during the years ended December 31, 2011 and 2010.

 

All options outstanding at December 31, 2011 are fully vested and exercisable. A summary of outstanding balances at December 31, 2011 is as follows:

 

      Weighted-   Weighted-   Aggregate
      Average   Average   Intrinsic
  Options   exercise price   Remaining contractual life   Value
               
Outstanding at January 1, 2011 330,000   $1.03   4.98   $0
               
Outstanding at December 31, 2011 330,000   $1.03   3.98   $0

 

The expected term of stock options issued to employees represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The expected life of stock options and warrants issued to third parties is the contractual life. The expected volatility is based on the historical price volatility of FFFC’s common stock. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents FFFC’s anticipated cash dividend over the expected life of the stock options.

 

Warrants:

 

During the year ended December 31, 2009 the company issued warrants to purchase 1,447,618 shares of common stock. The warrants have an exercise price of $0.03 per share, and expire April 2012. The Company recorded $41,333 of stock compensation expense for the year ended December 31, 2009.

 

A summary of the activity of the Company’s outstanding warrants during 2011 and 2010 is as follows:

F-16
 

 

 

9. Stockholders’ equity deficiency (continued):

 

Warrants (continued):

 

    Warrants   Weighted-average exercise price   Weighted-average grant date fair value   Aggregate intrinsic value
                 
Outstanding and exercisable at January 1, 2010   4,033,824   $          0.39   $         0.34     $               0
                 
Expired   (2,150,000)   (0.50)   (0.44)    
                 
Outstanding and exercisable at December 31, 2010   1,883,824             0.14            0.12                   0
                 
Expired         (436,206)   (1.00)   (0.81)   0
                 

Outstanding and exercisable

At December 31, 2010

  1,447,618       $         0.03     $      0.028    $               0

 

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives of the warrants by groups as of December 31, 2011.

 

Exercise price range   Number of options outstanding   Weighted-average exercise price   Weighted-average remaining life
             
$0.03   1,447,618   $       0.03   .40
             
    1,447,618   $       0.03   0.40

 

The fair value of warrants granted to purchase the Company’s common stock were estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for the grants for the years ended December 31, 2009.

 

    2009
     
Expected dividend yield   0
Expected stock price volatility   351%
Risk fee interest rate   4.5%
Expected life of warrants   1-2 years
       
F-17
 

 

 

9. Stockholders’ equity deficiency (continued):

 

 

Notes, advances and interest receivable from related parties:

 

The Company has notes receivable due from HPI under various loan agreements. In addition, the Company has made advances to HPI to fund its operations. In accordance with the Securities and Exchange Commission’s Rule regarding, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lessor Business Components of Another Entity, certain expenses paid by the Company on behalf of HPI have been charged to the receivables.

 

The following table summarizes the activity in these accounts for 2011 and 2010.

 

  2011   2010  
             
Beginning principal balances $ 51,766   $ 152,566  
             
Consulting fees applied to officer’s receivable   (51,766)     (100,800)  
             
Ending principal and interest balances $ ---   $ 51,766  

 

The above balances are presented as a reduction of stockholders’ equity on the accompanying consolidated balance sheets and all are related to former Chex officer.

 

10. Prior events:

 

Asset sale:

 

On December 22, 2005, FFFC and Chex entered into an Asset Purchase Agreement (the “APA”) with Game Financial Corporation (“Game”), pursuant to which FFFC and Chex agreed to sell all of its cash access contracts and certain related assets, which represented substantially all the assets of Chex. Such assets

also represented substantially all of the operating assets of the Company on a consolidated basis. On January 31, 2006, FFFC and Chex completed the sale (the “Asset Sale”) for $14 million pursuant to the APA and received net cash proceeds of $12,642,784, after certain transaction related costs and realized a pre-tax book gain of $4,145,835. As a result of the Asset Sale, the Company has no substantial continuing operations. Therefore, the Company is not reporting and accounting for the sale of Chex’s assets as discussed in discontinued operations.

