Attached files

file filename
EX-31.1 - CERTIFICATION - Global Future City Holding Inc.global_10q-ex3101.htm
EX-31.2 - CERTIFICATION - Global Future City Holding Inc.global_10q-ex3102.htm
EX-32.1 - CERTIFICATION - Global Future City Holding Inc.global_10q-ex3201.htm
EX-32.2 - CERTIFICATION - Global Future City Holding Inc.global_10q-ex3202.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 0-33519

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

(Exact name of Registrant as specified in its charter)

 

Nevada 98-0360989
(State of Incorporation) (I.R.S. Employer Identification No.)

 

2 Park Plaza, Suite 400, Irvine, CA 92614
(Address of principal executive offices)

 

(949) 769-3550

(Issuer’s telephone number)

 

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company: in Rule 12b-2 of the Exchange Act (Check one):

 

Large Accelerated Filer o Accelerated Filer o
   
Non-Accelerated Filer (Do not check if smaller reporting company) o 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 o No x

 

As of May 13, 2016, there were 48,631,133 shares of our common stock, par value $0.001, issued and outstanding.

 

As of May 13, 2016, there were no shares of our preferred stock, par value $0.001, issued and outstanding.

 

 

 

 
 

 

GLOBAL FUTURE CITY HOLDING INC.

FORM 10-Q Quarterly Report

March 31, 2016

 

Table of Contents

 

 

  Page
Part I – Financial Information  
     
Item 1. Unaudited Consolidated Financial Statements 4
Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
     
Part II – Other Information  
     
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
     
Signatures 19
     
Certifications  

 

 

 

 

 2 
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934, as amended (the Exchange Act), as well as information communicated orally or in writing between the dates of such filings, contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends, and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, and other risks identified in the Registrants filings with the Securities and Exchange Commission from time to time.

 

In some cases, forward-looking statements can be identified by terminology such as may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.

 

 

 

 3 
 

 

PART I -- FINANCIAL INFORMATION

ITEM I – CONSOLIDATED FINANCIAL STATEMENTS

 

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). It is suggested that the following consolidated financial statements be read in conjunction with the accompanying notes and financial statements and notes thereto in the annual financial statements included on Form 10-K for Global Future City Holding Inc. for the fiscal year ended December 31, 2015.

 

GLOBAL FUTURE CITY HOLDING INC.

CONSOLIDATED BALANCE SHEETS

(IN DOLLARS, EXCEPT PER SHARE DATA)

(unaudited)

 

   March 31,   December 31, 
   2016   2015 
Assets:          
Current Assets          
Cash and cash equivalents  $1,916,675   $655,405 
Due from employee   8,000     
Inventories   1,583,336     
Deposits for inventory   140,420    879,504 
Deferred financing costs   48,784    14,489 
Prepaid expenses   50,658    21,411 
Total current assets   3,747,873    1,570,809 
Property and equipment, net   572,888    249,325 
Investment in Powerdyne   250,000    250,000 
Service contract- related party, net   332,500    350,000 
Other asset   19,359    19,359 
Total assets  $4,922,620   $2,439,493 
           
Liabilities and Shareholders’ (Deficit) Equity:          
Current liabilities:          
Accounts payable  $287,888   $326,700 
Accrued expenses and deposits   164,488    138,677 
Accrued compensation   222,640    211,905 
Membership deposits and accrued benefits   3,359,986    10,020 
Notes payable   1,000,000    1,050,000 
Deferred revenue   11,350    600 
Due to related parties   246,157    89,359 
Total current liabilities   5,292,509    1,827,261 
Total liabilities   5,292,509    1,827,261 
           
Commitments and contingent liabilities          
           
Shareholders’ (deficit) equity:          
Preferred stock, $0.001 par value: 20,000,000 shares authorized, no shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively.          
Common stock, $0.001 par value: 150,000,000 shares authorized, 47,631,133 and 47,533,029 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively.   47,631    47,533

 

 

Additional paid-in capital   6,281,402    6,007,601 
Accumulated deficit   (6,698,922)   (5,442,902)
Total shareholders’ (deficit) equity   (369,889)   612,232 
Total liabilities and shareholders’ (deficit) equity  $4,922,620   $2,439,493 

 

See accompanying Notes to Consolidated Financial Statements.

 

 4 
 

GLOBAL FUTURE CITY HOLDING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN DOLLARS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

   Three Months Ended
March 31,
 
   2016   2015 
Revenue – related party commissions  $237,909   $ 
Revenue – direct selling   10,250     
Total revenue, net   248,159      
Cost of product sales   1,250    
Gross profit   246,909     
           
Operating expenses:          
Selling and marketing (includes stock-based expense of $85,695 and $65,000)   364,919    84,689 
General and administrative (includes stock-based expense of $138,570 and zero)   1,113,467    56,053 
Total operating expenses   1,478,386    140,742 
Operating loss   (1,231,477)   (140,742)
           
Other (income) expense:          
Interest expense, net   24,543   28,386
(Gain) on extinguishment of debt       (277,734)
Other expense, net       600
(Loss) income before income taxes   (1,256,020)   108,006 
Provision for income taxes        
Net (loss) income  $(1,256,020)  $108,006 
           
Basic net (loss) income per common share  $(0.03)  $0.00 
Diluted net (loss) income per common share  $(0.03)  $0.00 
Weighted average number of common shares used in basic per share calculations   47,542,575    37,809,163 
Weighted average number of common shares used in diluted per share calculations   47,542,575    39,498,560 

 

See accompanying Notes to Consolidated Financial Statements.

