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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2014
 

TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to_______
   

 

Commission File No. 000-33053

 

FASTFUNDS FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Nevada 87-0425514
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

319 Clematis Street, Suite 400

West Palm Beach, Florida 33401

(Address of principal executive offices) (Zip code)

 

(561) 514-9042

(Registrant's telephone number including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐No

 

Indicate by check mark whether the Registrant has submitted electronically and posted on it corporate web site, if any, every Interactive data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). ☑ Yes ☐No

 

Indicate by a check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☑

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b.2 of the Exchange Act). ☐Yes ☑ No

 

Number of shares of common stock outstanding at May 15, 2014: 4,090,188,748

 
 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES

THREE MONTHS ENDED MARCH 31, 2014 and 2013

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

  Page
Part I.  Financial Information  
   
Item 1.  Financial Statements  
   
Condensed Consolidated Balance Sheets at March 31, 2014 (Unaudited) and December 31, 2013 2
   
Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (Unaudited) 3
   
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (Unaudited)   4
   
Notes to Condensed Consolidated Financial Statements (Unaudited)    F5–F23
   
Item 2.  Management’s Discussion and Analysis                                                                                                     24-27
   
Item 3.  Quantitative and Qualitative Disclosures about Market Risks 27
   
Item 4.  Controls and Procedures 27
   
Part II.  Other Information  
   
Item 1. Legal Proceedings 28
   
Item 1A. Risk Factors 28
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
   
Item 3. Defaults Upon Senior Securities 28
   
Item 4. Mine Safety Disclosures 28
   
Item 5. Other Information 28
   
Item 6.  Exhibits 28
   

 

Signatures

 

29

 

 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                   
CONDENSED CONSOLIDATED BALANCE SHEETS
                   
 
          March 31,   December 31,
          2014   2013
            (Unaudited)      
               
ASSETS
                 
Current assets:            
  Cash and cash equivalents   $         192,469   $              2,057
  Accounts receivable              46,426                51,551
  Notes receivable (Note 3)              65,000                         -
  Deferred financing costs                8,949                  4,409
  Other current assets                1,276                  1,143
                   
      Total current assets             314,120                59,160
                   
                   
Other assets                   700                     200
Long term investments (Note 4)              89,575                89,575
                   
      Total other assets              90,275                89,775
                   
        Total assets   $         404,395   $          148,935
                   
LIABILITIES AND STOCKHOLDERS' DEFICIT
                   
Current liabilities:            
  Accounts payable   $         721,976   $          724,387
  License fee payable             250,000              250,000
  Due to related party               75,000                75,000
  Accrued expenses, including related parties $56,083 (2014) and $101,419 (2013) (Note 5)          3,351,998            3,481,723
  Convertible promissory notes (Note 6), including related parties              
    of $157,322 (2014) and $173,113 (2013)          2,262,141            2,282,932
  Litigation contingency (Note 7)          2,484,922            2,484,922
  Convertible debentures payable, net             376,842              333,082
  Derivative liabilities (Note 6)             742,992              535,862
                   
      Total current liabilities        10,265,871          10,167,908
                       
                   
Commitments and contingencies (Notes 5, 7,and 9)            
                   
Stockholders' deficit (Note 9):            
  Preferred stock, $.001 par value; 5,000,000 shares authorized;             
    Class A preferred stock, $0.001 par value; 1,000,000 shares authorized; 819,000 shares issued and outstanding                    819                     819
    Class B preferred stock, $0.001 par value; 2,000,000 shares authorized; 1,791,667            
      shares issued and outstanding                1,792                  1,792
    Class C preferred stock, $0.001 par value; 1,000 shares authorized; 1,000 shares            
      issued and outstanding (2014)                      1                         -
  Common stock, $0.001 par value; 6,000,000,000 shares authorized; 3,961,158,621 (2014) and 1,192,337,212 (2013) shares issued and outstanding          3,961,159            1,192,338
  Additional paid-in capital        11,435,130          13,340,216
  Treasury stock, 30,000,000 shares                       -                         -
  Accumulated deficit       (25,317,995)         (24,611,757)
                   
      Total company stockholders' deficit         (9,919,094)         (10,076,592)
      Less noncontrolling interest              57,619                57,619
      Total deficit         (9,861,476)         (10,018,973)
                   
      Total liabilities and stockholders' deficit   $         404,395   $          148,935

 

See notes to condensed consolidated financial statements.

2
 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
                   
      (Unaudited)
                 
          2014   2013
                   
Fee revenue, net $ 7,039   $ 8,071
  
Operating expenses:            
  Processing fees                   6,351                 6,829
  Returned checks (collected)                     (300)                   (155)
  Other                      404                    392
                   
      Total operating expenses                   6,455                 7,066
                   
      Gross profit                      584                 1,005
                   
Selling, general and administrative                179,325     43,512
Loss from operations     (178,741)     (42,507)
                   
Other income (expense):            
  Interest expense                (481,799)             (206,073)
  Derivative liability (expense) income                (46,036)                 4,541
      Total other expense               (527,835)             (201,532)
                   
                   
Net loss    $            (706,576)    $          (244,039)
                   
Net loss per share    $  (0.00)    $  (0.00)
                   
Weighted average number of common shares outstanding            
    Basic and diluted       3,062,212,215        130,778,708

 

See notes to condensed consolidated financial statements.

 

3
 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
                       
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
                       
          (Unaudited)
                       
              2014   2013
Cash flows from operating activities:            
  Net loss   $ (706,576)   $         (244,039)
  Adjustments to reconcile net loss to net cash used in operating activities:            
    Issuance of preferred stock as compensation             106,673                        -
    Amortization of discount on convertible notes     359,357               78,169
    Initial derivative liability expense on convertible debentures     19,885                 2,298
    Change of fair value in derivative liabilities     26,151                (6,839)
    Amortization of deferred financing costs     5,293                 6,983
    Decrease (increase) in assets:            
      Accounts receivable     5,125                (9,792)
      Prepaid assets                  (133)                        -
    Increase (decrease) in liabilities             
      Accounts payable     (2,408)                 7,200
      Accrued expenses     110,336              138,120
                       
Net cash used in operating activities              (76,297)              (27,900)
                       
Cash flows from investing activities:            
  Payment on issuance of note receivable              (25,000)                        -
  Payment of security deposit                  (500)                        -
Net cash used in investing activities              (25,500)                        -
                       
Cash flows from financing activities:            
  Borrowings on convertible notes             322,500               46,000
  Borrowings on notes and loans payable, related                5,000                 1,400
  Borrowings on notes and loans payable, other                       -               10,700
  Repayments on notes and loans payable, related              (20,791)              (25,250)
  Repayments on notes and loans payable, other               (5,000)                        -
  Payment of deferred financing costs               (9,500)                (4,600)
Net cash provided by financing activities             292,209               28,250
                       
Net increase in cash and cash equivalents             190,412                    350
Cash and cash equivalents, beginning                2,057                    218
                       
Cash and cash equivalents, ending   $         192,469   $                568
                       
Supplemental disclosure of cash flow information:              
                       
  Cash paid for interest   $            4,856   $                    -
                       
  Cash paid for income taxes   $                   -   $                    -
                       
Schedule of Non-Cash Financing Activities:            
                       
Conversion of convertible notes to common stock   $                   -   $             8,200
                       
Reclass of derivative liability to equity upon conversion of convertible debt   $         378,531   $           18,243
                       
Conversion of convertible debentures to common stock   $         378,531   $           18,300

 

See notes to condensed consolidated financial statements.

