U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☑	ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended: DECEMBER 31, 2015
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For transition period from            to           .

 

Commission File Number: 000-33053

 

FASTFUNDS FINANCIAL CORPORATION

(Name of Registrant in its charter)

 

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

 

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

(Address of principal executive offices)(Zip Code)

 

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

 

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

NONE

 

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

COMMON STOCK, $.001 PAR VALUE

(Title of Class) 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: ☐Yes ☑  No

 

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

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 Days:  ☑Yes ☐No

 

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

 

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

 

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☐	Smaller Reporting Company ☑

 

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

 

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $49,700 based on the last sale price of the Registrant's common stock as of the last business day of the Registrants’ second fiscal quarter, ($0.0006 per share as of June 30, 2015) as reported on the Over-the-Counter Bulletin Board.

 

The Registrant has 4,764,481,179 shares of common stock outstanding as of May 13, 2016.

 

Documents incorporated by reference: None

 

FASTFUNDS FINANCIAL CORPORATION

FORM 10-K

 

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

 

 

PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

(a)

General development of business.

 

FastFunds Financial Corporation (“FastFunds”, “FFFC” or the “Company”) is a holding company, organized in Nevada in 1985.

 

In their opinion letter for the fiscal year ended December 31, 2015, our auditors included an explanatory paragraph that disclosed conditions that raise concerns about the Company's ability to continue as a going concern. Please refer to the audited financial statements and accompanying auditors report within this filing.

  

FFFC, formerly operated through its wholly owned subsidiary Chex Services, Inc. (“Chex”). Chex is a Minnesota corporation formed in 1992, and prior to the Asset Sale described and defined below, provided financial services, primarily check cashing, automated teller machine (ATM) access and credit and debit card advances, to customers predominantly at Native American owned casinos and gaming establishments. FastFunds previously existed under the name “Seven Ventures, Inc.” On June 7, 2004, a wholly owned subsidiary of Seven Ventures, Inc. merged with and into Chex (the "Merger”). In the Merger, Hydrogen Power, Inc. (“HPI”), exchanged its 100% ownership of Chex for 12,833 shares of the Company’s common stock; representing approximately 93% of the Company’s outstanding common stock immediately following the Merger. On June 29, 2004, the Company changed its name to FastFunds Financial Corporation.

 

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

 

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

 

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

 

After the closing of the Redemption Agreement, HPI held 17,500 shares of FFFC common stock. These shares have been pledged as collateral on certain notes of HPI. During 2008, as a result of the assumption of this debt by HPI Partners, LLC. (“HPIP”) and the subsequent foreclosure by the debt holders upon HPIP, HPIP owns the 10.5 million shares. One of the principal managers of HPIP Mr. Fong, is currently the Company’s sole officer and director. As of December 31, 2015, we held 1,541,858 shares of HPI common stock, constituting approximately 5.2% of HPI common stock. Pursuant to the Redemption Agreement, the Company and HPI each provided the other certain registration rights relating to the common stock of such party held by the other party.

  

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

 

(b)

Financial information about segments.

 

We currently conduct business with two business segments, security services and prepaid check cards.

 

(c)

Narrative description of business.

 

Nova was formed to design, market and service credit card products aimed at the sub-prime market consisting mainly of consumers who may not qualify for traditional credit card products. Nova charges a monthly fee on active cards and receives proceeds, if any, from Merrick Bank after their bank charges for servicing the credit cards. Nova receives residual amounts, if any, on approximately 214 cards still active in the Merrick Bank portfolio at December 31, 2015. The Merrick Bank portfolio should continue to see a decline in active accounts in 2016.

 

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.

 

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. This agreement remains outstanding as of December 31, 2015, but no services related to the agreement have been performed.

 

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. (“CMFS”) a new subsidiary of MBS. CMFS has had no activity through the date of this report.

 

On April 3, 2014, the Company and its wholly-owned subsidiary CA announced the launch of GreenEnergyMedia.TV. GreenEnergyMedia.TV caters to broadcasting real-time news and social media feeds relating exclusively to the medical and recreational marijuana communities. GreenEnergyMedia.TV broadcasts stock quotations and intraday charts on over 40 leading companies competing within the medical marijuana industry. On April 29, 2014, Cannabis Live was launched, which will focus exclusively on hosting and broadcasting video of on-demand events. As this area of GreenEnergyMedia.TV’s website progresses, the Company plans to include the development of an exclusive interactive online channel. This future development will allow for several sources of revenue to be derived for the Company; including premium access membership fees, sponsorship and endorsement fees, and advertising revenue. As the Company has moved toward other initiatives, the site activity has been very limited and the Company is exploring alternatives to make the site more active, but there is no assurance it will be successful.

 

On April 17, 2014, the Company and its wholly-owned subsidiary CA announced a Merchant Payment Processing Agreement to offer a debit card payment solution for retail cannabis dispensaries. This program will be offered through CMFS, the Company's 49% owned subsidiary. This payment solution will allow dispensaries to accept debit and credit cards by using the PIN number associated with the card being used. The company has not yet offered this program to customers.

 

On July 8, 2014, The Company announced the formation of The 420 Development Corporation, a newly formed wholly owned subsidiary of the Company that will focus exclusively on the acquisition of operational companies that support the development of the ever-expanding cannabis industry. The 420 Development Corporation will seek to identify acquisition candidates within the industry that have the potential to add significant shareholder value once completed.

 

On July 24, 2014, the Company and its wholly-owned subsidiary, The 420 Development Corporation, announced the closing of a purchase agreement with Ohio-based Brawnstone Security, LLC (“Brawnstone”). Brawnstone is a licensed armed security, private investigation, security technology solution provider and tactical training company servicing active accounts with several Government affiliated HUD housing establishments, schools, and industrial facilities across the Ohio region. Under the terms of the purchase agreement, the Company, through its subsidiaries, now owns a 70% interest in Brawnstone. The purchase price, disclosed in the Membership Interest Purchase Agreement and Assignment of Membership Interest Agreement dated July 23, 2014, was $160,000. The Company remitted $100,000 in cash and issued a $60,000 note payable bearing 8% interest to complete the purchase. The company also assumed accrued expenses of $181,083 The total purchase price of $341,083 was allocated to cash of $133,806, accounts receivable of $120,965, prepaid expenses of $950, and goodwill of $85,312.

 

On October 30, 2014, FastFunds Financial Corporation announced that they have entered into a distribution and marketing agreement for its Cannabis GreenCard product with WMII, Inc. ("WMII"). Through the Company's 49% ownership in Cannabis Merchant Financial Solutions, Inc. ("CMFS"), WMII had agreed to market the Company's Cannabis GreenCard through an extensive database developed over the past several months that contains over 1,000 medical and recreational dispensaries throughout the Colorado, Washington State and California regions. WMII had access to a large community of companies that service the cannabis industry. By leveraging these existing relationships, WMII was to allow CMFS to gain access to their extensive list of prospective customers for the Company's Cannabis GreenCard product. As of December 31, 2015, WMII ceased operations and the marketing and distribution agreement between the Company and WMII is no longer in effect.

On November 14, 2014, FastFunds Financial Corporation entered into a definitive licensing agreement with Nevada-based Chongson, Inc. pertaining to the production, promotion and sale of the Tommy Chong branded Cannabis GreenCard product. The Tommy Chong Cannabis Green Card functions as a pre-paid loyalty debit card with a turnkey customer rewards technology. In addition, the card functions as a re-buildable stored value card that can be used to purchase merchandise at the participating dispensary. The Company also intends to launch a Tommy Chong Frequent Buyers program including a loyalty card offering retailer sponsored discounts and/or other amenities. During the year ended December 31, 2015, the Company paid $45,000 in cash royalties against the $60,000 in accrued royalty expenses related to the GreenCard product. The Company has yet to generate revenue from the GreenCard product.

 

On May 15, 2015, FastFunds Financial Corporation (“FFFC”) acquired a 49% Limited Liability Company interest in Pure Grow Systems, LLC (“Pure Grow”) for $250,000. Financing for this transaction was provided through a $128,000 convertible note issued to CareBourn Capital, LP on May 15, 2015 and a $125,000 convertible note issued to Pure Energy Inc. on May 29, 2015. As of December 31 2015, $222,000 has been remitted by the company in acquisition of a minority stake of Pure Grow. Pure Grow Systems, LLC will be dedicated to the healthy production of raw materials used for medicinal or other health-related purposes. The Company is developing a line of environmentally friendly products using ingredients that have a strong track record of sanitation and disinfection in buildings, on furniture, and other items found in medical, manufacturing and warehouse settings. Pure Grow has displayed its products at several trade shows and has contacted interested distributors. No revenues have been generated from Pure Grow’s product lines during the year ended December 31, 2015

 

The Company currently has thirty-six full and part time employees at Brawnstone Security. None of our employees are currently covered by collective bargaining agreements.

 

ITEM 1A. RISK FACTORS

 

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

 

RISKS ASSOCIATED WITH OUR COMPANY AND HISTORY:

 

Despite a return to operations, the Company has posted significant losses in each of the past two fiscal years.

 

In January 2006, we sold substantially all of our operating business, owned by Chex, to Game Financial Corporation. From that time until July 2014, the Company had limited operating business. In July of 2014, the company acquired a 70% stake in an operating business, Brawnstone Security, LLC, and the Company currently controls two revenue generating business segments: the recently acquired Brawnstone security services and the Nova portfolio of prepaid check cards. Even with the acquisition of Brawnstone and the contribution of its operating revenues to our bottom line, the Company has posted significant losses in each of our past two fiscal years including $2,537,158 and $2,664,702 for the years ended December 31, 2015 and 2014, respectively. As a result, any investment in the Company must be considered purely speculative.

 

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

 

Chex previously relied on promissory notes (the “Notes”) issued to private investors to provide operating capital for its business. As of December 31, 2015, the balance of the Notes was $2,090,719. These Notes were initially due in February 2007 and at that time the Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. The Company has failed to pay interest and the principal amount of these notes. The Company received complaints filed from several of these note holders. The Company has not responded to these complaints and accordingly the plaintiffs were awarded default judgments. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Notes (the “Restructured Notes”). The Restructured Notes carry a stated interest rate of 15% and matured on February 28, 2008. The Company has not paid the interest on the Notes since June 30, 2007 and did not repay the Notes on their maturity date and does not currently have sufficient capital to repay the Notes. In January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the holders of the Restructured Notes) and the holders of the Restructured Notes. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and a judgment has been entered in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The judgment was entered on August 18, 2009. The Company has not made any payments of principal or interest since the judgment. 

 

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

 

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

 

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

 

As of December 31, 2015, there are outstanding securities convertible into or exchangeable for an aggregate of approximately 25,179,598,731 shares of our common stock as of December 31, 2015, which, if converted or exchanged, will substantially dilute our existing stockholders.