 

 5 
 

 

GLOBAL FUTURE CITY HOLDING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

  

Three Months Ended

March 31,

 
   2016   2015 
Cash flows from operating activities:          
Net (loss) income  $(1,256,020)  $108,006 
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
(Gain) on extinguishment of debt       (277,734)
Common stock issued for services rendered   85,965    65,000 
Common stock issued for employee compensation   138,570     
Depreciation and amortization   34,007    6,059 
Changes in operating assets and liabilities:          
Accounts receivable       51,256 
Inventories   (844,252)   3,426 
Prepaid and other   (37,248)   (12,581)
Accounts payable   (38,792)   (75,645)
Membership deposits and accrued benefits   3,349,966     
Deferred revenue   10,750     
Accrued expenses   39,396    36,879 
Net cash provided by (used in) operating activities   1,482,342    (95,334)
           
Cash flows from investing activities:          
Cash paid for property and equipment   (340,069)    
Acquisition of Powerdyne EB-5 License   (25,000)   (150,000)
Net cash used in investing activities   (365,069)   (150,000)
           
Cash flows from financing activities:          
Proceeds from the sale of common stock       3,000,000 
Proceeds from capital contribution       150,000 
Deposit received for proposed business combination       139,885 
Shareholder payment for proposed business combination       (75,000)
Cash paid for deferred financing cost   (34,295)    
Net advances from related party   206,162    (18,007)
Repayments of notes payable   (27,870)    
Net cash provided by financing activities   143,997    3,196,878 
Net increase in cash and cash equivalents   1,261,270    2,951,544 
Cash and cash equivalents at beginning of period   655,405    155,271 
Cash and cash equivalents at end of period  $1,916,675   $3,106,815 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $2,870   $437 
Cash paid for income taxes  $   $ 
Supplemental disclosure of non-cash investing and financing activities:          
Issuance of note payable to seller of Powerdyne  $   $100,000 
Issuance of stock for related party advances settlement   $49,364   $ 

 

See accompanying Notes to Consolidated Financial Statements.

 

 6 
 

GLOBAL FUTURE CITY HOLDING INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

IN DOLLARS, EXCEPT PER SHARE DATA

MARCH 31, 2016

(Unaudited) 

 

1.Business Summary

 

We are a holding company focused in the areas of (i) consumer product sales (through a membership program) and the potential marketing and deployment of GX Coins in connection with our membership program, and (ii) EB-5 investments for foreign investors who are interested in acquiring lawful permanent residence in the United States.

 

For a more detailed description see “Description of Business”, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC.

 

2.Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited consolidated financial statements of Global Future City Holding Inc. and its wholly owned subsidiaries have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These interim period condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC.

 

All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements may have been reclassified to conform to the current period presentation.

 

Management may 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.

 

Fair Value of Financial Instruments

We follow the guidance of ASC 820 – Fair Value Measurement and Disclosure. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of our Company. Unobservable inputs are inputs that reflect our Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Our financial instruments consisted primarily of (level 1) accounts payable, accrued expenses and deposits, accrued compensation, membership deposits and accrued benefits, deferred revenue and notes payable. The carrying amounts of our financial instruments generally approximate their fair values due to the short term nature of these instruments.

 

Revenue Recognition

Revenue from product sales are recorded when the products are shipped and title passes to independent members. Net revenues are determined after deducting promotional and other allowances in accordance with ASC 605-50. Product sales to members are made pursuant to a member agreement that provides for transfer of both title and risk of loss upon our delivery to the carrier that completes delivery to the members. This is commonly referred to as “F.O.B. Shipping Point.” Amounts received for unshipped product are recorded as deferred revenue. Our sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. We estimate and accrue a reserve for product returns based on our return policies and historical experience, with the expense recorded as a reduction to revenue.

 

Cash receipts for enrollment packages include nonrefundable enrollment fees for all new members and an additional deposit for upgrading to VIP status if a member so chooses. The nonrefundable enrollment fee, is deferred and recognized over the term of the arrangement, generally twelve months.

 

 7 
 

 

The VIP status upgrade is a deposit which is repayable to a member either in cash, product or convertible into GX Coin. There is no revenue associated with the VIP status upgrade deposit initially; however, related party revenue is recognized on the commission earned when VIP members convert to GX-Coin. The VIP status upgrade earns reward status points that are also subject to repayment in cash or convertible into GX Coin. Pursuant to ASC 605-50 a cost and liability for amounts owed in cash or cash equivalents benefits under nondiscretionary loyalty programs should be accrued with a related contra-revenue, as by transferring the right to cash or cash equivalent benefits, the entity effectively reduces the revenue from conversions of VIP status and related accrued benefits to GX Coin.

 

The Company is currently evaluating potential changes to its direct selling program to ensure compliance with best practices. Accordingly, revenue recognition methodologies may change in future quarters based on the changes made to the program, if any.