 

4
 

FASTFUNDS FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

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

 

Business and organization:

 

FastFunds Financial Corporation (the “Company” or “FFFC”) is a holding company, and through January 31, 2006, operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). FFFC was previously organized as Seven Ventures, Inc. (“SVI”). Effective June 7, 2004, Chex merged with SVI (the “Merger”), a Nevada corporation formed in 1985. At the date of the Merger, SVI was a public shell with no significant operations. The acquisition of Chex by SVI was recorded as a reverse acquisition based on factors demonstrating that Chex represents the accounting acquirer. The historical stockholders’ equity of Chex prior to the exchange was retroactively restated (a recapitalization) for the equivalent number of shares received in the exchange after giving effect to any differences in the par value of the SVI and Chex common stock, with an offset to additional paid-in capital. The restated consolidated accumulated deficit of the accounting acquirer (Chex) has been carried forward after the exchange. On June 29, 2004, SVI changed its name to FFFC.

 

Effective January 21, 2014, the Board of Directors of the Company approved the issuance of 1,000 shares of Class C Preferred Stock (as defined and described below) (the “Class C Preferred Stock Shares”) to Mr. Henry Fong, the Company’s sole officer and Director, or his assigns in consideration for services rendered to the Company and continuing to work for the Company without receiving significant payment for services and without the Company having the ability to issue shares of common stock as the Company does not have sufficient authorized but unissued shares of common stock to allow for any such issuances.

 

As a result of the issuance of the Class C Preferred Stock Shares to Mr. Fong, or his assigns and the Super Majority Voting Rights (described below), Mr. Fong obtained voting rights over the Company’s outstanding voting stock which provides him the right to vote up to 51% of the total voting shares able to vote on any and all shareholder matters.  As a result, Mr. Fong will exercise majority control in determining the outcome of all corporate transactions or other matters, including the election of Directors, mergers, consolidations, the sale of all or substantially all of the Company’s assets, and also the power to prevent or cause a change in control. The interests of Mr. Fong may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other shareholders.  Additionally, it may be impossible for shareholders to remove Mr. Fong as an officer or Director of the Company due to the Super Majority Voting Rights.

 

On May 25, 2012, the Company entered into an Agreement Concerning the Exchange of Securities (the “Agreement”) by and among Advanced Technology Development, Inc., a Colorado corporation ("ATD"), and Carbon Capture USA, Inc., a Colorado corporation ("Carbon") and Carbon Capture Corporation, a Colorado corporation ("CCC"). ATD is a 100% wholly owned subsidiary of the Company. Carbon is a 100% wholly owned subsidiary of CCC, which is privately held. Mr. Henry Fong, the sole officer and director of the Company is the control person of CCC. Pursuant to the Agreement, ATD acquired from CCC all of the issued and outstanding common stock of Carbon in exchange for ninety million (90,000,000) newly issued unregistered shares of the Company’s common stock. ATD has also assumed an unpaid license fee of $250,000 due from Carbon to CCC.

 

 

F-5

Carbon has an exclusive US license related to provisional patent Serial number 61/077,376 and a US Patent to be issued. The patent titled, “METHOD OF SEPARATING CARBON DIOXIDE”, related to methods of decomposing a gaseous medium, more specifically, relating to methods of utilizing radio frequency energy to separate the elemental components of gases such as carbon dioxide. ATD plans to commence research and development with a goal of potential commercialization; subject to financing.

 

On October 7, 2013, the Company formed Financiera Moderna (“FM”), as a wholly-owned subsidiary to develop and market financial products and services target for the Hispanic community. The spectrum of financial products to be offered includes insurance, secured credit cards, debit cards, mortgage products and financial literacy tools.

 

On November 7, 2013, FM signed a marketing and funding agreement (“the Marketing Agreement”) with Compra Vida (“CV”) and Compra Casa (“CS”); development stage companies that formulate, develop and implement marketing programs to the Spanish speaking U.S. market. On November 20, 2013, the Company remitted $15,000 to the principals of CV and CS pursuant to the Marketing Agreement. Subsequently, the parties have agreed to terminate the Marketing Agreement, to allow CV and CS to revise their marketing concept to implement a more direct to consumer approach. Accordingly, the parties are still negotiating the final transaction. There is no assurance that these negotiations will be successful.

 

As part of the initial transaction, FFFC issued 30,000,000 shares of common stock to the principals of CV and CS. Due to the termination of that agreement and the ongoing negotiations the common stock has not been delivered and has been recorded as Treasury Stock, pending the outcome of the final transaction.

 

On March 5, 2013, the Company and its’ wholly owned subsidiary NET LIFE Processing Inc., (“NET LIFE”) entered into an Agreement Concerning the Exchange of Securities (the “Agreement”) with Net Life Financial Processing Trust (“Net Life Trust”) and the Trustee of Net Life Trust pursuant to which NET LIFE was to acquire the exclusive mortgage servicing rights (the “Rights”) from Net Life Trust. Net Life Trust holds the exclusive mortgage servicing rights from Net Life Financial Holdings Trust.

 

The closing of the transaction contemplated by the Agreement (the “Closing”) was subject to the satisfaction or waiver of customary closing conditions, including that the representations and warranties given by the Parties are materially true and correct as of the Closing, and the exchanging and approval by each party of the other party’s schedules and exhibits. The Company has concluded its’ due diligence, the closing conditions have not been met and at this time, the Company is no longer considering closing.

 

On January 21, 2014, the Company formed Cannabis Angel, Inc. (“CA”) as a wholly-owned subsidiary. CA was formed to assist and provide angel funding, business development and consulting services to Cannabis related projects and ancillary ventures. CA has entered into the following agreements:

 

  • On January 28, 2014, CA entered into a one year Consulting Agreement with Singlepoint, Inc. (“Singlepoint”) (the “Singlepoint Agreement”). The Singlepoint Agreement automatically renews for succeeding one year periods, provided, that the CA can terminate the Singlepoint Agreement at any time during the initial one year term or thereafter by giving Singlepoint not less than five (5) days notice to terminate. CA is to provide consulting services including strategy and business planning, marketing and sales support, define and support for product offerings, acquisition strategy and funding strategy.

F-6
 

 

 

  • On February 7, 2014, CA entered into a one year consulting agreement with Colorado Cannabis Business Solutions, Inc (“CCBS”). CA is to provide consulting services to CCBS relating to business opportunities, corporate finance activities and general business development, in exchange for 9.9% ownership in CCBS.