 

The Company currently has outstanding notes and securities convertible into or exchangeable for an aggregate of 22,979,115,217 shares of common stock under certain conditions. If these securities are converted into or exchanged for common stock, their issuance would have a substantial dilutive effect on the percentage ownership of our current stockholders. These securities consist of: options to purchase 1,650 shares of our common stock at an average purchase price of $0.34 per share, warrants to purchase 88,014 shares at a purchase price of 55% of the current market price, 25,179,248,000 shares of common stock pursuant to the conversion terms of $1,258,962 in outstanding convertible promissory notes and the conversion of Class A and B Preferred stock into 261,067 shares of common stock.

 

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

 

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

 

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

 

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

 

We may be subject to liability for failure to comply with the requirements of Regulation 14C under the Securities Exchange Act of 1934 (the “Exchange Act”).

 

On September 4, 2014 we filed a Form 8-K announcing the increase in our authorized common stock from 6,000,000,000 shares to 9,000,000,000 effective as of August 25, 2014. We received approval from our majority shareholder and Board, however, we did not comply with the disclosure requirements of Regulation 14C under the Exchange Act prior to the effective date of such corporate action. As a result of our failure to comply with Regulation 14C, the SEC may bring an enforcement action or commence litigation against us for failure to comply with Regulation 14C. If any claims or actions were to be brought against us relating to our lack of compliance with Regulation 14C, we could be subject to penalties, required to pay fines, make damages payments, or settlement payments. In addition, any claims or actions could force us to expend significant financial resources to defend ourselves, could divert the attention of our management from our core business and could harm our reputation. However, we believe that the potential for any claims or actions is not probable.  

We are not current on our filings with the SEC.

 

The Company has fallen behind on its required disclosure filings with the SEC, including its requirement to file Form 8-K/A to include audited financial statements of Brawnstone Security for the two most recent fiscal years prior to the Company's acquisition of Brawnstone in 2014. It is unclear when the company will be able to be current again on its filings with the requisite regulatory agencies.

 

ITEM 2. PROPERTIES.

 

Effective June 2014 the Company leases office space in West Palm Beach, Florida in a one year lease with a total payment of $1,207 per month for a period of one year. This lease was renewed in June 2015 in a one year lease with $1,327 in monthly payments during the lease period. As a result, our obligations under this lease for 2016 include a total of $7,962 in lease payments.

 

ITEM 3. LEGAL PROCEEDINGS.

 

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

 

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

 

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

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

None.

 

 

PART II

 

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

 

(a)

Market Information.

 

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

 

Quarter Ended	High		Low
March 31, 2015	$0.0060		$0.0012
June 30, 2015	$0.0275		$0.0006
December 31, 2015	$0.0010		$0.0001
December 31, 2015	$0.0005		$0.0001

 

Quarter Ended	High		Low
March 31, 2014	$2.160		$0.060
June 30, 2014	$1.320		$0.240
September 30, 2014	$0.360		$0.060
December 31, 2014	$0.060		$0.006

 

(b)

Holders.

 

The number of record holders of our common stock as of May 13, 2016 was 155 according to our transfer agent. This figure excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name.

 

(c)

Dividends.

 

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

 

(d)

Securities Authorized for Issuance Under Equity Compensation Plans.

 

We have the following securities authorized for issuance under our equity compensation plans as of December 31, 2015, including options outstanding or available for future issuance under our 2004 Stock Option Plan.

 

Equity Compensation Plan Information
Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plan
		(a)		(b)		(c)
Equity compensation plans not approved by security holders		1,650		$          0.34		2,242
Total		1,650		$          0.34		2,242

 

Recent Sales of Unregistered Securities

 

During the year ended on December 31, 2015, the Company issued 2,810,437,693 shares of common stock upon the conversion of $369,138 of debentures payable and accrued interest and the cashless exercise of warrants attached to debentures payable.

 

We offered and sold the securities in reliance on an exemption from federal registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We relied on this exemption and rule based on the fact that there were a limited number of investors, all of whom were accredited investors and (i) either alone or through a purchaser representative, had knowledge and experience in financial and business matters such that each was capable of evaluating the risks of the investment, and (ii) we had obtained subscription agreements from such investors indicating that they were purchasing for investment purposes only. The securities were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The disclosure contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities of the Company, and is made only as permitted by Rule 135c under the Securities Act.

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2015 and 2014. The financial statements presented for the year ended December 31, 2015 and 2014 include FastFunds, Brawnstone, Pure Grow, Chex, FastFunds International Limited, Key, Nova and Denaris.

  

The Company’s financial statements for the year ended December 31, 2015 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 $12,452,826 and an accumulated deficit of $29,813,617 as of December 31, 2015.

 

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

 

(a)

Liquidity and Capital Resources

 

For the year ended December 31, 2015, net cash used in operating activities was $485,179 compared to $789,524 for the year ended December 31, 2014. Net loss for the year ended December 31, 2015 was $2,549,594 compared to a net loss of $2,681,000 for the year ended December 31, 2014. The net loss for the year ended December 31, 2015 included selling, general and administrative expenses of $626,635 and other expenses of $2,145,441. Included in the net loss were non cash expenses of $620,845 for the amortization of note discounts, $734,182 for the change in fair value of derivative liabilities and $70,090 recognized as a loss from an unconsolidated investee. Accounts payable and accrued expenses increased by $445,042. The net loss for the year ended December 31, 2014 included selling, general and administrative expenses of $722,996 and other expenses of $2,055,576. Included in the net loss were non cash expenses of $1,056,743 for the amortization of note discounts, $386,579 for the change in fair value of derivative liabilities and $106,673 for the issuance of preferred stock as compensation. Accounts payable and accrued expenses increased by $355,511.

 

Net cash used in investing activities for the year ended December 31, 2015 was mainly the result of the acquisition of a 49% Limited Liability Company interest in Pure Grow Systems, LLC (“Pure Grow”) for $250,000. Financing for this transaction was provided through a $128,000 convertible note issued to Carebourn Capital, LP on May 15, 2015 and a $125,000 convertible note issued to Pure Energy Inc. on May 29, 2015. Throughout 2015, $222,000 has been remitted by the company in acquisition of a minority stake of Pure Grow. Net cash used in investing activities for the year ended December 31, 2014, primarily consisted of an advance of $40,000 in exchange for a note receivable. Additionally, the Company paid $100,000 for the Brawnstone, LLC acquisition and received $133,806 in cash from the newly purchased subsidiary.

 

Cash provided by financing activities for the year ended December 31, 2015 was $715,458 compared to $799,341 for the year ended December 31, 2014. During the year ended December 31, 2015, the Company issued $158,361 of notes payable (of which $131,461 was to related parties) and $741,971 of convertible promissory notes. During the year ended December 31, 2015 the Company repaid $145,924 of notes payable (of which $78,030 were to related parties), repaid $7,500 of convertible note principal and paid $31,450 of deferred financing costs. During the year ended December 31, 2014, the Company received $799,341 from the issuance of convertible notes.

 

For the year ended December 31, 2015, net cash increased $5,854 compared to net cash increase of $1,310 for the year ended December 31, 2014. Ending cash at December 31, 2015, was $9,221 compared to $3,367 at December 31, 2014.

 

From January 1, 2016 through May 31, 2016, the Company received $15,000 from the issuance of an $18,000 convertible promissory note, which may cause dilution to our stockholders. The conversion price for this note is equal to 50% of the average of the three lowest closing bid prices of the Common Stock as reported on the exchange which the Company’s shares are traded, for any of the twenty previous trading days including the day upon which a Notice of Conversion is received by the Company.

 

Significant accounting policies:

 

Basis of presentation and principles of consolidation:

 

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

 

Cash and cash equivalents:

 

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

 

Fixed assets:

 

Fixed Assets are stated at historical cost less depreciation. Cost of acquisition is inclusive of taxes, duties, freight, installation and allocated incidental expenditure during construction/ acquisition.

 

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.

  

The Company recognizes sale and service revenue when there is persuasive evidence of an arrangement with the customer which states a fixed or determinable price and terms, delivery of the product has occurred or the service performed in accordance with the terms of the sale, and collectability of the sale is reasonably assured. The Company has entered into agreements calling for services to be available to the customer for a period of time. In these cases, revenue is recognized over the life of the agreement. Prepaid services are shown as deferred revenues until services are performed.

 

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. During the year ended December 31, 2015, an impairment loss of $37,050 was recognized related to the Company’s investments in WMII Inc., which ceased operation during the year ended December 31, 2015.

 

Goodwill:

 

Goodwill represents the excess of the purchase price over the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in an acquisition. Accounting Standards Codification (“ASC”)-350-30-50 “Goodwill and Other Intangible Assets” requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. During the years ended December 31, 2015, the balance of this goodwill was analyzed for impairment based on the guidelines provided by ASC 350, “Goodwill and Other Intangible Assets” and no impairment was deemed necessary.

 

Per ASC 350, management has opted to follow the guidance provided by ASU 2011-08 for the years ended December 31, 2015 and 2014, the qualitative assessment for testing goodwill for impairment that may allow companies to skip the annual two-step test. ASC 350 requires companies to test goodwill for impairment annually, and more frequently if indicators of impairment exist. Testing goodwill for impairment requires companies to compare the fair value of a reporting unit with its carrying amount, including goodwill. ASU 2011-08 allows companies to qualitatively assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount. If that is the case, the company would have to perform the annual two-step impairment test. Management analyzed macro and micro economic conditions that may affect the Brawnstone reporting unit, as well as Brawnstone’s current and past financial performance. Taking the relevant events and circumstances described in addition to the prescribed guidance of ASU 2011-08, Management does not believe it is more likely than not that the carrying amount of the Brawnstone reporting unit exceeds its FV. As such, a Step 1 analysis is not required at this time and no impairment has been recognized as of December 31, 2015 and 2014.

 

Investment in Unconsolidated Investee

 

The Company accounts for investments in which the Company owns more than 20% of the investee, using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures. Under the equity method, an investor initially records an investment in the stock of an investee at cost, and adjusts the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income by the investor, and such amount reflects adjustments similar to those made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment of an investor is also adjusted to reflect the investor's share of changes in the investee's capital. Dividends received from an investee reduce the carrying amount of the investment. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred which is other than temporary and which should be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method.

 

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 non-controlling interest is now disclosed as a separate component of the Company’s consolidated deficiency on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and non-controlling interests. Earnings per share are calculated based on net income attributable to the Company’s controlling interest. 

 

Loss per share: 

Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Stock options, warrants, and common stock underlying convertible promissory notes are not considered in the calculations for the periods ended December 31, 2015 and 2014, as the impact of the potential common shares, which total 25,179,598,731 (2015) 24,847,967 (2014) 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 receivables from related parties are not practicable to estimate, based upon the related party nature of the underlying transactions.