 

Net Income (Loss) per Share

We present basic income (loss) per share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. At March 31, 2016, we had no outstanding options or warrants to purchase any of our common shares, respectively. As of March 31, 2015, we had certain debt with conversion features, which was convertible into approximately 1,196,091 shares of common stock. We added these dilutive shares to the denominator and added back approximately $18,000 of related interest in the numerator for weighted average diluted earnings per share. As of March 31, 2016, we had convertible debt; however, the effects of the convertible debt would have been anti-dilutive due to a loss in the three months ended March 31, 2016.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

In April 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-10, “Revenue from Contracts with Customers” (Topic 606): Identifying Performance Obligations and Licensing. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The updated standard will be effective for us beginning January 1, 2018. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation” (Topic 718): Improvements to Employee Share-Based Payment Accounting. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated standard will be effective for us beginning January 1, 2018 and interim periods thereafter. Early application is permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers” (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The updated standard will be effective for us beginning January 1, 2018. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. We believe those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to our Company, or (iv) are not expected to have a significant impact on us.

 

3.Inventories

 

Inventories consist of the following at:

 

   March 31, 2016   December 31, 2015 
Finished Goods  $1,583,336   $ 
Deposits on Inventory   140,420    879,504 
   $1,723.756   $879,504 

 

 8 
 

 

4.Accrued Expenses

 

Accrued expenses consist of the following at:

 

   March 31, 2016   December 31, 2015 
Accrued interest  $148,254   $126,512 
Accrued royalties and commissions   11,346    11,366 
Other   4,888    799 
   $164,488   $138,677 

 

5.Accrued Compensation

 

Accrued compensation consist of the following at:

 

   March 31, 2016   December 31, 2015 
Accrued salaries  $10,735   $ 
Accrued payroll taxes – delinquent   211,905    211,905 
   $222,640   $211,905 

 

6.Membership Deposits

 

Membership deposits and accrued benefits consist of the following at:

 

   March 31, 2016   December 31, 2015 
Beginning balance  $10,020   $ 
VIP membership deposits   3,679,727    10,000 
Accrued member benefits   129,501    20 
Less: member conversions to GX-Coin   (459,262)    
Ending balance  $3,359,986   $10,020 

 

7.Notes Payable

 

Notes payable consists of the following at:  

 

   March 31, 2016   December 31, 2015 
Acquisition note – Powerdyne  $25,000   $50,000 
Convertible promissory notes – debt acquisition   100,000    100,000 
Notes payable – original bridge   120,000    120,000 
Notes payable – bridge loan #1   330,000    355,000 
Notes payable – bridge loan #2   175,000    175,000 
Notes payable – bridge loan #3   250,000    250,000 
    1,000,000    1,050,000 
Less current portion   (1,000,000)   (1,050,000)
Long-term portion  $   $ 

 

Notes Payable Settlement Agreements

During the fourth quarter of 2014, we reached Settlement Agreements with most of our noteholders to restructure their notes. In the restructuring of our notes payable, which was one of our Company’s conditions for closing of the Sky Rover SPA, our noteholders agreed to a) forgo payment of nearly all of the interest which had been accrued but unpaid as of the dates of the each settlement agreement, b) a new interest rate of 10% per annum, c) a new maturity date of August 1, 2015, and d) a Company option to convert into free-trading shares of our common stock at any time our common stock has a closing bid price per share of $1.00 or more for 20 consecutive trading days after the closing of the SPA. Certain noteholders also agreed to relinquish shares of our common stock they received with their original notes, contingent upon the Sky Rover SPA closing which occurred subsequent to March 31, 2015. Because the shares were contingent upon the closing, and until then remain in the name and possession of the note holders, the shares were considered contingent consideration and will be accounted for upon transfer. In addition, holders of the convertible promissory notes – debt acquisition, notes payable – bridge loan #2 and notes payable – bridge loan #3 also agreed to forgo any additional principal payable under their notes. As a result of these settlements, we recorded gains on extinguishment of debt totaling $952,400 in 2014. After modification of the notes described above, all notes are now considered convertible.

 

 

 9 
 

 

7.Notes Payable (continued)

 

Convertible Promissory Notes – Debt Acquisition

During the first quarter of 2013 we entered into Debt Acquisition Agreements (“Debt Agreements”) with two parties affiliated with each other (the “Debt Funders”). Under the Debt Agreements, we issued convertible promissory notes totaling $150,000, $50,000 of which was subsequently converted to equity. The notes bear interest at 10% per annum and are repayable at two times the principal amount of the notes. Repayment is to be made by conversion into shares of our common stock based on a 20-day volume weighted average price with the minimum conversion price based on a market valuation for our company of $10 million the maximum based on a market valuation of $20 million. The due date by which the Debt Funders were to convert the notes is December 31, 2013, but such conversion has not yet been made. In December 2014 we entered into Settlement Agreements with the holders of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements. Accordingly, these notes are no longer convertible at the option of the holder.