  • On February 18, 2014, CA entered into a month to month consulting agreement with Halfar Consulting GmbH (“Halfar”). Halfar will consult with CA regarding corporate services including identifying and assisting CA with due diligence on potential European business partners engaged in cannabis related businesses. CA has agreed to compensate Halfar $12,000 for these services.

 

  • On March 5, 2014, CA entered into a five (5) year Strategic Alliance Agreement (“SAA”) with Worldwide Marijuana Investments, Inc. (“Worldwide”). Pursuant to the SAA, Worldwide and CA have agreed to market and perform certain complementary business consulting services. The SAA automatically renews for successive one year terms, unless either party gives written notice of termination at least thirty (30) days prior to any expiration. The SAA can also be terminated by mutual agreement, or at any time by sixty (60) day written notice from either party.

 

 

On February 17, 2014, the Company and CA entered into a consulting agreement with Merchant Business Solutions, Inc. (“MBS”). CA will provide consulting services to MBS regarding seeking potential business opportunities, financial opportunities, and general business development in exchange for 49% of Cannabis Merchant Financial Solutions, Inc. a new subsidiary of MBS.  

 

On February 25, 2014, the Company and CA entered into an Asset Purchase Agreement (the “APA”) with Green Information Systems, Inc. (“GIS”). Pursuant to the APA the Company and CA will acquire from GIS certain domain names and trade names, including www.greenenergytv.com. The closing of the APA has not yet occurred.

 

To date, none of the business activities have generated any revenue. 

 

Going concern and management’s plans:

 

In the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern. The Company’s interim financial statements for the three months ended March 31, 2014 and 2013 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $706,576 for the three months ended March 31, 2014, and has a working capital deficit of $9,951,751 and accumulated deficit of $25,317,955 as of March 31, 2014. Moreover, the Company presently has no significant ongoing business operations or sources of revenue and has little resources with which to obtain or develop new operations.

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not contain any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

F-7

 

 

The Company was to receive approximately $30,000 annually pursuant to the Preferred Stock it holds of an unaffiliated party (see note 4), as well as minimal cash from the Nova remaining credit card portfolio. However, the Company has not received the quarterly dividend from its investment since the quarter ended June 30, 2012, and has not received any cash from the Nova portfolio since 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that the Company will have adequate resources to fund future operations, if any, or that funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. Currently, the Company does not have a revolving loan agreement with any financial institutions, nor can the Company provide any assurance it will be able to enter into any such agreement in the future. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company evaluates, on an ongoing basis, potential business acquisition/restructuring opportunities that become available from time to time, which management considers in relation to its corporate plans and strategies.

 

2. Summary of significant accounting policies:

 

Basis of presentation and principles of consolidation:

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 15, 2014. Interim results of operations for the three months ended March 31, 2014 are not necessarily indicative of future results for the full year. Certain amounts from the 2013 period have been reclassified to conform to the presentation used in the current period.

 

The condensed consolidated financial statements include the accounts of the Company and its’ subsidiaries. All material intercompany balances and transactions have been eliminated.

 

Cash and cash equivalents:

 

For the purpose of the financial statements, the Company considers all highly-liquid investments with an original maturity three-months or less to be cash equivalents.

 

Accounts receivables and revenue recognition:

 

Accounts receivables are stated at cost plus refundable and earned fees (the balance reported to customers), reduced by allowances for refundable fees and losses. Fees (revenues) are accrued monthly on active credit card accounts and included in accounts receivables, net of estimated uncollectible amounts. Accrual of income is discontinued on credit card accounts that have been closed or charged off. Accrued fees on credit card loans are charged off with the card balance, generally when the account becomes 90 days past due. The allowance for losses is established through a provision for losses charged to expenses. Credit card receivables are charged against the allowance for losses when management believes that collectability of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. This evaluation also takes into consideration such factors as changes in the volume of the loan portfolio, overall portfolio quality and current economic conditions that may affect the borrowers’ ability to pay. While management uses the best information available to make its evaluations, this estimate is susceptible to significant change in the near term.

 

F-8

 

 
 

Long-lived assets:

 

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

Noncontrolling interest:

 

On January 1, 2012, the Company adopted authoritative accounting guidance that requires the ownership interests in subsidiaries held by parties other than the parent, and income attributable to those parties, be clearly identified and distinguished in the parent’s consolidated financial statements. The Company’s noncontrolling interest is now disclosed as a separate component of the Company’s consolidated deficiency on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and noncontrolling interests.  Earnings per share are calculated based on net income attributable to the Company’s controlling interest.

 

Loss per share:

 

Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Stock options, warrants, and common stock underlying convertible promissory notes are not considered in the calculations for the three month periods ended March 31, 2014 and 2013, as the impact of the potential common shares, which total 940,929,733 (2014) and 139,402,442 (2013), would be antidilutive.

 

Use of estimates:

 

Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Fair value of financial instruments:

 

The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate methodologies; however, considerable judgment is required in interpreting information necessary to develop these estimates. Accordingly, the Company’s estimates of fair values are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

 

The fair values of cash and cash equivalents, current non-related party accounts receivable, and accounts payable approximate their carrying amounts because of the short maturities of these instruments.

 

The fair values of notes and advances receivable from non-related parties approximate their net carrying values because of the allowances recorded as well as the short maturities of these instruments.

 

The fair values of notes and loans payable to non-related parties approximate their carrying values because of the short maturities of these instruments. The fair value of long-term debt to non-related parties approximates carrying values, net of discounts applied, based on market rates currently available to the Company.

 

F-9

  

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).

 

Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

Accounting for obligations and instruments potentially settled in the Company’s common stock:

 

The Company accounts for obligations and instruments potentially to be settled in the Company's stock in accordance with ASC Topic 815, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's stock.

 

 

F-10

 

 

Under ASC Topic 815, contracts are initially classified as equity or as either assets or liabilities, depending on the situation. All contracts are initially measured at fair value and subsequently accounted for based on the then current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included in earnings. The classification of a contract is reassessed at each balance sheet date.

 

Stock-based compensation:

 

The Company has one stock option plan approved by FFFC’s Board of Directors in 2004, and also grants options and warrants to consultants outside of its stock option plan pursuant to individual agreements. The Company accounts for its stock based compensation under ASC 718 “Compensation- Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We use the Black Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

There were no options granted during the three months ended March 31, 2014 and 2013.

 

The Company’s stock option plan is more fully described in Note 8.

 

Income Taxes

 

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.

 

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Accounting for Income Taxes.  It prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  As a result, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties.  The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities.

 

The Company classifies penalties and interest related to unrecognized tax benefits as income tax expense in the Statements of Operations

 

Reclassifications:

 

Certain prior period balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications had no impact on previously reported results of operations or stockholders' deficiency.

 

Recent Accounting Pronouncements Not Yet Adopted:

 

As of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that we believe would have a material impact on our financial statements.