 

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

 

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

 

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

 

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

 

The three hierarchy levels are defined as follows:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Stock-based compensation:

 

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

 

There were no options granted during the years ended December 31, 2015 and 2014.

 

The Company’s stock option plan is more fully described in Note 9 to the consolidated financial statements included herein.

 

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

  

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.

  

Results of operations

 

Results of operations for the year ended December 31, 2015 vs. December 31, 2014

 

REVENUES

 

Total revenues for 2015 were $822,173 compared to $562,875 for 2014. Revenues for the year ended December 31, 2015 and 2014 consist of $797,929 and $535,629 of Brawnstone service revenue for the years ended December 31, 2015 and 2014, respectively and$ 24,244 and $27,246 of credit card income on Nova’s remaining portfolio for the years ended December 31, 2015 and 2014, respectively. The increase in revenue related to the Brawnstone services is a result of the whole year of consolidation in 2015, whereas the 2014 revenue numbers only include Brawstone revenue from acquisition in July of that year.

 

OPERATING EXPENSES

 

Operating expenses were $599,691 for the year ended December 31, 2015 compared to $465,303 for 2014. Expenses during 2015 and 2014 were primarily comprised of the Brawnstone subsidiary’s cost of sales as well as third party servicing fees of Nova’s remaining credit card portfolio. Similar to the increase in revenues, the increase in operating expenses are due to the full year consolidation of Brawnstone in 2015 compared to the 2014 expense totals which are only from July to December of 2014.

 

CORPORATE OPERATING EXPENSES

 

Corporate operating expenses for 2015 were $626,635 and $722,996 for 2014. The expenses were comprised of the following:

 

		2015				2014
Accounting and legal		$	20,735			$	42,339
Stock compensation expense			—				106,673
Management and director fees			150,000				112,500
Consulting and other professional			154,588				235,000
Transfer agent and filing fees			19,922				23,704
Other			281,390				202,780
		$	626,635			$	722,996

 

Effective October 1, 2012, the Company has agreed to compensate Mr. Fong $5,000 each per month for services being provided. On June 1, 2014, the Company increased Mr. Fong’s monthly compensation to $12,500 (management and director fees). Stock compensation expense is as a result of 1,000 shares of Class C preferred stock issued to Mr. Fong in 2014.

 

Included in year ended December 31, 2015 were accounting and legal fees of $20,735 compared to $42,399 for the year ended December 31, 2014. The decrease in legal and accounting fees are a result of a decrease in financing operations incurred by the Company.

 

Consulting and other professional fees decreased $80,413 to $154,588 for the year ended December 31, 2015, compared to $235,000 expensed during the year ended December 31, 2014. The current period expenses included $10,112 of costs related to Cannabis Angel initiatives, $15,798 as part of a marketing agreement to increase the Company’s social media presence, $58,575 in investor relations costs and $128,678 in additional outside consulting fees. The 2014 periods included $47,175 of costs related to Cannabis Angel initiatives, $16,750 as part of a marketing agreement to increase the Company’s social media presence, $58,575 in investor relations costs and $159,675 in additional outside consulting fees related to management and investor relations.

 

The decrease in transfer agent and filing fees costs, from $23,704 for the year ended December 31, 2014, to $19,922 for the year ended ended December 31, 2015, were related to a decrease in transfer agent costs for the issuance of shares of common stock upon conversion of debentures.

 

General and other administrative costs for the year ended December 31, 2015 were $359,797 compared to $202,780 for the year ended December 31, 2014. Expenses for the year ended December 31, 2015 include rent expense of $15,204, travel expenses of $11,105, internet expenses of $1,930, administrative expenses of $23,704, and operating costs related to the the Company’s subsidiary, Brawnstone, of $264,775. Expenses for the year ended December 31, 2014 include rent expense of $13,773, travel expenses of $15,683,internet expenses of $9,160, moving expenses of $3,800, and Brawnstone’s operating costs of $150,135 incurred since acquisition on July 24, 2014.

 

OTHER INCOME (EXPENSE)

 

Other expense, net for the year ended December 31, 2015 was $2,145,441 compared to net expenses of $2,055,576 for the year ended December 31, 2014. The 2015 net expense includes $1,288,743 of interest expense, $764,558 for the fair value change of derivative liabilities, $55,090 from the loss from unconsolidated investee, a $15,000 loss on a separate equity method investment, and a $22,050 loss due to the write-off of a note receivable. Other expenses for the year ended December 31, 2014 are $1,668,907 of interest expense, and $386,669 for the fair value change of derivative liabilities. Interest expense for the years ended December, 2015 and 2014 is summarized as:

 

		2015				2014
Amortization of note discount		$	620,845			$	1,056,743
Amortization of deferred financing fees			29,059				121,211
Notes payable, other			635,636				481,110
Notes payable, related parties			3,203				9,843
		$	1,288,743			$	1,668,907

 

OFF BALANCE SHEET ARRANGEMENTS

 

None

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

The principal risks of loss arising from adverse changes in market rates and prices to which the Company and its subsidiaries are exposed relate to interest rates on debt. The Company has only fixed rate debt. The Company has $3,415,985 of debt outstanding as of December 31, 2015, of which $2,090,719 has been borrowed at fixed rates ranging from 10% to 15%. The fixed rate debt was due on February 28, 2008 and is currently in default.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

The financial statements are listed under Item 15.

 

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

 

N/A

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

A review and evaluation was performed by the Company's management, including the Company's Acting Chief Executive Officer (the "CEO") who is also the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO /CFO has concluded that as of December 31, 2015 disclosure controls and procedures, were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

 

Management’s Report on Internal Controls over Financial Reporting 

 

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

 

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

•

Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.

 

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

 

Our CEO and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).. As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2015 as described below.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

(a)(b)(c)

Identification of directors, executive officers and certain significant persons

 

Name		Age		Offices Held		Length of service
Henry Fong		80		Chairman		Since June 2004
				Chief Executive Officer		Since January 22, 2014

 

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

 

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

 

(d)

Family relationships.

 

None.

 

(e)

Business experience.

 

HENRY FONG

 

Mr. Fong became the Company’s chairman and chief executive officer (“CEO”) upon the effectiveness of the Merger on June 7, 2004. In July 2004, Mr. Fong resigned the CEO role, upon the appointment of Mr. Graham Newall as CEO. Mr. Fong assumed the role as CEO on January 22, 2014. Mr. Fong has been a Director of SurgLine International, Inc. (“SurgLine”), formerly China Nuvo Solar Energy, Inc. (“China Nuvo”) since March 2002. Mr. Fong served as the President of China Nuvo form March 2002 through September 2011. Mr. Fong has been president and a director of Alumifuel Power Corporation, (“Alumifuel”) formerly, Inhibiton Therapeutics, Inc. since its inception in May 2004. Alumifuel is a publicly held company developing hydrogen generation products, and Mr. Fong was the president, treasurer and a director of Hydrogen Power, Inc., formerly Equitex, Inc. from its inception in January 1983 to January 2007. From 1959 to 1982 Mr. Fong served in various accounting, finance and budgeting positions with the Department of the Air Force. During the period from 1972 to 1981 he was assigned to senior supervisory positions at the Department of the Air Force headquarters in the Pentagon. In 1978, he was selected to participate in the Federal Executive Development Program and in 1981, he was appointed to the Senior Executive Service. In 1970 and 1971, he attended the Woodrow Wilson School, Princeton University and was a Princeton Fellow in Public Affairs. Mr. Fong received the Air Force Meritorious Civilian Service Award in 1982. Mr. Fong has passed the uniform certified public accountant exam. In March 1994, Mr. Fong was one of twelve CEOs selected as Silver Award winners in FINANCIAL WORLD magazine’s corporate American “Dream Team.”

 

(f)

Involvement in certain legal proceedings.

 

None.

 

(g)

Promoters and control persons.

 

None.

 

(h)

Audit committee financial expert.

 

See (i) below.

 

(i)

Identification of the audit committee

 

The Company does not currently have an audit committee of the board of directors, as none is required, and the board believes it can effectively serve in that function and, therefore, currently does. Management believes that our sole member of the board of directors may have the necessary attributes to serve as a financial expert on an audit committee, if required.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires executive officers and directors and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater-than-10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. We believe that during 2015, based solely on a review of the copies of such forms, if any, furnished to us during 2015 and written representations from the executive officers, directors and greater-than-10% beneficial owners of our common stock, have complied with all Section 16 filing requirements.

 

CODE OF ETHICS

 

We have adopted a Code of Ethics for our senior financial management, which includes our chief executive officer and chief financial officer as principal executive and accounting officers.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

Compensation Discussion and Analysis

 

Equity Compensation

 

Summary Compensation Table

 

The following table sets forth information regarding compensation paid to our officers during the years ended December 31, 2015 and 2014:

 

Name and Principal Position	Year	Salary ($)	Bonus ($)	All Other Compensation ($)	Total ($)
(a)	(b)	(c)	(d)	(i)	(j)
Henry Fong (1) Acting Chief Executive Officer	2015 2014	$ 0 $ 0	$0 $0	$159,695 $88,576	$159,695 $88,576

 

(1)	Mr. Henry Fong receives compensation for managing the company that equaled $5,000 per month for the year ended December 31, 2013 and for the period from January through May 2014; and increased to $12,500 for the months of June through December 2014 and all of 2015.

 

Narrative disclosure to summary compensation table and grants

 

For the years ended December 31, 2015 and 2014, the Company accrued expenses of $150,000 and $112,500, respectively, for Mr. Fong’s services. Mr. Fong received $159,695 and $88,576 in cash payments for the years ended December 31, 2015 and December 31, 2014, respectively. In November 2013, the Company issued a convertible promissory note to Mr. Fong in payment of $35,000 of accrued and unpaid fees. As of December 31, 2013, Mr. Fong was owed $25,500 for these services, included in accrued expenses on the balance sheet. During the year ended December 31, 2014, Mr. Fong converted the entire amount of this note into 5,000,000 common shares that were issued to his assigns.

 

Cash Incentive Bonuses

 

We had no cash incentive bonus program in effect for 2015.

 

Severance and Change-in-Control Benefits

 

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

 

Effective January 21, 2014, the Board of Directors of the Company approved the issuance of 1,000 shares of Class C Preferred Stock (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 at that time of issuance 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.

 

Other Benefits

 

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

 

We currently have no benefit plan.

 

Grant of Plan-Based Awards

 

None.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

None.

 

Option Exercises and Stock Vested Table

 

None.

 

Non-Qualified Deferred Compensation Plans

 

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

 

Director Compensation

 

None. 