 

Additionally, FFFC and Chex entered into a Transition Services Agreement (the “TSA”) with Game pursuant to which FFFC and Chex agreed to provide certain services to Game to ensure a smooth transition of the sale of the cash-access financial services business.

 

Pursuant to the APA and the TSA, FFFC and Chex owed Game approximately $300,000. Game, FFFC and Chex agreed to settle the balance due for $275,000 (included in accounts payable on the balance sheet presented herein) with payment terms. FFFC and Chex have not made any of the payments stipulated in the settlement and subsequently Game filed a complaint against Chex, FFFC and 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.

 

F-18
 

 

10. Prior events (continued):

 

Return of Company Common Stock from HPI:

 

On January 2, 2007, pursuant to the terms of a Redemption, Stock, Sale and Release Agreement (the “Redemption Agreement”) by and between HPI and the Company, the Company (i) redeemed 8,917,344 shares of FFFC’s common stock held by HPI, (ii) acquired from HPI an aggregate of 5,000 shares of common stock of Denaris Corporation, a Delaware corporation (“Denaris”), (iii) acquired from HPI an aggregate of 1,000 shares of common stock of Key Financial Systems, Inc., a Delaware corporation (“Key Financial”), and (iv) acquired from HPI an aggregate of 1,000 shares of common stock of Nova Financial Systems, Inc., a Delaware corporation (“Nova Financial”). Denaris was a majority owned subsidiary of HPI, and Key Financial and Nova Financial were wholly owned subsidiaries of HPI. Denaris and Key Financial do not have any operations and Nova Financial has limited operations The shares of common stock of each entity transferred by HPI pursuant to the Redemption Agreement constituted all of HPI’s holdings in each entity.

 

After the closing of the Redemption Agreement, HPI held 3,500,000 shares of FFFC common stock, constituting approximately 34.3% of FFFC’s outstanding common stock at December 31, 2011. These shares have been pledged as collateral on certain notes of HPI. During 2008 as a result of the assumption of this debt by HPI Partners, LLC., (“HPIP”) and the subsequent foreclosure by the debt holders upon HPIP. HPIP owns the 3.5 million shares. The principal managers of HPIP are Messrs. Fong and Olson. Mr. Fong is the Chairman and CEO of FFFC and Mr. Olson was the secretary of FFFC through September 30, 2011, the date of his resignation.

 

On January 18, 2008, the Company filed a complaint in the Superior Court of Washington in King County (the “Superior Court”). The complaint was filed by FastFunds Financial Corporation, Daniel Bishop, Barbara M. Schaper, HP Services LLC, VP Development Corporation, and Gulfstream Financial Partners, LLC (collectively, the “Plaintiffs”) against Dilbagh Singh Gujral, Ricky Gurdish Gujral, Virendra Chaudhary,

Gurinder Dilawari, Global Hydrofuels Technology, Inc. (“GHTI”) and Hydrogen Power, Inc. (collectively, the “Defendants”).

 

Messrs. Chaudhary and Dilawari are directors of HPI. GHTI is the majority shareholder of HPI. Ricky Gurdish Gujral is the former chief executive officer of HPI. The complaint alleges fraud, misappropriation of corporate opportunity and breach of fiduciary duty by the Defendants relating to the merger of Equitex, Inc. and Hydrogen Power, Inc., the Sublicense Agreement with GHTI, and payments to Ricky Gurdish Gujral. The complaint seeks the appointment of a receiver to take possession of the property and assets of HPI and to manage and operate HPI pending completion of the action. The complaint also seeks damages in the excess of $3,000,000, exemplary damages, attorney’s fees plus interest and costs and any other relief the court finds just and proper. On January 25, 2008, the Superior Court appointed a receiver of HPI with respect to HPI’s assets. Some assets have been recovered by the Receiver. One of the defendants has filed a counterclaim asserting that the action is frivolous; the Plaintiffs have denied the counterclaim in its entirety. GHTI has sought arbitration regarding ownership of certain patent applications and other intellectual property. GHTI was granted a stay of this case until the arbitration is complete.