 

F-11

  

3. Notes receivable:

 

On February 20, 2014, LG Capital Funding, LLC (“LG”) issued a $40,000 collateralized secured promissory note to the Company. The note bears interest at the rate of 8% and is due no later than November 20, 2014, unless the Company does not meet the current information requirements required under Rule 144 of the Securities Act of 1933, as amended.

 

On March 19, 2014, the Company advanced $25,000 to Worldwide Marijuana Investments, Inc. (“WMI”) in exchange for a $25,000 promissory note. Interest of 12% per annum is payable in monthly installments, along with a monthly principal amount of $500 beginning April 1, 2014 for twelve months, at which time the remaining principal amount and interest will be due in full.

 

4. Long term investments:

 

On March 30, 2011, the Company and Paymaster Limited (“Paymaster”) agreed to restructure a note receivable (the “Note”). Pursuant to the agreement, the parties agreed to convert the remaining balance of $339,575 of the Note receivable into Cumulative Convertible Redeemable Preference Shares (the Preference Shares”) with a value of $400,000, and an annual dividend of 7.5% over thirty-six (36) months. Paymaster, at any time prior to maturity, may elect to redeem some or all of the Preference Shares at an effective dividend rate of 10% per annum. The Company, upon maturity and with not less than ninety (90) days prior notice, may elect to convert some or all of Preference Shares into the pro rata equivalent of 11,100 ordinary shares of Paymaster (equal to 10% of the issued and outstanding capital of the Company based on the conversion of all Preference Shares on a fully diluted basis). The Company has recorded the investment at $89,575, net of a valuation allowance of $250,000, the same historical carrying value on the Company’s balance sheet as the note. The last dividend the Company has received was the quarterly dividend for the quarter ended June 30, 2012.

 

5. Accrued liabilities:

 

Accrued liabilities at March 31, 2014 and December 31, 2013 were $3,351,998 and $3,481,723, respectively, and were comprised of:

 

  2014   2013
           
Legal fees $  23,594   $ 215,218
Interest   2,986,142     2,896,763
Consultants and advisors   139,524     166,600
Registration rights   98,013     98,013
Other   104,725     105,119
           
  $ 3,351,998   $ 3,481,723

 

 

6. Promissory notes, including related parties and debenture payable:

 

Promissory notes, including related parties at March 31, 2014 and December 31, 2013, consist of the following:

 

F-12

 

 
 

 

 
2014
  2013
           
Promissory notes payable:           
           
Various, including related parties of $157,322 (2014) and $173,113 (2013); interest rate ranging from 8% to 10% [A] $ 171,422   $ 192,213
           
Notes payable; interest rates ranging from 9% to 15%; interest payable quarterly; the notes are unsecured, matured on February 28, 2008; currently in default and past due  [B]   2,090,719     2,090,719
           
  $ 2,262,141   $ 2,282,932

 

. [A] Pursuant to a November 4, 2011 Board of director resolution, these notes are convertible at conversion rates, determined at the discretion of the board of directors. During the three months ended March 31, 2014 the Company issued notes of $5,000 (all to related parties) and made payments of $25,791 (including $20,791 to related parties).

 

[B]These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. The Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). The Company has accrued an expense of $36,500 to compensate the financial advisor 2% of the Restructured Notes as well as having issued 150,000 shares of common stock to the financial advisor. The Restructured Notes carry a stated interest rate of 15% (a default rate of 20%) and matured on February 28, 2008. The Company has not paid the interest due since June 2007, and no principal payments on the Promissory Notes have been made since 2008 and accordingly, they are in default. Accrued interest on these notes total $2,909,686 and is included in accrued expenses on the consolidated balance sheets.

 

The chairman of the board of the Company has personally guaranteed up to $1 million of the Restructured Notes and two other non-related individuals each guaranteed $500,000 of the Restructured Notes. In consideration of their guarantees the Company granted warrants to purchase a total of 1,600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The warrants were valued at $715,200 using the Black-Scholes option pricing model and were amortized over the one-year term of the Restructured Notes. The warrants expired in March 2010.

 

In January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the holders of the Restructured Notes) and the holders of the Restructured Notes. The claim is seeking $1,946,250 plus per diem interest beginning January 22, 2008 at the rate of twenty percent (20%) per annum plus $37,000 due the financial advisor for unpaid fees. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and a judgment was entered on August 18, 2009 in the total amount of $2,484,922 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The Company is not aware of any payments being made by any of the guarantors and accordingly, the Company includes these liabilities on the March 31, 2014 and December 31, 2013 balance sheets promissory notes payable and accrued expenses.

 

F-13

 

 
 

 

Debenture payable:

 

2012 Notes

 

On October 9, 2012, the Company issued a $5,000 convertible promissory note to Carebourn Capital LP (“Carebourn”). The Carebourn note was due on demand, bears interest at 8% per annum and had a conversion feature similar to the 2013 Asher Notes (defined below). During the three months ended March 31, 2014, the Company issued 4,849,217 shares of common stock upon conversion of the note and $696 of accrued and unpaid interest. No amounts remain open as of March 31, 2014.

 

On October 17, 2012, the Company issued a $25,000 convertible promissory note to Continental Equities, LLC (“Continental”). On March 26, 2013, Carebourn acquired the Continental note from Continental. During the year ended December 31, 2013, the Company issued 18,737,288 shares of common stock to Carebourn Partners, LLC. (“Carebourn Partners”) and Carebourn Partners’ assignee upon the conversion of the acquired Continental note. During the three months ended March 31, 2014, the Company issued 5,414,365 shares of common stock for $3,411 of accrued and unpaid interest. No amounts remain open as of March 31, 2014.

 

On October 24 and 29, 2012, the Company issued convertible promissory notes of $9,000 and $16,000 (“the 2012 Gel Notes”) respectively, to GEL Properties, LLC (“Gel”) The conversion price for the 2012 Gel Notes was equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares had not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest were also subject to conversion. No fractional shares or scrip representing fractions of shares were to be issued on conversion, but the number of shares issuable were to be rounded to the nearest whole share. Also in October 2012, the Company issued four (4) additional notes to Gel in the aggregate, as amended, $85,000, and Gel issued the Company four secured promissory notes, one for $25,000 and three each in the amount of $20,000, initially due June 21, 2013. Gel funded $65,000 of the notes to the Company during the year ended December 31, 2013, and the remaining $20,000 was funded on January 28, 2014. During the year ended December 31, 2013, the Company issued 288,467,551 shares of common stock in satisfaction of $63,145 of the Gel 2012 Notes. As of December 31, 2013, the Company had $26,855 of principal amounts outstanding to Gel. During the three months ended March 31, 2014, the Company issued 314,508,480 shares of common stock in satisfaction of $46,855 of the 2012 Gel Notes. No amounts remain open of the 2012 Gel Notes as of March 31, 2014.