 

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

 

(a)

Security Ownership of Certain Beneficial Owners and Security Ownership of Management.

 

The following table contains information at March 31, 2016, as to the beneficial ownership of shares of our common stock and preferred stock by each person who, to our knowledge at that date, was the beneficial owner of five percent or more of the outstanding shares of the class, each person who is a director or a named executive officer of the Company under the summary compensation table and all persons as a group who are current executive officers and directors, and as to the percentage of outstanding shares so held by them at March 31, 2016. The number of shares beneficially held is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Including the number of shares below does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of the shares.

 

Name and Address of Beneficial Owner		Shares of Common Stock Owned (1)				Shares of Common Stock Underlying Options (1)				Total				Percentage of Common Stock Owned (2)				Shares of Class B Preferred Stock (1)				Percentage of Class B Preferred Stock Owned (3)				Shares of Class C Preferred Stock (1)				Percentage of Class C Preferred Stock Owned (4)
Henry Fong (5)			179,911				450				180,361				0.00	%			—				—				1,000				100.0	%
Mary Virginia Knight (5)			285,015,000				—				285,015,000				10.08	%			—				—				—				—
HPI Partners, LLC (6)			17,500				—				17,500				0.00	%			175,000				9.8	%			—				—
Carbon Capture, Inc. (7)			161,667				—				161,667				0.00	%			1,616,667				90.2	%			—				—

 

(1)	The beneficial owners exercise sole voting and investment power.
(2)	As of March 31, 2016, 2,824,802,793 shares of our common stock were outstanding
(3)	As of March 31, 2016 there were 1,791,667 shares of our Class B preferred stock outstanding.
(4)	As of March 31, 2016, there were 1,000 shares of Class C Preferred stock outstanding.
(5)	The address of the beneficial owner is 7315 E. Peakview Avenue, Centennial, CO 80111. Common stock owned does not include 285,015,000 shares owned by Mr. Fong’s spouse for which he disclaims beneficial ownership. Common stock owned does include 179,167 shares of common stock and assumes the conversion of 1,791,666 shares of Class B Preferred Stock. Class B Preferred stock includes 1,616,667 shares owned by Carbon Capture, Inc.(“CCC”) and 175,000 shares owned by HPI Partners, LLC (“HPIP”). CCC and HPIP are controlled by Mr. Fong. The Class B Preferred Stock converts to 60 shares of common stock for each share. Mr. Fong’s ownership of 1,000 shares of Series C Preferred stock which confers super majority voting rights to the holder provides Mr. Fong with effective control of the Company.”
(6)	The address of the beneficial owner is 7315 E. Peakview Avenue, Centennial, CO 80111. Common stock includes 17,500 from the conversion of 175,000 shares of Class B Preferred Stock. Class B Preferred Stock converts to 0.10 shares of common stock for each share.
(7)	The address of the beneficial owner is 7315 E. Peakview Avenue, Centennial, CO 80111. Common stock includes the 161,667 from the conversion of Class B Preferred Stock. Class B Preferred Stock converts to 0.10 shares of common stock for each share.

 

(c)

Changes in control.

 

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.

 

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

 

(a)

Transactions with Related Persons.

 

None.

 

Transactions with Directors

 

DIRECTOR INDEPENDENCE

 

Our board of directors has one director and has no standing sub-committees at this time due to the associated expenses and the small size of our board. We are not currently listed on a national securities exchange that has requirements that a majority of the board of directors be independent.

 

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

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

D. Brooks and associates CPA’s, P.A. (“Brooks”) served as our independent registered public accounting firm for the years ended December 31, 2015 and 2014.

 

Audit Fees

 

Fees billed and expected to be billed by Brooks for audit services related to the years ended December 31, 2015 and 2014 were approximately $31,000 and $19,000, respectively, which includes out-of-pocket costs incurred in connection with these services.

 

Tax Fees

 

Fees billed and expected to be billed by Brooks for tax return preparation services related to the year ended December 31, 2015 and 2014 were $0.

 

All Other Fees

 

The Company incurred no other fees to Brooks for 2015 and 2014.

 

Preapproval Policy

 

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

 

 

PART IV

 

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

 

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

 

1.	Financial Statements and Supplementary Data

 

2.	Financial Statements Schedules.

 

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

 

3.

Exhibits.

 

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

 

 

 

 

FASTFUNDS FINANCIAL CORPORATION.

Financial Statements

For the Years Ended December 31, 2015 and 2014

 

Index to Financial Statements		Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets - December 31, 2015 and 2014		F-2
Consolidated Statements of Operations for the Years ended December 31, 2015 and 2014		F-3
Consolidated Statements of Stockholders' Deficit for the Years ended December 31, 2015 and 2014		F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 2015 and 2014		F-5
Notes to Consolidated Financial Statements		F-6-F-29

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of Fastfunds Financial Corporation

We have audited the accompanying consolidated balance sheets of Fastfunds Financial Corporation as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years then ended. Fastfunds Financial Corporation’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

We were not engaged to examine management’s assertion about the effectiveness of Fastfunds Financial Corporation’s internal control over financial reporting as of December 31, 2015 and, accordingly, we do not express an opinion thereon.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fastfunds Financial Corporation as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 1 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

D. Brooks and Associates CPA’s, P.A
West Palm Beach, FL
May 24, 2016

 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		December 31,				December 31,
		2015				2014
ASSETS
Current assets:
Cash and cash equivalents		$	9,221			$	3,367
Accounts receivable			105,712				169,702
Notes receivable			—				62,050
Prepaid expenses			—				38,212
Deferred financing costs			11,322				8,931
Other current assets			200				76
Total current assets			126,455				282,338
Fixed assets, net			2,095				2,313
Investment in unconsolidated investee			166,910				15,000
Other assets			28,123				1,850
Goodwill			85,362				85,362
Long term investments (Note 5)			89,575				89,575
Total other assets			372,065				194,100
Total assets		$	498,520			$	476,438
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Bank Overdraft		$	—			$	1,860
Accounts payable			724,909				881,086
License fee payable			250,000				250,000
Due to related party			75,000				75,000
Accrued expenses, including related parties $43,522 (2015) and $41,898 (2014) (Note 7)			4,303,883				3,734,029
Notes Payable			60,000				60,000
Subsidiary notes payable			66,028				—
Convertible promissory notes (Note 8), including related parties of $23,267 (2015) and $74,597 (2014)			2,204,561				2,198,391
Litigation contingency (Note 9)			2,484,922				2,484,922
Convertible debentures payable, net			1,050,135				662,643
Derivative liabilities (Note 8)			1,359,843				1,057,602
Total current liabilities			12,579,281				11,405,533
Commitments and contingencies (Note 9)
Stockholders' deficiency (Note 11):
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 shares issued and outstanding (2014)			1				1
Common stock, $.001 par value; 9,000,000,000 shares authorized; 2,824,852,274 (2015) and 14,414,581 (2014) shares issued and outstanding			2,824,853				14,415
Additional paid-in capital			14,876,506				16,289,016
Treasury stock, 50,000 shares of common stock			—				—
Accumulated deficit			(29,813,617	)			(27,276,459	)
Total stockholders' deficiency			(12,109,646	)			(10,970,416	)
Less noncontrolling interests			28,885				41,321
Total deficit			(12,080,761	)			(10,929,095	)
Total liabilities and stockholders' deficit		$	498,520			$	476,438

See notes to consolidated financial statements.

  

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
		Year ended December 31,
			2015				2014
Revenue, net		$	822,173			$	562,875
Operating expenses:
Cost of Sales			574,606				439,820
Processing fees			23,190				25,112
Returned checks (collected)			—				(1,420	)
Other			1,895				1,791
Total operating expenses			599,691				465,303
Gross profit			222,482				97,572
Selling, general and administrative			626,635				722,996
Loss from operations			(404,153	)			(625,424	)
Other expense:
Interest expense			(1,288,743	)			(1,668,907	)
Derivative liability income expense			(764,558	)			(386,669	)
Loss from unconsolidated investee			(55,090	)			—
Loss on equity method investment			(15,000	)			—
Loss from write-off of note receivable			(22,050	)			—
Total other expense			(2,145,441	)			(2,055,576	)
Net loss		$	(2,549,594	)		$	(2,681,000	)
Less  net loss  attributable to non controlling interest			12,436				16,298
Net loss attributable to common stockholders		$	(2,537,158	)		$	(2,664,702	)
Net loss per share		$	(0.00	)		$	(0.30	)
Weighted average number of common shares outstanding
Basic and diluted			772,016,651				8,883,429

See notes to consolidated financial statements.

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
			Common Stock								Preferred stock A								Preferred stock B								Preferred stock C								Additional Paid in				Non Controlling				Accumulated				Shareholders’
			Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Interest				Deficit				Deficit
Balances, December  31, 2013			1,987,229			$	1,987				819,000			$	819				1,791,666			$	1,792				—			$	—			$	14,530,567			$	57,619			$	(24,611,757	)		$	(10,018,973	)
Common stock issued upon conversion of convertible debt and accrued interest			12,427,352				12,427				—				—				—				—				—				—				810,340				—				—				822,767
Reclassification of embedded derivatives upon conversion of convertible debt			—				—				—				—				—				—				—				—				841,436				—				—				841,436
Stock compensation			—				—				—				—				—				—				1,000				1				106,673				—				—				106,674
Net loss			—				—				—				—				—				—				—				—				—				(16,298	)			(2,664,702	)			(2,681,000	)
Balances, December 31, 2014			14,414,581				14,415				819,000				819				1,791,666				1,792				1,000				1				16,289,016				41,321				(27,276,459	)			(10,929,095	)
Common stock issued upon conversion of convertible debt and accrued interest			2,810,437,693				2,810,438				—				—				—				—				—				—				(2,441,300	)			—				—				369,138
Reclassification of embedded derivatives upon conversion of convertible debt			—				—				—				—				—				—				—				—				1,028,790				—				—				1,028,790
Net loss			—				—				—				—				—				—				—				—				—				(12,436	)			(2,537,158	)			(2,549,594	)
Balances, December 31, 2015			2,824,852,274			$	2,824,853				819,000			$	819				1,791,666			$	1,792				1,000			$	1			$	14,876,506			$	28,885			$	(29,813,617	)		$	(12,080,761	)

See notes to consolidated financial statements.