 

Note Payable – Original Bridge

These notes payable were transferred to us from FTCY in November 2010 with all noteholders consenting to the transfer. The notes, which had an original face value totaling $245,000, bear interest from 10% to 12% per annum and are repayable from a pool of 10% of gross proceeds from the sales of the FITT Original product. In December 2013, a noteholder converted $75,000 of this debt to equity. Although we have received sales proceeds from FITT Original, no payments have been made to date on these notes payable. As such, the notes payable are in default and have been recorded as current liabilities in the accompanying Consolidated Balance Sheets for all periods presented. In 2014, we facilitated a share purchase agreement between Greenome and a significant shareholder. Per the terms of the agreement the Company was relieved of $50,000 in debt from the shareholder.

 

Note Payable – Bridge Loan #1

This debt arose from an offering we initiated in 2010 of up to $1.0 million of units of securities, each unit consisting of a 12% unsecured promissory note and 0.083 shares of the Company’s common stock for every dollar invested. In connection with this offering, we issued notes with face value totaling $580,000. During the three-month periods ended December 31, 2013 and March 31, 2014, respectively, noteholders converted $175,000 and $50,000 into equity, respectively. The notes were repayable 12 months from the date of issue and repayment was to come from a pool of 10% of cash receipts from the sales of the FITT Original product. Although we have received sales proceeds from FITT Original, no payments have been made to date on these notes payable. In the fourth quarter of 2014, we entered into Settlement Agreements with the holders of $345,000 face value of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements.

 

Note Payable – Bridge Loan #2

In November 2011, we initiated a Bridge Loan offering of up to $1.0 million of units of securities, each unit consisting of a 10% convertible promissory note (interest rate increasing to 18% upon an event of default) and 5.5 shares of our common stock for every dollar invested with repayment to be made at two times the principal amount of the notes. The notes mature at various dates, all of which are within twelve months of the date of issuance. In connection with this offering, we issued notes with principal amounts totaling $255,000 (repayment amounts totaling $510,000). During the three-month period ended December 31, 2013, $160,000 in repayment amounts were converted to equity. In the event we file a registration statement with the SEC and it is declared effective, we have the option to repay the original principal plus accrued interest in shares of our common stock calculated at the offering price within the registration. No payments have been made to date on these notes payable.

 

The additional principal of $255,000 was accreted over the respective term of each of the notes. We also recorded an initial discount on the notes of $11,275 based on the estimated fair market value of our common shares on the date of issuance. As of March 31, 2015 and December 31, 2014, there was no remaining unamortized discount. In the fourth quarter of 2014 we entered into Settlement Agreements with the holders of $150,000 face value of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements.

 

Note Payable – Bridge Loan #3

In December 2012, we initiated a Bridge Loan offering of up to $1.0 million of units of securities, each unit consisting of a 10% convertible promissory note (interest rate increasing to 18% upon an event of default). During the second quarter of 2013, we issued a note with face value totaling $250,000 in connection with the offering and received proceeds of $225,000. The note is repayable at two times the principal amount of the note (repayment amount of $500,000) and matured June 30, 2013. We have the option to repay the note in cash, shares of common stock of the merged entity, or a combination of cash and shares of common stock. Any portion of payment made in shares of our common stock are to be valued at the 20-day volume weighted adjusted market price of the stock of the merged entity. No payments have been made to date on these notes payable.

 

We recorded an initial discount of $25,000 on this note which we amortized through June 30, 2013, the effective maturity date of the note. The additional principal of $250,000 was accreted through the effective maturity date of June 30, 2013. In the fourth quarter of 2014, we entered into Settlement Agreements with the holder of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements, with the exception that the modified note does not contain a conversion option.

 

 

 10 
 

 

8.Related Parties

 

Amounts due to related parties consist of the following at:

 

   March 31, 2016   December 31, 2015 
Advances from CFO  $37,988   $89,359 
Conversion payable to Great Coin   91,852     
Advances from Great Coin   116,318     
   $246,157   $89,359 

 

9.Capital Stock

 

Common Stock

In connection with the closing of the SPA with Sky Rover, the Company’s newly-appointed CEO Mr. Lei Pei purchased 6,000,000 newly-issued shares of common stock of the Company for $3,000,000 in cash in a separate transaction that closed on March 30, 2015.

 

During the three months ended March 31, 2016 and 2015, the Company issued 53,000 and 250,000 shares of common stock for consulting services rendered and recorded stock-based expense of $138,570 and $65,000, respectively.

 

During the three months ended March 31, 2016 and 2015, the Company issued 31,000 free-trading shares and no shares of common stock for employee services rendered and recorded stock-based compensation of $85,965 and zero, respectively.

 

During the three months ended March 31, 2016, the Company issued 14,104 free-trading shares of common stock for a debt settlement.

 

Contributed Capital

During the three months ended March 31, 2015, the Company’s former Chief Executive Officer, Michael Dunn and its former Controller forgave accrued compensation due to each of them. As a result, the Company recorded contributed capital of $1,673,774 during this period.

 

On March 31, 2015, Mr. Lei Pei paid $25,000 to sellers of Powerdyne in connection with the required payment due April 1, 2015. Mr. Pei was not issued a note or shares of common stock and as a result, the Company recorded this amount as contributed capital in the accompanying consolidated financial statements as of March 31, 2015.

 

The Sky Rover stock purchase transaction closed April 17, 2015. Accordingly, we have recorded all previous advances from Sky Rover as additional paid-in capital as of March 31, 2015.