 

On November 1, 2012, the Company issued a convertible promissory note to David Schaper (“Schaper”) in the amount of $269,858 in exchange for previously accrued legal fees. The note bears interest at 8% per annum and is convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. During the year ended December 31, 2013, the Company issued 419,203,501 shares of common stock upon the conversion of $103,188 of the Note. As of December 31, 2013, the balance of the note was $166,670. During the three months ended March 31, 2014, the Company issued 1,195,075,049 shares of common stock upon the conversion of $125,842 of the Note. As of March 31, 2014, the balance of the note is $40,828.

 

F-14

 

 
 

 

2013 Notes

 

On March 14, 2013 the Company issued a convertible promissory note for $46,000 to an accredited investor (the “March 2013 Note”). The March 2013 Note, was due eight months from issuance and bears an interest rate of 8% per annum, and in the case of an event of default increases to 12% per annum (“the Default Rate”). The conversion feature of the 2013 Note is a 50% discount to the average of the three lowest day closing bid prices for the ten trading days prior to conversion. The March 2013 Note matured November 14, 2013, is in default, and the Default Rate was effective at that date. During the three months ended March 31, 2014, the Company issued 78,000,000 shares of common stock upon conversion of $3,900 of the note. The balance of the March 2013 Note is $42,100 as of March 31, 2014.

 

The following notes issued in 2013, bear interest at 8% per annum and other than as described below are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. The notes issued in 2013 are referred to as the 2013 Notes.

 

On April 8, 2013, the Company issued a convertible promissory note to Schaper for $5,000. During the three months ended March 31, 2014, the Company issued 100,000,000 shares of common stock upon the conversion of the note. No amounts remain open as March 31, 2014.

 

On April 26, 2013, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. During the three months ended March 31, 2014, the Company issued 167,359,375 shares of common stock upon the conversion of the note and $3,555 of accrued and unpaid interest. No amounts remain open as of March 31, 2014.

 

On June 6, 2013 ($12,000), July 12, 2013 ($12,500) and August 9, 2013 ($6,250) the Company issued convertible promissory notes to Carebourn Partners. During the three months ended March 31, 2014, the Company issued 86,757,922 shares of common stock upon the conversion of these notes and $1,024 of accrued and unpaid interest. No amounts remain open as of March 31, 2014.

 

On August 9, 2013, the Company issued a $6,250 note to Linrick Industries, LLC. During the three months ended March 31, 2014, the Company issued 10,268,561 shares of common stock upon the conversion of the note and $250 of accrued and unpaid interest in full satisfaction of this note.

 

On August 22, 2013, the Company issued a $6,000 convertible promissory note to Schaper. During the three months ended March 31, 2014, the Company issued 40,000,000 shares of common stock upon conversion of $4,000 of this note. The outstanding principal balance on this note is $2,000 as of March 31, 2014.

 

 

F-15

 

On September 3, 2013 ($32,500) and October 17, 2013 ($37,500), the Company issued convertible promissory notes to Asher Enterprises, Inc. (“Asher” and “2013 Asher Notes”). Among other terms the 2013 Asher Notes are due nine months from their issuance date, bear interest at 8% per annum, are payable in cash or shares at the Conversion Price as defined herewith, and are convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the Note, the Company is required to pay interest at 22% per annum and the holders may at their option declare the 2013 Notes, together with accrued and unpaid interest, to be immediately due and payable. In addition, the 2013 Notes provide for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. During the three months ended March 31, 2014, the Company issued 49,682,540 shares of common stock upon conversion of the $32,500 note and $1,300 of accrued and unpaid interest. The outstanding principal balance on the October note is $37,500 as of March 31, 2014.

 

On October 7, 2013, the Company issued a $3,500 convertible note to AU Funding, LLC in exchange for the cancellation of accounts payable of $3,500. During the three months ended March 31, 2014, the Company issued 75,676,800 shares of common stock upon the conversion of the note and $284 of accrued and unpaid interest in full satisfaction of this note.

 

On October 7, 2013, the Company issued a $5,000 convertible note to Corizona Mining Partners, LLC in exchange for the cancellation of $5,000 of accounts payable. During the three months ended March 31, 2014, the Company issued 100,000,000 upon conversion of the note. There are no amounts open on this note as of March 31, 2014.

 

On October 18, 2013, the Company issued four (4) convertible notes each in the amount of $25,000 to Gel (the 2013 Gel Notes). The conversion price for the 2013 Gel Notes is equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. Also on October 18, 2014, Gel issued the Company four secured promissory notes, each in the amount of $25,000, due April 21, 2014. The Company received the $100,000 on March 6, 2014. As of March 31, 2014, the four convertible promissory notes in the aggregate of $100,000 of principal amount owed Gel was outstanding.

 

On November 19, 2013, the Company issued a $16,500 convertible note to Carebourn Capital L.P. The outstanding principal balance on this note is $16,500 as of March 31, 2014.

 

On November 22, 2013, the Company issued a $35,000 (the Fong Note) and $30,000 (the Hollander Note) convertible note to Mr. Fong and Mr. Hollander, respectively, for the cancellation of accrued and unpaid fees. During the three months ended March 31, 2014, the Company issued 230,000,000 shares of common stock in satisfaction of $22,000 of the Hollander note. The outstanding principal balances of the Fong and Hollander notes as of March 31, 2014 are $35,000 and $8,000 respectively.

 

2014 Notes

 

On January 28, 2014, the Company issued a convertible promissory note to Mr. Fong for $25,500 in satisfaction of accrued and unpaid fees due Mr. Fong. Also on January 28, 2014, the Company entered into a Debt Settlement and Release Agreement (the “DSR”) with Mr. Fong, Mary Virginia Knight (“Knight”) or Knight assigns. Pursuant to the DSR, the Company has issued 300,000,000 shares of common stock to the Knight assign, in cancellation and satisfaction of $15,000 of the convertible note due Mr. Fong.

 

 

F-16

 

On February 10, 2014, the Company issued two (2) convertible promissory notes in the amounts of $95,814 and $95,813 in exchange for previously accrued legal fees. The notes bear interest at 8% per annum and are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. As of March 31, 2014, the balances of the notes are outstanding.

 

On February 20, 2014, the Company issued two (2) convertible promissory notes, each in the amount of $40,000 to LG Capital (“LG”). The Company received $38,000 after debt issuance costs of $2,000 and a $40,000 secured promissory note. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $389 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2014. The balance of this note is $40,000 as of March 31, 2014.

 

On March 3, 2014, the Company issued a $52,500 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 8% and is convertible at a 50% discount of the average of the three lowest days closing prices for the ten (10) days preceding conversion. The conversion price cannot exceed 250% of the market price as of the date of the executed term sheet by the parties. The Company received $50,000 after debt issuance costs of $2,500 which will be amortized over the six month term of the Note or any redemptions and accordingly $375 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2014. The balance of this note is $52,500 as of March 31, 2014.

 

On March 6, 2014 the Company issued a $50,000 convertible promissory note to Gel, under the same terms and conditions as the 2012 Gel Notes. The note is outstanding as of March 31, 2014.