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
		Year ended December 31,
			2015				2014
Cash flows from operating activities:
Net loss		$	(2,549,594	)		$	(2,681,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization on fixed assets			2,643				—
Issuance of preferred stock as compensation			—				106,673
Amortization of discount on convertible notes			620,845				1,056,743
Loss attributable to note receivable forgiveness			22,050				—
Loss attributable to equity method investment			70,090				—
Initial derivative liability expense on convertible debentures			64,776				—
Change in fair value of derivative liability			734,182				386,579
Amortization of deferred financing costs			29,059				21,000
Decrease (increase) in assets:
Accounts receivable			63,989				2,814
Other current assets			11,739				(37,845	)
Increase in liabilities
Accounts payable and accrued expenses			445,042				355,511
Net cash used in operating activities			(485,179	)			(789,524	)
Cash flows from investing activities:
Investment in unconsolidated subsidiary			(222,000	)			—
Payments on issuance of notes receivable			—				(40,000	)
Cash paid for acquisition			—				(100,000	)
Cash acquired in acquisition			—				133,806
Purchase of fixed assets			(2,425	)			(2,313	)
Net cash used in investing activities			(224,425	)			(8,507	)
Cash flows from financing activities:
Borrowings on convertible notes, net			741,971				799,341
Repayments on convertible notes, net			(7,500	)			—
Borrowings on notes and loans payable, related			131,461				—
Borrowings on notes and loans payable, other			26,900				—
Repayments on notes and loans payable, related			(78,030	)			—
Repayments on notes and loans payable, other			(67,894	)			—
Payment of deferred financing costs			(31,450	)			—
Net cash provided by financing activities			715,458				799,341
Net increase in cash and cash equivalents			5,854				1,310
Cash and cash equivalents, beginning			3,367				2,057
Cash and cash equivalents, ending		$	9,221			$	3,367
Supplemental disclosure of cash flow information:
Cash paid for interest		$	225			$	12,358
Cash paid for income taxes		$	—			$	—
Schedule of Non-Cash Financing Activities
Reclass of derivative liability to equity upon conversion of convertible debt		$	1,028,790			$	841,436
Conversion of convertible debentures and accrued interest to common stock		$	369,138			$	822,767

See notes to consolidated financial statements.

FASTFUNDS FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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

 

Business and organization:

 

FastFunds Financial Corporation (the “Company” or “FFFC”) is a holding company, and through January 31, 2006, operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). FFFC was previously organized as Seven Ventures, Inc. (“SVI”). Effective June 7, 2004, Chex merged with SVI (the “Merger”), a Nevada corporation formed in 1985. At the date of the Merger, SVI was a public shell with no significant operations. The acquisition of Chex by SVI was recorded as a reverse acquisition based on factors demonstrating that Chex represented 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 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 strategic and business planning, marketing and sales support, define and support for product offerings, acquisition strategy and funding strategy. As of the year ended December 31, 2015, this agreement is still active but no services have been provided and no further activity related to this agreement has occurred.

 

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. As of the year ended December 31, 2015, this agreement is still active but no services have been provided and no further activity related to this agreement has occurred.

 

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. As of the year ended December 31, 2015, this agreement is still active but no services have been provided and no further activity related to this agreement has occurred.

 

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 Angel. As of the year ended December 31, 2015, this agreement is still active but no services have been provided and no further activity related to this agreement has occurred.

 

Merchant Financial Solutions, Inc. (“CMFS”) a new subsidiary of MBS. CMFS has had no activity through the date of this report. 

  

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. Operations related to GreenEnergyMedia.TV have been deferred pending the recruitment and placement of personnel for this project, which has not occurred as of December 31, 2015.  

 

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. Operations related to Cannabis Live have been deferred pending the recruitment and placement of personnel for this project, which has not occurred as of December 31, 2015.  

 

On April 17, 2014, the Company and its wholly-owned subsidiary CA announced a Merchant Payment Processing Agreement to offer a debit card payment solution for retail cannabis dispensaries. This program will be offered through CMFS, the Company's 49% owned subsidiary. This payment solution allows dispensaries to accept debit and credit cards by using the PIN number associated with the card being used. . As of December 31, 2015, the company has not yet offered this program to customers and there has been no activity related to this program.

 

On July 8, 2014, The Company announced the formation of The 420 Development Corporation, a newly formed wholly owned subsidiary of the Company that will focus exclusively on the acquisition of operational companies that support the development of the ever-expanding cannabis industry.  The 420 Development Corporation will seek to identify acquisition candidates within the industry that have the potential to add significant shareholder value once completed.

 

On July 24, 2014, the Company and its wholly-owned subsidiary, The 420 Development Corporation, announced the closing of a purchase agreement with Ohio-based Brawnstone Security, LLC (“Brawnstone”). Brawnstone is a licensed armed security, private investigation, security technology solution provider and tactical training company servicing active accounts with several Government affiliated HUD housing establishments, schools, and industrial facilities across the Ohio region. Under the terms of the purchase agreement, the Company, through its subsidiaries, now owns a 70% interest in Brawnstone. The purchase price, disclosed in the Membership Interest Purchase Agreement and Assignment of Membership Interest Agreement dated July 23, 2014, was $160,000. The Company remitted $100,000 in cash and issued a $60,000 note payable bearing 8% interest to complete the purchase. The Company also assumed accrued expenses of $181,083. The total purchase price of $341,083 was allocated to cash of $133,806, accounts receivable of $120,965, prepaid expenses of $950, and goodwill of $85,312.

 

On October 30, 2014, FastFunds Financial Corporation announced that they have entered into a distribution and marketing agreement for its Cannabis GreenCard product with WMII, Inc. ("WMII"). Through the Company's 49% ownership in Cannabis Merchant Financial Solutions, Inc. ("CMFS"), WMII has agreed to market the Company's Cannabis GreenCard through an extensive database developed over the past several months that contains over 1,000 medical and recreational dispensaries throughout the Colorado, Washington State and California regions. WMII has access to a large community of companies that service the cannabis industry. By leveraging these existing relationships, WMII will allow CMFS to gain access to their extensive list of prospective customers for the Company's Cannabis GreenCard product. As of December 31, 2015, the marketing and distribution agreement is not in effect as WMII is no longer active.

 

On November 5, 2014, FastFunds Financial Corporation announced the acquisition of a 49% equity stake in WMII, Inc. ("WMII"), a marketing and product distribution firm that specializes in cannabis related services. WMII is an early-stage company that is currently not generating any revenues. WMII has ceased operations during the year ended December 31, 2015.

 

On November 14, 2014, FastFunds Financial Corporation entered into a definitive licensing agreement with Nevada-based Chongson, Inc. pertaining to the production, promotion and sale of the Tommy Chong branded Cannabis GreenCard product. Per the terms of the agreement, the Company is required to pay Chongson Inc. a minimum of $5,000 per month in royalty fees in exchange for the the card branding. During the year ended December 31, 2015, the Company paid $45,000 in cash against the $60,000 in accrued royalty expenses.

 

On May 15, 2015, FastFunds Financial Corporation (“FFFC”) acquired a 49% Limited Liability Company interest in Pure Grow Systems, LLC (“Pure Grow”) for $250,000. Financing for this transaction was provided through a $128,000 convertible note issued to Carebourn Capital, LP on May 15, 2015 and a $125,000 convertible note issued to Pure Energy Inc. on May 29, 2015. As of December 31, 2015, $222,000 has been remitted by the company in acquisition of a minority stake of Pure Grow. Pure Grow Systems, LLC will be dedicated to the healthy production of raw materials used for medicinal or other health-related purposes. The Company is developing a line of environmentally friendly products using ingredients that have a strong track record of sanitation and disinfection in buildings, on furniture, and other items found in medical, manufacturing and warehouse settings. Pure Grow has displayed its products at several trade shows and has contacted interested distributors. No revenues have been generated from Pure Grow’s product lines during the year ended December 31, 2015

 

The Company currently has thirty-six full and part time employees at Brawnstone Security. None of our employees are currently covered by collective bargaining agreements.

 

Going concern and management’s plans:

 

The Company’s financial statements for the years ended December 31, 2015 and 2014 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 $2,537,158 for the year ended December 31, 2015, and has a working capital deficit of $12,452,826, and an accumulated deficit of $29,813,617 as of December 31, 2015. 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.

 

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

 

Cash and cash equivalents:

 

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

 

Fixed assets:

 

Fixed Assets are stated at historical cost less depreciation. Cost of acquisition is inclusive of taxes, duties, freight, installation and allocated incidental expenditure during construction/ acquisition.

 

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.

  

The Company recognizes sale and service revenue when there is persuasive evidence of an arrangement with the customer which states a fixed or determinable price and terms, delivery of the product has occurred or the service performed in accordance with the terms of the sale, and collectability of the sale is reasonably assured. The Company has entered into agreements calling for services to be available to the customer for a period of time. In these cases, revenue is recognized over the life of the agreement. Prepaid services are shown as deferred revenues until services are performed.

 

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. During the year ended December 31, 2015, impairments totaling $37,050 were recognized related to the Company’s investments in WMII Inc., which ceased operation during the year ended December 31, 2015.

 

Goodwill:

 

Goodwill represents the excess of the purchase price over the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in an acquisition. Accounting Standards Codification (“ASC”)-350-30-50 “Goodwill and Other Intangible Assets” requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment at least annually.

 

Per ASC 350, management has opted to follow the guidance provided by ASU 2011-08, the qualitative assessment for testing goodwill for impairment that may allow companies to skip the annual two-step test. ASC 350 requires companies to test goodwill for impairment annually, and more frequently if indicators of impairment exist. Testing goodwill for impairment requires companies to compare the fair value of a reporting unit with its carrying amount, including goodwill. ASU 2011-08 allows companies to qualitatively assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount. If that is the case, the company would have to perform the annual two-step impairment test. Management analyzed macro and micro economic conditions that may affect the Brawnstone reporting unit, as well as Brawnstone’s current and past financial performance. Taking the relevant events and circumstances described in addition to the prescribed guidance of ASU 2011-08, Management does not believe it is more likely than not that the carrying amount of the Brawnstone reporting unit exceeds its FV. As such, a Step 1 analysis is not required at this time and no impairment has been recognized as of December 31, 2015.

Investment in Unconsolidated Investee

 

The Company accounts for investments in which the Company owns more than 20% of the investee, using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures. Under the equity method, an investor initially records an investment in the stock of an investee at cost, and adjusts the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income by the investor, and such amount reflects adjustments similar to those made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment of an investor is also adjusted to reflect the investor's share of changes in the investee's capital. Dividends received from an investee reduce the carrying amount of the investment. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred which is other than temporary and which should be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method.

 

Noncontrolling interest:

 

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

 

Loss per share:

 

Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Stock options, warrants, and common stock underlying convertible promissory notes are not considered in the calculations for the years ended December 31, 2015 and 2014, as the impact of the potential common shares, which total 25,179,598,731(2015) and 24,847,967 (2014), 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. The Company’s significant estimates include the valuation of derivative liabilities on stock based compensation and impairment analysis.

 

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.