 

10. Subsequent Events

 

On May 8, 2015, we filed a Form S-1 Registration Statement under the Securities Act of 1933 (“S-1”) with the SEC for the initial registration of 10 million shares of our common stock, and on July 6, 2015, the S-1 was declared effective by the SEC. On October 8, 2015, we submitted a Post-Effective Amendment No. 1 to our S-1 incorporating the new information resulting from the GX-Life Transactions and resignation of our former CEO, Lei Pei. The Post-Effective Amendment No. 1 was declared effective by the SEC on October 19, 2015. On December 2, 2015, we submitted a Post-Effective Amendment No. 2 to our S-1 incorporating certain information contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, that was filed with the SEC on November 17, 2015. The Post-Effective Amendment No. 2 was declared effective by the SEC on December 22, 2015. On May 4, 2016, we submitted a Post-Effective Amendment No. 3 to our S-1 incorporating certain information contained in our Annual Report on Form 10-K for the year ended December 31, 2015, including changes in circumstances involving the deployment of GX Coin. The offering is priced at $3.50 per share. The S-1 has been qualified for sale in California and New York and we are free to sell under the S-1 in those jurisdictions within the United States. In April 2016, we sold 1,000,000 shares under the S-1 for a total of approximately $3,500,000.

 

 

 

 11 
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is intended to provide information about our financial condition and results of operations for the three months ended March 31, 2016, and 2015. This information should be read in conjunction with our audited consolidated financial statements filed on Form 10-K under the Securities Exchange Act of 1934 for the year ended December 31, 2015 and 2014. Some of the information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, includes forward-looking statements based on our current management’s expectations. There can be no assurance that actual results, outcomes, or business conditions will not differ materially from those projected or suggested in such forward-looking statements.

 

Description of Business

 

When used in this report, the terms “Global”, “Company”, “we”, “our” or “us” mean, unless the context otherwise indicates, Global Future City Holding Inc. and its subsidiaries.

 

Corporate History

Our Company was incorporated in the State of Nevada on October 12, 2000, under the name Cogen Systems, Inc. We changed our name to Snocone Systems, Inc. on December 6, 2001. On April 1, 2005, Snocone Systems, Inc. and its wholly-owned subsidiary, WYD Acquisition Corp., a California corporation (the “Merger Sub”), merged with Who’s Your Daddy, Inc. (“WYD”), an unrelated, privately held California corporation, whereby the Merger Sub merged with and into WYD. After the merger, WYD continued its corporate existence as a direct, wholly-owned subsidiary of Snocone Systems, Inc. under the laws of the State of California. On April 13, 2005, we changed our name to Who’s Your Daddy, Inc. and, effective June 1, 2010, we changed our name to FITT Highway Products, Inc. Effective October 29, 2013, we merged with F.I.T.T. Energy Products, Inc. (“FITT”) whereby FITT merged into our Company, with our Company being the surviving entity. Effective October 29, 2014 the name of our Company was changed to Global Future City Holding Inc. (the “Company” or “we”) and our trading symbol changed from “FHWY” to “FTCY.”

 

Prior Acquisitions and Agreements

 

We entered into the following agreements that helped pave and shape our business in its current direction.

 

Sky Rover Stock Purchase Agreement

On April 17, 2015, we completed the closing of a Stock Purchase Agreement (the “SPA”) with Sky Rover Holdings, Ltd., a corporation formed under the laws of the Republic of Seychelles (“Sky Rover”). Under the SPA, certain unaffiliated parties (collectively, the “Acquiring Shareholders”) cumulatively acquired approximately 87.3% of the outstanding shares of stock of our Company in exchange for our receipt of $400,000 in cash and the contribution of 4,000,000 E-Gold crypto-assets (“EGD”) to our wholly-owned subsidiary, Global Modern Enterprise Limited, a Hong Kong entity (the “EGD Subsidiary”). In connection with the closing of the SPA, Mr. Lei Pei, an officer of Sky Rover, purchased 6,000,000 newly-issued shares of our common stock for $3,000,000 cash in a separate transaction that closed on March 30, 2015, which was meant to provide working capital for our business. Additionally, Mr. Lei Pei, provided the initial down payment of $150,000 for the acquisition of Powerdyne which is described below.

 

In connection with the share purchase by Sky Rover, we intended to market and deploy the EGD through a reward program (“Rewarded EGD”). In order to ensure compliance with existing securities regulations, on February 10, 2015 we filed a Request for No-Action Relief (the “No-Action Letter”) with the Securities and Exchange Commission (“SEC”) to obtain clarification that the SEC would not recommend enforcement action against our Company and its related subsidiaries regarding our potential use of the EGD. Despite several inquiries, we did not receive a substantive response from the SEC on the No-Action Letter. This led management to elect to rescind the previous contribution of EGD and to focus on the acquisition of GX-Life as described below. As a result, on October 9, 2015, we withdrew the No-Action Letter from consideration by the SEC.