 

The Company has determined that the conversion features of the 2012, 2013 and 2014 Notes represent embedded derivatives since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion features must be bifurcated from the debt hosts and accounted for as derivative liabilities. Accordingly, the fair value of these derivative instruments have been recorded as liabilities on the consolidated balance sheet with the corresponding amounts recorded as a discounts to the Notes. Such discounts will be accreted from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liabilities for derivative contracts will be recorded to other income or expenses in the consolidated statement of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet.

 

The fair value of the conversion features embedded in the 2014 Notes as of their dates of issuance and in their entirety as of March 31, 2014 was determined to approximate their fair intrinsic value due to the terms of conversion.

 

The inputs used to estimate the fair value of the derivative liabilities are considered to be level 1 inputs within the fair value hierarchy.

 

A summary of the derivative liabilities related to convertible notes as of December 31, 2013 and March 31, 2014 is as follows:

 

F-17

 

 
 

 

 

 

Fair Value

 

Derivative

Liability Balance

1/1/14

 

 

Initial Derivative Liability

 

 

Redeemed convertible notes

Fair value change- three months ended 3/31/14

 

Derivative Liability Balance 3/31/14

2012 Notes $172,602            - $(120,982)             - $51,620
2013 Notes $363,260 - (195,800)   - 167,460
2014 Notes - $559,512 (35,600)   - 523,912
Total $535,862 $559,512* $(352,382)   $742,992
             

 

* $19,885 of the initial derivative liability, equal to the excess of the liabilities over the face value of the related notes is included in derivative liability expense of $46,036 for the three months ended March 31, 2014.

 

A summary of debentures payable as of December 31, 2013 and March 31, 2014 is as follows:

 

 

 

 

 

 

 

Face Value

Balances

1/1/14

Issuance of new convertible notes

Amortization of discount on convertible

Notes

Debenture conversions three months ended 3/31/14

Balances

3/31/14

2012 Notes $171,670 - - $(130,842) $40,828
2013 Notes $349,255   - (204,755)  144,500
2014 Notes                     - $579,627   (20,000) 559,627
Note discount $(187,843) (539,627) $359,357 - (368,113)
Total $333,082 $     40,000 $359,357 $(355,597) $376,842

 

7. Commitments and contingencies:  

 

Litigation:

 

The Forest County Potawatomi Community (“FCPC”) has initiated an action against Chex, an inactive subsidiary of the Company, in the FCPC tribal court asserting that Chex breached a contract with FCPC during the 2002 to 2006 time period. Chex is inactive and did not defend this action. On October 1, 2009 a judgment was entered against Chex in the FCPC Tribal Court in the amount of $2,484,922. The Company has included $2,484,922 in litigation contingency on the consolidated balance sheets as of March 31, 2014 and December 31, 2013.

 

The Company is involved in various claims and legal actions arising in the ordinary course of business. The ultimate disposition of these matters may have a material adverse impact either individually or in the aggregate on future consolidated results of operations, financial position or cash flows of the Company.

 

F-18

 

 
 

 

Operating lease:

 

Effective January 1, 2012 the Company utilized space in an office leased through February 2014, by a Company controlled by its former Acting President. Effective January 1, 2013 the monthly rent became $1,066. The lease, as amended, expired in April 2014, when the Company began leasing the same directly from the landlord.

 

Marketing Agreement

 

On February 25, 2014, the Company entered into a six (6) month agreement with Aeson Ventures, LLC. Pursuant to the agreement Aeson will develop an online marketing service and redevelop and thereafter maintain Company websites. The Company compensated Aeson $4,500 upon signing the agreement and has agreed to a monthly fee of $2,250 thereafter. Additionally, Aeson will receive 20,000,000 shares of Company common stock, upon the completion of the six month agreement. After the initial six month term, the agreement becomes a month to month employment agreement, which either party can terminate with written notice to the other.

 

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.

 

As of March 31, 2014, the Company had a tax net operating loss carry forward of approximately $5,229,000. Any unused portion of this carry forward expires in 2029. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

 

9. Stockholders’ deficiency:

 

Common stock:

 

During the three months ended March 31, 2014, the Company issued 2,768,821,309 shares of common stock upon the conversion of $355,597 of debentures payable and $22,934 of accrued and unpaid interest.

 

Preferred stock

 

There were no shares of Class A or B preferred stock issued during the three months ended March 31, 2014.

 

 

F-19

 

Effective January 21, 2014, the Board of Directors of the Company approved the issuance of 1,000 shares of Class C Preferred Stock (as defined and described below) (the “Class C Preferred Stock Shares”) to Mr. Fong or his assigns in consideration for services rendered to the Company and continuing to work for the Company without receiving significant payment for services and without the Company having the ability to issue shares of common stock as the Company does not have sufficient authorized but unissued shares of common stock to allow for any such issuances.

 

As a result of the issuance of the Class C Preferred Stock Shares to Mr. Fong, or his assigns and the Super Majority Voting Rights (described below), Mr. Fong obtained voting rights over the Company’s outstanding voting stock which provides him the right to vote up to 51% of the total voting shares able to vote on any and all shareholder matters.  As a result, Mr. Fong will exercise majority control in determining the outcome of all corporate transactions or other matters, including the election of Directors, mergers, consolidations, the sale of all or substantially all of the Company’s assets, and also the power to prevent or cause a change in control. The interests of Mr. Fong may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other shareholders.  Additionally, it may be impossible for shareholders to remove Mr. Fong as an officer or Director of the Company due to the Super Majority Voting Rights. The Class C preferred stock provides no other rights to their holder(s) other than voting rights.

 

The Company valued the 1,000 shares of Class B preferred stock at $106,673, based on an estimated control premium that may be realized upon the sale of common stock, primarily similar to voting control as of the grant date.

 

Stock options:

 

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

 

There were no options granted during the three months ended March 31, 2014 and 2013.

 

All options outstanding at March 31, 2014 are fully vested and exercisable. A summary of outstanding balances at March 31, 2014 and December 31, 2013 is as follows:

 

      Weighted-   Weighted-   Aggregate
      Average   Average   Intrinsic
  Options   exercise price   Remaining contractual life   Value
               
Outstanding at January 1, 2014 990,000   $0.34   1.98   $0
               
Outstanding at March 31, 2014 990,000   $0.34   1.73   $0

 

 

F-20

 

 
 

 

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 Hydrogen Power Inc. (“HPI”) seeking approximately $318,000. The Company has agreed to a judgment of $329,146, comprised of the $275,000, attorney fees of $15,277 (included in accounts payable on the balance sheet presented herein, and attorney fees of $38,869 (included in accrued liabilities on the balance sheet presented herein). FFFC and Chex have agreed to indemnify HPI.

 

11. Related party transactions:

 

Management and director fees:

 

During the three months ended March 31, 2014 and 2013 the Company accrued expenses of $0 and $15,000, respectively, for the services of Mr. Barry Hollander as its Acting President (resigned January 22, 2014).