 

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

 

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

 

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

 

The three hierarchy levels are defined as follows:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Stock-based compensation:

 

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

 

The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

There were no options granted during the years ended December 31, 2015 and 2014. The Company’s stock option plan is more fully described in Note 11.

Income Taxes

 

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

 

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Accounting for Income Taxes.  It prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  As a result, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties.  The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities. The Company’s tax years subsequent to 2006 remain subject to examination by federal and state tax jurisdictions.

 

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

 

Reclassifications:

 

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

 

Recent Accounting Pronouncements Not Yet Adopted:

 

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

 

3. Concentration of revenue:

 

A significant portion of the Company's revenues for the year ended December 31, 2015 were generated from five customers as follows:

 

						Accounts Receivable
		% of Total Revenues				as of December 31, 2015
Customer A		13.04	%		$	—
Customer B		12.01	%		$	20,428
Customer C		9.14	%		$	13,936
Customer D		7.92	%		$	—
Customer E		6.62	%		$	1,711

 

4. 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. This note was deemed uncollectible during the first quarter 2015 and the entire amount of the note receivable was netted against an outstanding $40,00 convertible debenture payable to LG.

 

On March 19, 2014, the Company advanced $25,000 to Worldwide Marijuana Investments, Inc. (“WMI”) in exchange for a $25,000 promissory note. Interest of 12% per annum is payable in monthly installments, along with a monthly principal amount of $500 beginning April 1, 2014 for twelve months, at which time the remaining principal amount and interest will be due in full. As of December 31, 2015, this note has been deemed uncollectible and the remaining amount of the note, $22,050, was expensed.

 

5. 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. In March 2016, the company received $275,000 for the redemption of the preferred shares. See note 15, Subsequent Events.

 

On July 24, 2014, the Company, through its wholly-owned subsidiary, The 420 Development Corporation, acquired a 70% interest in Brawnstone. Brawnstone is a licensed armed security, private investigation, security technology solution provider and tactical training company servicing active accounts with several Government affiliated HUD housing establishments, schools, and industrial facilities across the Ohio region. The purchase price, disclosed in the Membership Interest Purchase Agreement and Assignment of Membership Interest Agreement dated July 23, 2014, was $160,000. The Company remitted $100,000 in cash and issued a $60,000 note payable bearing 8% interest in the closing of the acquisition. On the acquisition date, the company assumed the assets of Brawnstone, including $133,806 in cash and cash equivalents, $120,965 in accounts receivable, all of which is classified as current and collectable, and $950 in other assets, as well as liabilities including accounts payable of $181,083. The Company also recognized goodwill of $85,312, included on the December 31, 2015 and 2014 balance sheet, as a result of the acquisition. During the year ended December 31, 2015, the balance of this goodwill was analyzed for impairment based on the guidelines provided by ASC 350, “Goodwill and Other Intangible Assets”.

 

Per ASC 350, management has opted to follow the guidance provided by ASU 2011-08, the qualitative assessment for testing goodwill for impairment that may allow companies to skip the annual two-step test. ASC 350 requires companies to test goodwill for impairment annually, and more frequently if indicators of impairment exist. Testing goodwill for impairment requires companies to compare the fair value of a reporting unit with its carrying amount, including goodwill. ASU 2011-08 allows companies to qualitatively assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount. If that is the case, the company would have to perform the annual two-step impairment test. Management analyzed macro and micro economic conditions that may affect the Brawnstone reporting unit, as well as Brawnstone’s current and past financial performance. Taking the relevant events and circumstances described in addition to the prescribed guidance of ASU 2011-08, Management does not believe it is more likely than not that the carrying amount of the Brawnstone reporting unit exceeds its FV. As such, a Step 1 analysis is not required at this time and no impairment has been recognized as of December 31, 2015.

 

On November 5, 2014, the company acquired a 49% equity stake in WMII, Inc. ("WMII"), a marketing and product distribution firm that specializes in cannabis related services. WMII is an early-stage company that is currently not generating any revenues or expenses. The company paid $15,000 in cash in closing the acquisition, which was included in the investment in unconsolidated investee line of the 2014 balance sheet. During the year ended December 31, 2015, WMII ceased operations and the $15,000 investment in unconsolidated investee was written off.

 

6. Equity-method investment:

 

On May 15, 2015, the Company acquired a 49% Limited Liability Company interest in Pure Grow Systems, LLC (“Pure Grow”) for $250,000 in cash. Financing for this transaction was provided through a $128,000 convertible note issued to Carebourn Capital, LP on May 15, 2015 and a $125,000 convertible note issued to Pure Energy Inc. on May 29, 2015. As of December 31, 2015, $222,000 has been remitted by the Company in acquisition of a minority stake of Pure Grow. The Company has accounted for its 49% interest in Pure Grow utilizing the equity method of accounting. As of December 31, 2015, the carrying value in Pure Grow was $166,910. During the year ended December 31, 2015, $55,090 was recognized as an equity method loss. Financial information for Pure Grow as of, and for the period from May 15, 2015 through December 31, 2015 is as follows:

		December 31,
		2015
ASSETS
Cash and cash equivalents		$	90,463
Accounts Payable			40,482
Inventory			23,202
Prepaid Assets			3,000
Total assets		$	81,023
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses		$	12,251
Members' equity			181,200
Net Loss			(112,428	)
Total liabilities and members' equity		$	81,023

 

 

		For the Period from May 15, 2015 Through December 31,
		2015
STATEMENT OF OPERATIONS
Revenues		$	20
Cost of sales			13,500
Gross profit			(13,480	)
Operating expenses			98,948
Operating loss			(112,428	)
Other expense			—
Net loss		$	(112,428	)
Ownership interest (rounded)			49	%
Share of net loss		$	(55,090	)
Investment		$	166,910

 

7. Accrued liabilities:

 

Accrued liabilities at December 31, 2015 and December 31, 2014 were $4,303,883 and $3,734,029, respectively, and were comprised of:

 

		2015				2014
Legal fees		$	23,594			$	23,594
Interest			3,850,583				3,336,669
Consultants and advisors			186,198				157,024
Registration rights			98,013				98,013
Other			145,495				118,729
		$	4,303,883			$	3,734,029

 

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

 

Promissory notes, including related parties at December 31, 2015 and December 31, 2014, consist of the following:

 

		2015				2014
Promissory notes payable:
Various, including related parties of $50,767 (2015) and $74,397 (2014); interest rate ranging from 8% to 10% [A]		$	113,842			$	107,672
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
		$	2,204,561			$	2,198,391

	[A]	Pursuant to a November 4, 2011 Board of director resolution, these notes are convertible at conversion rates, determined at the discretion of the board of directors. During the year ended December 31, 2015 the Company issued notes of $158,361 (including related parties of $26,900) and made payments of $145,924 (including $78,030 to related parties). These notes are due on demand.
	[B]	These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. The Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). The Company has accrued an expense of $36,500 to compensate the financial advisor 2% of the Restructured Notes as well as having issued 150,000 shares of common stock to the financial advisor. The Restructured Notes carry a stated interest rate of 15% (a default rate of 20%) and matured on February 28, 2008. The Company has not paid the interest due since June 2007, and no principal payments on the Promissory Notes have been made since 2008 and accordingly, they are in default. Accrued interest on these notes total $3,644,686 and $3,224,686 as of December 31, 2015 and 2014, respectively is included in accrued expenses on the consolidated balance sheets.

 

The chairman of the board of the Company has personally guaranteed up to $1 million of the Restructured Notes and two other non-related individuals each guaranteed $500,000 of the Restructured Notes. In consideration of their guarantees the Company granted warrants to purchase a total of 1,600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The warrants expired in March 2010.

 

In January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the holders of the Restructured Notes) and the holders of the Restructured Notes. The claim is seeking $1,946,250 plus per diem interest beginning January 22, 2008 at the rate of twenty percent (20%) per annum plus $37,000 due the financial advisor for unpaid fees. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and a judgment was entered on August 18, 2009 in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The Company is not aware of any payments being made by any of the guarantors and accordingly, the Company includes these liabilities on the December 31, 2015 and 2014 consolidated balance sheets in promissory notes payable and accrued expenses.

 

Subsidiary notes payable:

 

On August 24, 2015, the Company’s 70%-owned subsidiary, Brawnstone Security (“Brawnstone”), issued a $50,000 note payable to an unrelated lender. The note bears interest at 60% and is due on February 24, 2016. Brawnstone received $49,005 after loan origination fees of $995, which will be expensed over the period of the loan. The total payback amount for this note was $67,500. The company paid $31,349 in principal and $10,972 in interest related to note during the year ended December 31, 2015. As of December 31, 2015, the remaining principal balance of the note is $25,179.

 

On October 27, 2015, the Company’s 70%-owned subsidiary, Brawnstone Security (“Brawnstone”), issued a $40,000 note payable to an unrelated lender. The note bears interest at 60% and is due on June 27, 2016. Brawnstone received $39,205 after loan origination fees of $795, which will be expensed over the period of the loan. The total payback amount for this note was $53,200. The company paid $9,286 in principal and $3,064 in interest related to note during the year ended December 31, 2015. As of December 31, 2015, the remaining payback balance of the note is $40,850.

 

Debenture payable:

 

2012 Notes

 

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, is due on demand 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 6,986,723 shares of common stock upon the conversion of $103,188 of the note. During the year ended December 31, 2014, the note was sold to unrelated third party accredited investors, and Company issued 2,240,336 shares of common stock upon the conversion of $163,670 of the Note. As of December 31, 2015 and 2014, the balance of the note is $3,000.

 

2013 Notes

 

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 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 March 2013 Note matured November 14, 2013, is in default, and the Default Rate was effective at that date. During the year ended December 31, 2014, the Company issued 516,194 shares of common stock upon conversion of $19,425 of the note. The balance of the March 2013 Note is $26,575 as of December 31, 2015 and 2014.

 

On August 22, 2013, the Company issued a $6,000 convertible promissory note to Schaper. During the year ended December 31, 2014, the Company issued 66,667 shares of common stock upon conversion of $4,000 of this note. The outstanding principal balance on this note is $2,000 as of December 31, 2015 and 2014.

 

On October 1, 2013, the Company issued a $3,000 convertible promissory note to an accredited investor. The outstanding principal on this note is $3,000 as of December 31, 2015 and 2014.

 

On October 18, 2013, the Company issued four (4) convertible notes each in the amount of $25,625 to Gel (the “2013 Gel Notes”), with each note due on demand. The conversion price for the 2013 Gel Notes is equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. Also on October 18, 2013, Gel issued the Company two secured promissory notes, each in the amount of $25,000, due April 21, 2014. The Company received the $50,000 on March 6, 2014. During the year ended December 31, 2014, the Company issued 944,260 shares upon conversion of $83,295 of the notes. During the year ended December 31, 2015, the Company issued 25,979,349 shares upon conversion of $19,205 in note principal and $2,863 of accrued interest. As of December 31, 2014, the outstanding principal on these notes was $69,205. As of December 31, 2015, the four initial convertible notes have been fully satisfied, while the two subsequent convertible promissory notes in the aggregate of $50,000 of principal are outstanding. Additionally, during the year ended December 31, 2015, the notes have been sold to a third party accredited investor.