 

GX-Life Share Exchange Agreement 

On October 2, 2015, we completed a Share Exchange Agreement with GX-Life Global, Inc. (“GX-Life”), whereby we spun-off 100% of our ownership interest in the EGD Subsidiary (including the 4,000,000 EGD received under the SPA) in exchange for 100% of the outstanding common stock of GX-Life, a private company owned primarily by our CEO, Ning Liu, and our COO/CFO, Michael Dunn. GX-Life has developed a robust, scalable platform to support direct selling opportunities throughout the world. This platform, coupled with its complement of 25 consumer products to initially be marketed through the direct selling platform, is intended to replace our previous interest in EGD.

 

In a related transaction, on October 2, 2015, the former shareholders of GX-Life sold all of their interests in the EGD Subsidiary to the Acquiring Shareholders in the Sky Rover SPA in exchange for 21,280,000 shares of our Company’s common stock previously acquired in the Sky Rover SPA. Collectively these two transactions are referred to as the “GX-Life Transactions”. As a result of the GX-Life Transactions, much of the Sky Rover SPA has been effectively unwound and the 4,000,000 EGD crypto-assets are no longer owned or controlled by our Company or any of our subsidiaries.

  

The GX-Life Transactions effectuated a change in control of our Company, as the former shareholders of GX-Life acquired 21,280,000 shares of our common stock representing an aggregate voting power of 45.9%. Individually, (i) Michael Dunn acquired an additional 24.1% voting power of our common stock, (ii) Ning Liu acquired 2.6% voting power of our common stock, and (iii) Tomoe Masuya acquired an additional 26.65% voting power of our common stock. The former shareholders of GX-Life are all unaffiliated from one another, and none of them have a beneficial interest or hold any ownership interest in each other's entity and disclaim status as a "group" as defined by SEC Rules.

 

 

 12 
 

 

Prior Acquisitions and Agreements (continued)

 

As described above, we had previously intended to market the EGD through a reward program. GX-Life has determined that incorporating a crypto-asset other than EGD into a reward program would be important to its success. As a result, on October 21, 2015, GX-Life entered into a Subscription Agreement with Great Coin, Inc., a Nevada corporation (“Great Coin”), a company co-owned by our CEO and our COO/CFO. Under the Subscription Agreement, we agreed to purchase 5,000,000 “GX Coins”, an open source digital currency that functions as a store of value and a medium of exchange, at a price of $0.50 each for a total subscription price of $2,500,000. In October 2015, we paid Great Coin $350,000 for 700,000 GX Coins under the agreement. However, the purchase was never consummated because the Subscription Agreement was subsequently superseded and replaced by way of our February 17, 2016 Software License and Services Agreement with Great Coin (the “Software License Agreement”) under which Great Coin granted a license for the GX Coins for an upfront license fee of $350,000 which was deemed paid by a payment made in October 2015 for GX Coins and the remaining obligations under the Subscription Agreement were canceled. In connection therewith, Great Coin will be managing a trading platform that will allow for our members to convert status or rewards points into GX Coins and will allow them also to sell GX Coin to other members.

 

Great Coin is a technology company that has is in the process of developing the GX Coin. Initially, seventy-five million (75,000,000) GX Coins will be created with secure, 256-bit encryption. As a digital currency, GX Coin will be tradable on an online platform; the ownership and transfer of which will be recorded on an encrypted, secured distributed ledger system using technology similar to the distributed ledger technology used for trading digital currencies.

 

Acquisition of Global Future City Regional Center (formerly, Powerdyne Regional Center, LLC) (“Powerdyne”)

On March 26, 2015, we purchased 100% of the membership interests in Powerdyne, an EB-5 Regional Center designated by the U.S. Citizen and Immigration Service (“USCIS”) as eligible to receive immigrant investor capital to promote economic growth, improve regional productivity, create jobs, and increase domestic capital investment. Our investment in Powerdyne allows us to expand our business scope to real estate development as we have plans to raise funding for qualified real estate development projects within the EB-5 vehicle.

 

The purchase price for Powerdyne was $250,000, of which, $200,000 has been paid as of December 31, 2015. Our former CEO Lei Pei contributed $150,000 of the purchase price. We paid an additional $25,000 on October 1, 2015, and the remaining balance of $50,000 is to be paid in two installments of $25,000 which were due on January 1, 2016, and April 1, 2016 (collectively “Installment Payments”). The final cash payment of $25,000 was paid in April 2016.

 

As collateral for the timely payment of the Installment Payments, we pledged and granted a security interest in the acquired membership interest of the Regional Center to the seller, until such time all Installment Payments have been made.

  

The purchase of Powerdyne is considered an asset purchase for accounting purposes based on the guidance of ASC 805 - Business Combinations, as the Regional Center does not have features of a business nor does it have any operations. Through this acquisition, we acquired the right to issue licenses to projects such that the projects will benefit from its regional center approved status.

 

 

Critical Accounting Policies

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. We believe the most critical accounting issues that require the most complex and difficult judgments and that are particularly susceptible to significant change to our financial condition and results of operations include those issues included in Managements Discussion and Analysis of Results of Operations in the Companys report on Form 10-K for the year ended December 31, 2015. Such policies have not changed during the three months ended March 31, 2016. The Company is currently in the process of evaluating and restructuring certain aspects of its compensation plan and commission structure and anticipates completing the process in the second quarter of 2016. 