 

For the three months ended March 31, 2014 and 2013, the Company accrued expenses of $15,000 and $5,000, respectively, for its Chairman, Mr. Fong’s services. Mr. Fong received $12,576 in cash payments for the three months ended March 31, 2014. In January 2014, the Company issued a convertible note to Mr. Fong in payment of $25,500 of accrued and unpaid fees. As of March 31, 2014, Mr. Fong is owed $2,424 for these services, included in accrued expenses on the balance sheet.

 

Preferred Stock:

 

On January 21, 2014, the Company issued 1,000 shares of Class C preferred stock to Mr. Fong. Mr. Fong obtained voting rights over the Company’s outstanding voting stock which provides him the right to vote up to 51% of the total voting shares able to vote on any and all shareholder matters.  As a result, Mr. Fong will exercise majority control in determining the outcome of all corporate transactions or other matters, including the election of Directors, mergers, consolidations, the sale of all or substantially all of the Company’s assets, and also the power to prevent or cause a change in control.

 

F-21

  

Acquisition of Carbon Capture:

 

On May 25, 2012, the Company’s newly formed subsidiary ATD acquired Carbon Capture USA (“Carbon”) from Carbon Capture Corporation, a Colorado corporation ("CCC"). CCC is privately held by Mr. Henry Fong, a director of the Company and is the control person of CCC. Pursuant to the Agreement, ATD acquired from CCC all of the issued and outstanding common stock of Carbon in exchange for ninety million (90,000,000) newly issued unregistered shares of the Company’s common stock. During the year ended December 31, 2013, Carbon exchanged the 90,000,000 shares of common stock for 1,500,000 shares of Class B preferred stock. The Class B preferred stock automatically converts to 90,000,000 shares of common stock whenever there are sufficient shares of common stock to allow for the conversion. Pursuant to the terms and conditions of the preferred stock, the Company determined there were not any additional costs to be recognized.

 

Notes payable:

 

As disclosed in Note 6, the Company has issued notes payable to various related parties. The balances of December 31, 2013 and March 31, 2014, and the activity for the three months ended March 31, 2014 follows:

 

 

Noteholder

 

Balance

1/1/14

 

 

Additions

 

 

Payments

   

Balance

3/31/14

Gulfstream Financial Partners (1)

 

$

 

1,750

 

$

 

-

 

$

 

1,750

 

 

 

$

 

-

HPI Partners (1)   144,725   -   5,000     139,725
AFPW (1)   6,953   -   6,953     -
Henry Fong (2)   2,088   5,000   7,088     -
HF Services (1)   4,150   -   -     4,150
Barry Hollander (2)   2,775   -   -     2,775
SurgLine Int’l (1)   10,672   -   -     10,672
Total $ 173,113 $ 5,000 $ 20,791   $ 157,322

 

All of the notes are due on demand and have interest rates of 8% to 10% per annum.

 

(1)Mr. Henry Fong, an officer and director of the Company, is also an officer, director or control person of these entities.

 

(2)An officer or director of the Company, Mr. Hollander resigned January 22, 2014.

 

12. Subsequent events:

 

 

F-22

 

On March 27, 2014, the Company issued an $831,000 secured convertible promissory note (the “Note”) to Typenex Co-Investments, LLC (“Typenex” or the “Lender”). The Typenex Note carries an original issuer discount of $75,000. In addition, the Company agreed to pay $6,000 to Typenex to cover the Lender’s legal and other fees. At the option of the Lender, the note converts at $0.0025 per share, the conversion by Lender of any portion of the Outstanding Balance shall only be exercisable in ten (10) tranches (each, a “Tranche”), consisting of an initial Tranche in an amount equal to $88,500 and nine (9) additional Tranches, each in the amount of $82,500, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note. The Note carries a ten % interest rate and matures on the seventeenth month after funding. Typenex funded $75,000 on April 1, 2014 and also delivered nine (9) secured promissory notes to the Company, each in the amount of $75,000. Each payment received will constitute an “Issue Date”. The Company also granted Typenex the right to purchase at any time on or after each Issue Date until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share equal to $41,250 divided by the Market Price (as defined in the Note).

 

On April 3, 2014, the Company and its wholly-owned subsidiary CA announced the launch of GreenEnergyMedia.TV.  GreenEnergyMedia.TV caters to broadcasting real-time news and social media feeds relating exclusively to the medical and recreational marijuana communities.

 

GreenEnergyMedia.TV broadcasts stock quotations and intraday charts on over 40 leading companies competing within the medical marijuana industry. The recently launched Cannabis Finance area of the website features this information, and will be updated with additional interactive features in the weeks to come. 

 

The Company's goal in developing GreenEnergyMedia.TV is to provide the investing public, which has an interest in the medical and recreational marijuana industry, an exclusive online venue that offers real-time news, commentary, video feeds and investor data. 

 

On April 29, 2014, Cannabis Live was launched, which will focus exclusively on hosting and broadcasting video of on-demand events. As this area of GreenEnergyMedia.TV’s website progresses, the Company plans to include the development of an exclusive interactive online channel. This future development will allow for several sources of revenue to be derived for the Company; including premium access membership fees, sponsorship and endorsement fees, and advertising revenue.

 

On April 17, 2014, the Company and its wholly-owned subsidiary CA announced a Merchant Payment Processing Agreement to offer a debit card payment solution for retail cannabis dispensaries. This program will be offered through the Company's 49% owned subsidiary, Cannabis Merchant Financial Solutions, Inc. ("CMFS"). This payment solution allows dispensaries to accept debit and credit cards by using the PIN number associated with the card being used. 

 

CMFS will arrange within four business days after registration by a dispensary to install a pre-programmed terminal for payment acceptance. This plug and process solution is ready to be installed immediately and can be utilized with only a power source and internet access. The consumer swipes their card, follows the on-screen prompts, and enters their PIN information to complete the sale. The approved transaction will print a receipt/voucher at which point it can be exchanged for goods and/or services with the merchant. The approved funds clear the payers account listed on the ACH authorization form within 48 hours.

 

From April 1, 2014, through May 15, 2014, the Company has issued 129,031,243 shares of common stock in satisfaction of $70,400 of convertible promissory notes and $3,259 of accrued and unpaid interest.

 

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

 

F-23

 

 
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

THIS REPORT MAY CONTAIN CERTAIN "FORWARD-LOOKING" STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AND FUTURE OPERATIONAL PLANS, FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE", "INTENT", "COULD", "ESTIMATE", "MIGHT", OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON THE VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY RELATED TO THE COMPANY'S OPERATIONS, MERGERS OR ACQUISITIONS, GOVERNMENTAL REGULATION, THE VALUE OF THE COMPANY'S ASSETS AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

GENERAL

 

FastFunds Financial Corporation (“FFFC”) is a holding company and through January 31, 2006 operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). As disclosed in the December 31, 2013 10-K, FFFC also has several other non-operating wholly-owned subsidiaries. FFFC and its subsidiaries are referred to as (the “Company”).