  

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. These notes are due on demand. During the year ended December 31, 2014, the Company issued 383,333 shares of common stock in satisfaction of $22,000 of the Hollander note. As of December 31, 2014, the outstanding principal on these notes totaled $43,000. During the year ended December 31, 2015, the Company issued 93,361,463 shares of common stock in satisfaction of $8,000 in principal and $1,767 in accrued interest of the Hollander note. The outstanding principal balance of the Fong note is $35,000, while the Hollander note has been fully satisfied as of December 31, 2015.

 

2014 Notes

 

The following notes issued in 2014, 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 2014 are referred to as the 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 500,000 shares of common stock to the Knight assign, in cancellation and satisfaction of $15,000 of the convertible note due Mr. Fong. As of December 31, 2015 and 2014, the outstanding principal balance of this note is $10,500.

 

On February 10, 2014, the Company issued two (2) convertible promissory notes in the amounts of $95,814 and $95,813 in exchange for previously accrued legal fees. The notes bear interest at 8% per annum. The notes matured February 10, 2015 and are in default. During the year ended December 31, 2014, the company issued 416,667 shares of common stock in settlement of $12,500 of the notes. As of December 31, 2014, the balances of the notes totaled $179,127. During the year ended December 31, 2014, the company issued 416,667 shares of common stock in settlement of $12,500 of the notes. During the year ended December 31, 2015, $35,000 in note principal was assigned to a third party in the form of a new convertible promissory note, with the same terms as the prior note. During the year ended December 31, 2015, the Company issued 314,318,871 shares of common stock in satisfaction of $23,808 in principal and $277 of accrued and unpaid interest of the third-party portion of the note. As of December 31, 2015, the balances of the notes are $144,127 to the original note holder and $11,199 to the third party purchaser, totaling $155,319.

 

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 $2,000 was expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2014. This note matured February 20, 2015. During the year ended December 31, 2014, the Company issued 1,391,990 shares of common stock in satisfaction of $40,000 in convertible note principal and $1,759 of accrued and unpaid interest.  During the year ended December 31, 2015, the $40,000 promissory note was deemed uncollectible and was netted against the remaining promissory note, therefore, as of December 31, 2015 the outstanding principal balance of these notes has been satisfied.

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%. 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 redemption. The Company recorded an initial derivative liability of $54,600, debt discount of $52,500 and derivative expense of $2,100. As of December 31, 2014, the entire principal balance of the note, $52,500 was outstanding. During the year ended December 31, 2015, the Company issued 344,079,139 shares of common stock in satisfaction of the entire $52,500 in principal and $3,656 of accrued and unpaid interest. As of December 31, 2015, the balance of the note has been satisfied.

 

On March 27, 2014, the Company issued an $831,000 secured convertible promissory note (the “Note”). The Note carries an original issuer discount of $75,000. In addition, the Company agreed to pay $6,000 to cover the Lender’s legal and other fees. At the option of the Lender, the note converts at $0.0025 per share. The conversion by the Lender of any portion of the Outstanding Balance shall only be exercisable in ten (10) tranches (each, a “Tranche”), consisting of an initial Tranche in an amount equal to $88,500 and nine (9) additional Tranches, each in the amount of $82,500, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note. The Note carries a ten (10) percent interest rate and matures on the seventeenth month after funding. The lender 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 the lender 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). The Company recorded an initial derivative liability of 559,687, debt discount of $477,187 and derivative expense of $41,890. This note matured April 1, 2015 and is in default. During the year ended December 31, 2014, the company issued 558,333 shares of common stock upon conversion of $16,500 of the note. During the year ended December 30, 2015, the note was sold to an unrelated third party accredited investor for $75,029, which included outstanding principal of $54,672 and accrued interest of $20,357. During the year ended December 31, 2015, the company issued 4,405,110 shares of common stock upon conversion of $17,078 of note principal and 130,531,699 shares upon conversion of $16,500 in warrants shares outstanding. As of December 31, 2015, the outstanding principal balance of this note is $75,029. Amortization for the year ended, totaled $39,600 and the carrying value of the note as of December 31, 2015, is $54,672, net of unamortized discount of $0. 

On April 1, 2014 ($15,000) and April 23, 2014 ($12,500), the Company issued convertible promissory notes to Carebourn Capital. ). The notes bear interest of 8% per annum and matured six months after issuance. The Company recorded an initial derivative liability for these notes of $28,600, debt discount of $27,500 and derivative expense of $1,100. The debt discount of $27,500 was amortized into interest expense over the term of the note. As of December 31, 2014, the entire principal balance of the notes, $27,500 was outstanding. During the year ended December 31, 2015 the Company issued 322,840,228 shares in satisfaction of $21,830 in convertible note principal. As of December 31, 2015, the principal balance of these notes is $5,670.

 

On May 16, 2014, the Company issued a $27,000 convertible promissory note, bearing interest at 12% per annum, to WHC Capital, LLC. The Company received $25,000 after debt issuance costs of $2,000, which was amortized over the earlier of the one year term of the Note or any redemption. The Company recorded an initial derivative liability of $28,600, debt discount of $27,000 and derivative expense of $1,600. The note matured on February 16, 2015. During the year ended December 31, 2014, the company issued 291,667 shares of common stock upon conversion of $8,575 of note principal, and the outstanding balance of the note at December 31, 2014 totaled $18,425. During the year ended December 31, 2015, the company issued 42,974,921 shares of common stock upon conversion of $18,425 of note principal. As of December 31, 2015, the principal balance of this note has been fully satisfied. 

 

On July 11, 2014, the Company issued a $42,750 convertible promissory note to Auctus Private Equity Fund, LLC. . The note is due on demand, bears interest at 8% and is convertible at a 45% discount of the average of the two lowest day’s closing prices for the twenty five (25) days preceding conversion. The conversion price may be adjusted downward if, within three (3) business days of the transmittal of the Notice of Conversion, the Common Stock has a closing bid which is 5% or lower than that set forth in the Notice of Conversion. The company received $37,750 after debt issuance costs of $5,000, which was amortized over the earlier of the 9 month term of the Note or any redemptions. Accordingly, $288 and $4,722 have been expensed for the years ended December 31, 2015 and December 31, 2014, respectively, as debt issuance costs (included in interest expense). The Company recorded an initial derivative liability of $44,460, debt discount of $42,750 and derivative expense of $1,710. The debt discount of $42,750 was amortized into interest expense over the term of the note. The note matured on April 11, 2015 and is in default.. During the year ended December 31, 2015, the company issued 2,564,562 shares of common stock upon conversion of $7,028 of note principal and $2,155 of accrued note interest. As of December 31, 2015, a principal balance of $35,676 remains outstanding. Amortization for the year ended December 31, 2014, totaled $40,333 and the carrying value of the note at year end was $40,333, net of unamortized discount of $2,372. Amortization for the year ended December 31, 2015, totaled $2,372 and the carrying value of the note at year end is $35,676, net of unamortized discount of $0. The note was sold during the year ended December 31, 2015 to an unrelated accredited investor for $35,676.

 

On July 16, 2014, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. The note is due on demand and bears interest at 8%. The Company recorded an initial derivative liability of $52,000, debt discount of $50,000 and derivative expense of $2,000. The debt discount of $50,000 was amortized into interest expense over the term of the note. The note matured on April 16, 2015 and is in default. During the year ended December 31, 2015, the company issued 112,049,963 shares of common stock upon conversion of $12,786 of note principal. As of December 31, 2015, a principal balance of $37,214 remains outstanding. Amortization for the year ended December 31, 2014, totaled $45,833 and the carrying value of the note as of December 31, 2014, was $45,833, net of unamortized discount of $4,167. Amortization for the year ended December 31, 2015, totaled $4,167 and the carrying value of the note as of December 31, 2015, is $37,214, net of unamortized discount of $0. During the year ended December 31, 2015, the note was sold at its full value of $50,000, before conversion, to an unrelated third party investor.

 

On July 22, 2014 ($52,500), August 28, 2014 ($27,500), September 19, 2014 ($27,500), and November 3, 2014 ($27,500) the Company issued convertible promissory notes to Carebourn Capital. The notes are due on demand, bear interest at 12%. The Company received $125,000 after debt issuance costs of $10,000, which was amortized over the earlier of the term of the Notes or any redemptions. The July note matured on April 22, 2015 and is in default. The rest of the notes matured on May 28, 2015 and are in default. The Company recorded an initial derivative liability of $143,100, debt discount of $125,000 and derivative expense of $18,100. The debt discount of $125,000 was amortized into interest expense over the term of the notes. As of December 31, 2015, the entire principal balance of $135,000 remains. Amortization for the year ended December 31, 2014, totaled $80,292 and the carrying value of the notes as of December 31, 2014, was $80,292, net of unamortized discount of $27,208. Amortization for the year ended December 31, 2015, totaled $27,208 and the carrying value of the notes as of December 31, 2015, is $135,000, net of unamortized discount of $0.

 

On October 9, 2014, the Company issued a convertible promissory note for $26,500 to LG Capital (“LG”). The note bears interest at 8% and is convertible at a 50% discount of the lowest closing price for the ten (10) days preceding conversion. The Company recorded an initial derivative liability of $28,090, debt discount of $26,500 and derivative expense of $1,590. The debt discount of $26,500 was amortized into interest expense over the term of the note. The Company received $25,000 after debt issuance costs of $1,500. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $1,158 and $341 have been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015 and 2014, respectively. The note matured on October 9, 2015 and is currently in default. During the year ended December 31, 2015, the company issued 63,288,178 shares of common stock upon conversion of $26,500 of note principal and $1,317 of accrued interest. As of December 31, 2015, the note has been fully satisfied. Amortization for the year ended December 31, 2014, totaled $12,072 and the carrying value of the notes as of December 31, 2014, was $12,072, net of unamortized discount of $14,428 Amortization for the year ended December 31, 2015, totaled $14,428 and the carrying value of the notes as of December 31, 2015, is $0, net of unamortized discount of $0.

 

On December 2, 2014, the Company issued a convertible promissory note for $25,000 to an unaffiliated accredited investor. The note bears interest at 8%. Company recorded an initial derivative liability of $26,000, debt discount of $25,000 and derivative expense of $1,000. The debt discount of $25,000 is being amortized into interest expense over the term of the note. The note matured on September 2, 2015 and is in default. Amortization for the year ended December 31, 2014, totaled $3,889 and the carrying value of the notes as of December 31, 2014, was $3,889, net of unamortized discount of $21,111. Amortization for the year ended December 31, 2015, totaled $21,111 and the carrying value of the notes as of December 31, 2015, is $25,000, net of unamortized discount of $0. As of December 31, 2015, the full principal balance of $25,000 remains outstanding.