 

Recently Issued Accounting Pronouncements Not Yet Adopted

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers” (Topic 606): Identifying Performance Obligations and Licensing. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The updated standard will be effective for us beginning January 1, 2018. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation” (Topic 718): Improvements to Employee Share-Based Payment Accounting. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated standard will be effective for us beginning January 1, 2018 and interim periods thereafter. Early application is permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

  

 

 13 
 

 

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers” (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The updated standard will be effective for us beginning January 1, 2018. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

The FASB issues ASU to amend the authoritative literature in ASC. There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.

 

Results of Operations

 

For the Three Months Ended March 31, 2016 compared to the Three Months Ended March 31, 2015

 

   For the Three Months Ended March 31, 
   2016   2015   $ Change   % Change 
Revenue, net  $248,159   $   $248,159    100 %
Cost of product sales   1,250       1,250   100
Gross profit   246,909        246,909    100 
Selling and marketing   364,919    84,689    280,230    331 
General and administrative   1,113,467    56,053    1,057,414    1,886 
Interest expense, net   24,543    28,386    (3,843)   (14)
Gain on extinguishment of debt       (277,734)   277,734    100 
Other       600    (600)   (100)
Net (loss) income  $(1,256,020)  $108,006   $(1,364,026)   (1,263)%

 

Revenues

 

   For the Three Months Ended
March 31,
 
   2016   2015 
Related party commissions, net (80%) (1)  $237,909   $ 
Product sales (2)   7,200     
Membership fees (2) (3)   3,050     
    Total revenue, net  $248,159   $ 

 

(1)With respect to member conversions, the Company receives a related party conversion commission of 80% of the conversion price, up to $4,000,000 in conversion proceeds and 50% of the conversion price thereafter.
(2)In certain circumstances, the Company has waived membership fees and starter kit fees for some VIP members.
(3)Membership fees are amortized over a twelve-month period.

   

Revenues, net

Revenues were $248,159 and zero for the three months ended March 31, 2016 and 2015, respectively. These increases are directly related to the influx of new member’s in our direct selling program and related VIP deposits, membership and starter kit fees. The primary increase relates to $237,909 of related party commissions earned through the members’ conversion of $459,262 of their VIP deposits (including accrued rewards points) to GX-Coin during the quarter. We also recorded $7,200 in starter kit revenue as members are required to purchase a starter kit as a part of the registration process, and $3,050 of membership fees which we amortize over the requisite membership period or twelve months.

 

Cost of Product Sales

Cost of product sales were $1,250 and zero for the three months ended March 31, 2016 and 2015, respectively. This amount relates to the cost of the starter kits that are required to be purchased as part of the initial membership registration process.

 

Selling and Marketing Expenses

Selling and marketing expenses were $364,919 for the three months ended March 31, 2016, an increase of $280,230 or 331 percent, from $84,689 for the three months ended March 31, 2015. These costs are a result of the commencement and growth of our direct selling program and were primarily attributable to higher travel expenses of $236,988, promotional product costs of $89,690, and higher stock-based expenses for shares issued to marketing consultants of $85,695.

 

 

 14 
 

 

General and Administrative Expenses

General and administrative expenses were $1,113,467 for the three months ended March 31, 2016, an increase of $1,057,414 or 1,886 percent, from $56,053 for the three months ended March 31, 2015. These costs are a result of the commencement and growth of our direct selling program and include legal, consulting and professional services of $469,121, employee compensation and benefits expenses of $301,227, investor relations expenses of $173,754, and occupancy costs of $60,526. Employee compensation and benefits were not present in the first quarter of 2015 as the Company was repositioning itself and no compensation was accrued in connection with services rendered.

 

Interest Expense, net

Interest expense, net was $24,543 for the three months ended March 31, 2016, a decrease of $3,843 or 14 percent, from $28,386 for the three months ended March 31, 2015. The decrease was primarily attributable to interest on our debt of $24,591.

 

Gain on Extinguishment of Debt

The was no gain on extinguishment of debt for the three months ended March 31, 2016. The gain on extinguishment of debt for the three months ended March 31, 2015 was attributable to settlements and write-offs of accounts payable of $191,951, accrued expenses of $25,783, notes payable of $45,000, and advances from related parties of $15,000. The accounts payable write-offs were a result of certain payables reaching or expected to reach their statute of limitations for the vendor to legally enforce the liability or are contested invoices where the Company believed they were erroneously or incorrectly billed, or the services were not performed in accordance with the agreement, and a favorable outcome is probable.

 

 

Liquidity and Capital Resources

 

Liquidity

As of March 31, 2016, our principal source of liquidity is from cash proceeds from our sale of common stock.

 

In the quarter ended March 31, 2015, we received $3,000,000 from Mr. Lei Pei in accordance with the September 19, 2014 Stock Purchase Agreement and the sale of 6,000,000 shares of newly issued common stock resulting in cash proceeds of $3,000,000. The receipt of the $3,000,000 was received on March 30, 2015 and has been used to fund our operating costs, operating and marketing of our newly acquired businesses, general corporate purposes, working capital requirements, and expansion plans through the end of 2015. Prior to this stock sale, we funded our operations through the issuance of issuance of debt instruments and sales of our common stock.

 

As of March 31, 2016, our cash and cash equivalents were $1,916,675 and we had negative working capital of $1,544,636. We will continue to seek to raise capital through the issuance of stock and debt to fund the requirements of our businesses.