 

 

On March 25, 2010 the Defendants and Plaintiffs entered into a Settlement Agreement and Mutual Release

(the “Settlement Agreement”). Pursuant to the Settlement Agreement, which was approved by the receiver and the Court on September 23, 2010, the Defendants and Plaintiffs have agreed to release each other from the claims and to have no further suits against each other. Additionally, the Defendants have agreed to assign to the Receiver for the benefits of the Plaintiffs any and all rights, including but not limited to insurance payments and settlements for any and all officers and directors liability insurance policies.

 

 

11. Subsequent events:

 

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

 

F-19
 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

 

(a)The following documents are filed as a part of this report immediately following the signature page.

 

1.Financial Statements and Supplementary Data

 

  Page
Report of Independent Registered Public Accounting Firm F-1
Consolidated financial statements:                                                                               
Consolidated balance sheets - December 31, 2011 and 2010 F-2
Consolidated statements of operations - years ended
December 31, 2011 and 2010
F-3
Consolidated statements of stockholders’ equity deficiency
Years ended December 31, 2011 and 2010
F-4
Consolidated statements of cash flows - years ended
December 31, 2011 and 2010
F-5
Notes to consolidated financial statements  F-6 – F-25

 

2.Financial Statements Schedules.

Financial statements and exhibits – Schedule 11, Valuation and Qualifying Accounts, are omitted because the information is included in the consolidated financial statements and notes.

 

3.Exhibits.

 

2.1 Asset Purchase Agreement among Game Financial Corporation, Chex Services, Inc. and FastFunds Financial Corporation, dated as of December 22, 2005 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report filed on December 27, 2005).
   
3.1 Articles of Incorporation of FastFunds Financial Corporation (incorporated by reference to Exhibit 3.(I) of the registrant's Registration Statement on Form 10-SB filed on August 7, 2001).
   
3.2 Bylaws of FastFunds Financial Corporation (incorporated by reference to Exhibit 3 of the registrant's Registration Statement on Form 10-SB filed on August 7, 2001).
   
9.1 Voting Agreement between Game Financial Corporation, FastFunds Financial Corporation and Equitex, Inc., dated December 22, 2005 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report filed on December 27, 2005).
   
10.7 Transition Service Agreement between Game Financial Corporation, Chex Services, Inc. and FastFunds Financial Corporation, dated as of January 31, 2006 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report filed on February 6, 2006).
   
10.8 $5 million Secured Promissory Note of Equitex, Inc. in favor of FastFunds Financial Corporation, dated as of March 14, 2006 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report filed on March 20, 2006).
   
10.9 Stock Pledge Agreement between Equitex, Inc. and FastFunds Financial Corporation, dated as of March 14, 2006 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report filed on March 20, 2006).
   
10.10 Agreement (for profit participation) between Equitex, Inc. and FastFunds Financial Corporation, dated as of March 14, 2006 (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report filed on March 20, 2006).
   
14.1 Code of Ethics (Filed herewith).
   
21.1 List of Subsidiaries (Filed herewith).
   
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
   
32.1 Certifications under Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith).

 

   

 

 

 

F-20
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

Date: April 13, 2012

FASTFUNDS FINANCIAL CORPORATION

(Registrant)

 

 

  By /S/ BARRY HOLLANDER
 

Acting Chief Executive Officer

Principal Executive Officer and

Principal Financial Officer

 

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

 

Date: April 13, 2012 /S/ BARRY HOLLANDER
  Barry Hollander, Acting Chief Executive Officer
   
Date: April 13, 2012 /S/ HENRY FONG
  Henry Fong, Director