 

OVERVIEW

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2013 and 2012. The financial statements presented for the three months ended March 31, 2014 and 2013 include FFFC and its subsidiaries.

 

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 future results. You should read this information in conjunction with the audited consolidated financial statements of the Company, including the notes to those statements for the year ended December 31, 2013, filed with the SEC on April 15, 2014, and the following “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

 

The Company’s financial statements for the three months ended March 31, 2014 and 2013 have been prepared on a going concern basis, which contemplates the realization of its remaining assets and the settlement of liabilities and commitments in the normal course of business. The Company has incurred significant losses since its inception and has a working capital deficit of approximately $9,952,000 and an accumulated deficit of approximately $25,318,000 as of March 31, 2014. Moreover, it presently has minimal ongoing business operations or sources of revenue, and little available resources with which to obtain or develop new operations.

 

24

 

 
 

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that the Company will have adequate resources to fund future operations or that funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

LIQUIDITY AND CAPITAL RESOURCES

 

For the three months ended March 31, 2014, net cash used in operating activities was $76,297 compared to $27,900 for the three months ended March 31, 2013. Net loss was $706,576 and $244,039 for the three months ended March 31, 2014 and 2013, respectively. Included in the net loss for the three months ended March 31, 2014 was $364,650 for the amortization of debt discounts and deferred financing costs related to convertible notes and $106,673 of stock compensation expense related to the issuance of 1,000 shares of Class C preferred stock. The current period loss also included an initial derivative liability expense of $19,885 as a result of the fair value of newly issued convertible notes, $25,751 for the fair value change in derivative liabilities, and an increase in accrued expenses, primarily interest, of $89,379. For the three months ended March 31, 2013, the net loss included $85,152 for the amortization of interest and deferred financing costs related to convertible notes and an initial derivative liability expense of $2,298 as a result of the fair value of a newly issued convertible note. These losses were offset by gains in the change in fair value of the convertible notes of $6,839.

 

Net cash used in investing activities for the three months ended March 31, 2014, primarily consisted of an advance of $25,000 in exchange for a note receivable.

 

Net cash provided by financing activities for the three months ended March 31, 2014 was $292,209 compared to $28,250 for the three months ended March 31, 2013. During the three months ended March 31, 2014, the Company received $322,500 from the issuance of convertible notes and $5,000 from the issuance of notes payable related parties. The Company repaid $25,791 of notes payable ($20,791 related parties) and paid $9,500 of deferred financing fees. For the three months ended March 31, 2013 the Company received $46,000 from the issuance of convertible notes and $12,100 from the issuance of notes payable ($1,400 from related parties). The Company repaid $25,250 of related party notes payable and paid $4,600 of deferred financing fees.

 

For the three months ended March 31, 2014, cash and cash equivalents increased by $190,412 compared to $350 for the three months ended March 31, 2013. Ending cash and cash equivalents at March 31, 2014 was $192,469 compared to $568 at March 31, 2013.

 

We have limited cash and cash equivalents on hand and need to raise funds to continue to be able to support our operating expenses and to meet our other obligations as they become due.

 

REVENUES

 

Total revenues for the three months ended March 31, 2014 were $7,039 compared to $8,071 for the three months ended March 31, 2013. Revenues in all periods consist of credit card income on Nova’s remaining portfolio.

 

OPERATING EXPENSES

 

Operating expenses for the three months ended March 31, 2014, were $6,455 compared to $7,066 for the three months ended March 31, 2013. Expenses were primarily comprised of costs related to third party servicing fees of Nova’s remaining credit card portfolio.

 

25

 

SELLING GENERAL AND ADMINISTRATIVE EXPENSES

 

Corporate operating expenses for the three months ended March 31, 2014 were $179,325 compared to $43,512 for the three months ended March 31, 2013. The expenses were comprised of the following:

 

 

Three months ended

March 31,

  2014   2013
       
Accounting and legal $16,675   $5,000
Stock compensation expense 106,673   -
Management fees 15,000   30,000
Consulting and other professional 25,600   3,500
Transfer agent and filing fees 8,790   829
Other 6,497   4,183
       
  $179,325   $43,512

.

Effective October 1, 2012, the Company has agreed to compensate Mr. Fong and Mr. Hollander (resigned effective January 22, 2014) $5,000 each per month for services being provided to the Company, included in management and director fees. Included in three months ended March 31, 2014, were accounting and auditing fees of $15,575. Stock compensation expense is as a result of 1,000 shares of Class C preferred stock issued to Mr. Fong. Consulting and other professional fees for the three months ended March 31, 2014 included $16,000 of costs related to Cannabis Angel initiatives, $6,750 as part of a marketing agreement to increase the Company’s social media presence and $2,850 investor relations costs. Transfer agent and filing fees costs increased for the three months ended March 31, 2014, related to State of Nevada costs for increasing the authorized shares of common stock as well as transfer agent costs for the issuance of shares of common stock upon conversion of debentures.

 

OTHER INCOME (EXPENSE)

 

Other expenses, net for the three months ended March 31, 2014 were $527,835 compared to $201,532 and for the three months ended March 31, 2013. Interest expense of $481,799 for the three months ended March 31, 2014 was comprised of $364,650 of amortization of discount on convertible notes and deferred financing fees and interest on notes for the three months ended March 31, 2014, was $117,149 ($3,250 to related parties). Derivative liability expense upon the initial valuation of debentures of $20,285 is included in the derivative liability expense of $46,036 for 2014.

 

Interest expense for the three months ended March 31, 2013 was comprised of $85,152 of amortization of discount on convertible notes and deferred financing fees. Interest expense on notes was $120,921 ($6,709 to related parties). Initial derivative liability expense of $2,298 and the amortization of converted debentures of $18,242 are included in the change in the net decrease of the change in fair value of derivative liabilities of $4,541.

 

CONTRACTUAL OBLIGATIONS

 

Not Applicable

 

26

 

 
 

 

CRITICAL ACCOUNTING POLICIES

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Our significant accounting policies are described in more detail in our 2013 Annual Report on Form 10-K.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

As of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that we believe would have a material impact on our financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.


The Company maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our President, who serves as our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and he determined that our disclosure controls and procedures were not effective due to a control deficiency. During the period the Company did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

 

Changes in Internal Control Over Financial Reporting


During the quarter ended March 31, 2014, there were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

 

 

27

 

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Refer to Note 6 of the Condensed Consolidated Financial Statements

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended March 31, 2014, the Company issued 2,768,821,309 shares of common stock upon the conversion of $355,597 of debentures payable and $22,934 of accrued and unpaid interest. The shares were issued at approximately $.0001367 per share.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit Number Description
31.1 CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
   
32.1 CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)

 

 

28

 

 

 
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  FastFunds Financial Corporation
  (Registrant)
   
Date: May 20, 2014 By: /s/ Henry Fong
  Henry Fong
  Chief Executive Officer