 

During the three months ended March 31, 2016, we reduced our notes payable by $50,000 through repayments. For the three months ended March 31, 2015 we reduced our notes payable by $45,000 through a debt write-off and note settlement.

 

Equity

During the three months ended March 31, 2015, we issued 6,000,000 shares of common stock resulting in $3,000,000 in cash proceeds to us.

 

In April 2016, we issued an additional 1,000,000 shares of common stock resulting in approximately $3,500,000 in cash proceeds. In addition, we expect approximately $3,000,000 in member’s conversions for the three months ended June 30, 2016 in which we will recognize related party commissions of approximately $2,400,000 or 80 percent of the conversion amount before reductions of potential loyalty cost. The expected converted amounts are related to VIP membership deposits received during the first quarter of 2016.

 

We expect the ending balance in our Stockholders’ Equity to be approximately $4,330,111 at June 30, 2016 as follows:

 

Ending deficit at March 31, 2016  $(369,889)
Common stock cash proceeds   3,500,000 
Expected gross related party commissions   2,400,000 
Expected operating costs   (1,200,000)
Ending expected equity at June 30, 2016  $4,330,111 

 

Cash Flows

 

The following table sets forth our cash flow information as follows:  

  

    For the Three Months Ended March 31,  
    2016     2015     $ Change     % Change  
Operating activities   $ 1,482,342     $ (95,334 )     1,577,676       1,655%  
Investing activities     (365,069 )     (150,000 )     (215,069 )     (143)%  
Financing activities     143,997       3,196,878       (3,052,881 )     (95)%  

 

 15 
 

 

Operating Activities

During the three months ended March 31, 2016, we had net cash inflows from operating activities of $1,482,342, an increase of $1,577,676 or 1,655 percent compared to outflows of $95,334 for the three months ended March 31, 2015. The increase primarily relates to the influx of new VIP member deposits, partially offset by the purchase of inventory related to our direct selling business.

 

Investing Activities

During the three months ended March 31, 2016, we had net cash outflows from investing activities of $365,069, an increase of $215,069 or 143 percent compared to outflows of $150,000 for the three months ended March 31, 2015. The increase in cash outflow primarily relates to property and equipment purchased related to the commencement of our operations and continued growth.

 

Financing Activities

During the three months ended March 31, 2016, we had net cash inflows from investing activities of $143,997, a decrease of $3,052,881 or 95 percent compared to inflows of $3,196,878 for the three months ended March 31, 2015. The decrease primarily relates to capital we received in the three months ended March 31, 2015 of $3,000,000 from the sale of 6,000,000 shares of common stock. We also received $139,885 in advances from Sky Rover in connection with the Sky Rover stock purchase transaction.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company, and thus, we are not required to provide this information.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer (collectively the Certifying Officer), evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on managements evaluation, the Certifying Officer concluded that, as of March 31, 2016, our disclosure controls and procedures are designed at a reasonable assurance level, and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

We review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

Managements Report on Internal Control over Financial Reporting

Our management, including the Certifying Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15 under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipt and expenditures are being made only in accordance with authorizations of management and our Board; and (iii) 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 statements.

 

 

 16 
 

 

All internal control systems, no matter how well designed, have inherent limitations. A system of internal control may become inadequate over time because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Our management assessed the effectiveness of our internal control over financial reporting as March 31, 2016 using the criteria set forth by the Commission of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on this assessment, our management concluded that our internal control over financial reporting disclosure controls and procedures were effective as of March 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 17 
 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are currently not a party to, and none of our property is the subject of, any pending legal proceedings. To our knowledge, no governmental authority is contemplating any such proceedings against us.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider all of our risk factors under “Item 1A. Risk Factors” and the other information reported in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended March 31, 2016, four of our employees earned a total of 31,000 of our free-trading common shares in accordance with employment arrangements they have with us and recorded stock-based compensation expense of $85,934.

 

During the three months ended March 31, 2016 and 2015, the Company issued 53,000 and 250,000 shares of common stock for consulting services rendered and recorded stock-based expense of $138,570 and $65,000, respectively.

 

During the three months ended March 31, 2016, the Company issued 14,104 free-trading shares of common stock for related to a debt settlement agreement and recorded a reduction of advances owed to our CFO in the amount of $49,364.

 

In connection with the above stock issuance(s), we did not pay any underwriting discounts or commissions. None of the sales or issuance(s) of the securities described or referred to above was registered under the Securities Act. We had or one of our affiliates had a prior business relationship with each person or entity above, and no general solicitation or advertising was used in connection with the sales or issuance(s). In making the sales or issuance(s) without registration under the Securities Act, we relied upon the exemption from registration contained in Section 4(a)(2) of the Securities Act. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1   Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certifications Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certifications Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.DEF   XBRL Definition Linkbase Document
101.LAB   XBRL Label Linkbase Document
101.PRE   XBRL Presentation Linkbase Document

 

 

 

 18 
 

SIGNATURES

 

In accordance with 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, duly authorized.

 

 

GLOBAL FUTURE CITY HOLDING INC.

   
Dated: May 16, 2016  
  By: /s/ Michael R. Dunn                                
 

Its: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 19