 

On December 4, 2014, the Company issued a $38,000 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 12%. The Company recorded an initial derivative liability of $39,520, debt discount of $38,000 and derivative expense of $1,520. The debt discount of $40,500 is being amortized into interest expense over the term of the note. The note matured on December 4, 2015 and is in default. Amortization for the year ended December 31, 2015, totaled $38,000 and the carrying value of the notes as of December 31, 2015, is $38,000, net of unamortized discount of $0. As of the years ended December 31, 2015 and 2014, the full principal balance of $38,000 remains outstanding.

 

On December 23, 2014, the Company issued a $7,500 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 8%. During the year ended December 31, 2015, the Company paid $7,500 in settlement of the note principal and $190 in settlement of accrued interest. As of December 31, 2015, this note has been fully satisfied.

On December 29, 2014, the Company issued a $25,000 convertible promissory note to Pure Energy 714, a New Jersey LLC. The proceeds from this note were received on January 6, 2015 . The note is due on demand, bears interest at 10% and matured on September 29, 2015. The Company recorded an initial derivative liability of $26,250, debt discount of $25,000 and derivative expense of $1,250. The debt discount of $25,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2014, totaled $139 and the carrying value of the note as of December 31, 2014, is $139, net of unamortized discount of $24,861. Amortization for the year ended December 31, 2015, totaled $16,697 and the carrying value of the notes as of December 31, 2015, is $0, net of unamortized discount of $0. During the year ended December 31, 2015, the note was purchased at $26,521, its full book value of $25,000 in addition to $1,521 of accrued interest, by an unrelated third party accredited investor. During the year ended December 31, 2015, the company issued 670,039,250 shares of common stock upon conversion of $26,251 of note principal and $281 of accrued interest. As of December 31, 2015, the principal balance of the note has been fully satisfied.

2015 Notes

 

On February 6, 2015, the Company issued a convertible promissory note for $26,500 to LG Capital (“LG”). The Company received $25,000 after debt issuance costs of $1,500. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $1,500 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $28,620, debt discount of $26,500 and derivative expense of $2,120. The debt discount of $26,500 is being amortized into interest expense over the term of the note. The note bears interest at 8% and is convertible at a 50% discount of the lowest closing price for the ten (10) days preceding conversion and matures February 6, 2016. Amortization for the year ended December 31, 2015, totaled $24,574 and the carrying value of the notes as of December 31, 2015, is $17,074, net of unamortized discount of $1,926. The note was sold to an unrelated third party at the face value of the note. During the year ended December 31, 2015, the Company issued 187,500,000 shares of common stock upon conversion of $7,500 of note principal. As of December 31, 2015, the outstanding principal balance of this note is $19,000.

 

On February 21 2015 ($5,000) and March 21, 2015 ($5,000), the Company issued convertible promissory notes for $10,000 in total to an unrelated third party per a service contract signed between the company and the unrelated service provider. The notes bear interest at 12% and are convertible at a 50% discount of the average of the three lowest day’s closing for the ten (10) days preceding conversion and each note matures 6 months after issuance. The debt issuance costs will be amortized over the earlier of the six month term of the Note or any redemptions and accordingly. The notes are currently in default. The Company recorded an initial derivative liability of $11,200, debt discount of $10,000 and derivative expense of $1,200. The debt discount of $10,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $10,000 and the carrying value of the notes as of December 31, 2015, is $10,000, net of unamortized discount of $0. As of December 31, 2015, the outstanding principal balance of these notes is $10,000.

 

On April 10, 2015, the Company issued a $43,500 convertible promissory note to Carebourn Capital. The April 10th Carebourn Note carries an original issuer discount of $3,000.The note bears interest at 12% and is convertible at a 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding conversion. The Company recorded an initial derivative liability of $45,360, debt discount of $40,500 and derivative expense of $4,860. The debt discount of $40,500 is being amortized into interest expense over the term of the note. The note matures on January 10, 2016. As of December 31, 2015, the full principal balance of $40,500 remains outstanding. Amortization for the year ended December 31, 2015, totaled $39,027, and the carrying value of the note as of December 31, 2015, is $39,027, net of unamortized discount of $1,473.

 

On April 15, 2015, the Company issued a convertible promissory note for $26,500 to LG Capital (“LG”). The note bears interest at 8% and is convertible at a 50% discount of the lowest closing price for the ten (10) days preceding conversion. The Company recorded an initial derivative liability of $28,090, debt discount of $26,500 and derivative expense of $1,590. The debt discount of $26,500 is being amortized into interest expense over the term of the note. The Company received $25,000 after debt issuance costs of $1,500. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $1,383 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The note matured on October 9, 2015. Amortization for the year ended December 31, 2015, totaled $26,500 and the carrying value of the note as of December 31, 2015, is $5,000, net of unamortized discount of $0. During the year ended December 31, 2015, the company issued 317,819,240 shares of common stock upon conversion of $21,500 of note principal and $710 of accrued note interest. As of December 31, 2015, the outstanding principal balance of this note is $5,000.

 

On May 6, 2015, the Company issued a $40,000 convertible promissory note to Pure Energy 714, a New Jersey LLC. The note bears interest at 12% and is convertible at a 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding conversion and matures November 6, 2015. The Company received $37,500 after debt issuance costs of $2,500. The debt issuance costs will be amortized over the earlier of the five month term of the Note or any redemptions and accordingly $2,500 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $42,400, debt discount of $40,000 and derivative expense of $2,450. The debt discount of $40,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $40,000 and the carrying value of the notes as of December 31, 2015, is $40,000, net of unamortized discount of $0. During the year ended December 31, 2015, the company issued 138,552,216 shares of common stock upon conversion of $39,477 of note principal. As of December 31, 2015, the outstanding principal balance is $523.

 

On May 15, 2015, the Company issued a $128,000 convertible promissory note to Carebourn Capital. The note bears interest at 12%, is convertible at a 50% discount of the average of the three lowest day’s closing prices for the twenty (20) days preceding conversion and matures February 15, 2016. The Company received $125,000 after debt issuance costs of $3,000. The debt issuance costs will be amortized over the earlier of the nine month term of the Note or any redemptions and accordingly $2,500 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $143,360, debt discount of $128,000 and derivative expense of $15,360. The debt discount of $128,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $106,667 and the carrying value of the notes as of December 31, 2015, is $106,667, net of unamortized discount of $21,333. As of December 31, 2015, the outstanding principal balance of this note is $128,000.

 

On May 27, 2015, the Company issued a $28,000 convertible promissory note to Carebourn Capital. The note bears interest at 12%, is convertible at a 50% discount of the average of the three lowest day’s closing prices for the twenty (20) days preceding conversion and matures February 27, 2016. The Company received $25,000 after debt issuance costs of $3,000. The debt issuance costs will be amortized over the earlier of the nine month term of the Note or any redemptions and accordingly $2,370 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $31,360, debt discount of $28,000 and derivative expense of $3,360. The debt discount of $28,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $22,116 and the carrying value of the notes as of December 31, 2015, is $22,116 net of unamortized discount of $5,884. As of December 31, 2015, the outstanding principal balance of this note is $28,000.

 

On May 29, 2015, the Company issued a $125,000 convertible promissory note to Pure Energy 714, a New Jersey LLC. The note bears interest at 12%, is convertible at a 60% discount of the average of the three lowest day’s closing prices for the fifty (50) days preceding conversion and matured on November 29, 2015. The note has matured during the year ended December 31, 2015 and is currently in default. The Company recorded an initial derivative liability of $132,500, debt discount of $125,000 and derivative expense of $7,500. The debt discount of $125,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $125,000 and the carrying value of the notes as of December 31, 2015, is $125,000, net of unamortized discount of $0. As of December 31, 2015, the outstanding principal balance of this note is $125,000.

 

On June 9, 2015, the Company issued a $28,000 convertible promissory note to Pure Energy 714, a New Jersey LLC. The note bears interest at 12%, is convertible at a 50% discount of the average of the three lowest day’s closing prices for the twenty (20) days preceding conversion and matures February 27, 2016. The Company received $25,000 after debt issuance costs of $3,000. The debt issuance costs will be amortized over the earlier of the seven month term of the Note or any redemptions and accordingly $2,338 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $29,680, debt discount of $28,000 and derivative expense of $1,680. The debt discount of $28,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $21,825 and the carrying value of the notes as of December 31, 2015, is $21,825, net of unamortized discount of $6,175. As of December 31, 2015, the outstanding principal balance of this note is $28,000.

 

On June 19, 2015, the Company issued a convertible promissory note for $36,750 to LG Capital (“LG”). The note bears interest at 8%, is convertible at a 50% discount of the lowest closing price for the ten (10) days preceding conversion and matures on June 19, 2016. The Company recorded an initial derivative liability of $39,690, debt discount of $36,750 and derivative expense of $1,590. The debt discount of $26,500 is being amortized into interest expense over the term of the note. The Company received $25,000 after debt issuance costs of $1,500. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $982 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. Amortization for the year ended December 31, 2015, totaled $19,580, and the carrying value of the notes as of December 31, 2015, is $19,580, net of unamortized discount of $17,170. As of December 31, 2015, the outstanding principal balance of this note is $36,750.

 

On June 24, 2015, the Company issued a convertible promissory note for $25,000 to Service Trading Company, LLC (“SVC”). The note is bears interest at 8%, is convertible at a 50% discount of the lowest closing price for the ten (10) days preceding conversion and matures on June 24, 2016. The Company received $23,500 after debt issuance costs of $1,500. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $800 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $27,000, debt discount of $25,000 and derivative expense of $2,000. The debt discount of $25,000 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $12,978 and the carrying value of the notes as of December 31, 2015, is $12,978, net of unamortized discount of $12,022. As of December 31, 2015, the outstanding principal balance of this note is $25,000.

 

On June 26, 2015, the Company issued a $15,500 convertible promissory note to Carebourn Capital. The note bears interest at 12%, is convertible at a 50% discount of the average of the three lowest day’s closing prices for the twenty (20) days preceding conversion and matures March 26, 2016. The Company received $12,500 after debt issuance costs of $3,000. The debt issuance costs will be amortized over the earlier of the nine month term of the Note or any redemptions and accordingly $2,000 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $17,360, debt discount of $15,500 and derivative expense of $1,860. The debt discount of $15,500 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $10,635 and the carrying value of the notes as of December 31, 2015, is $10,635, net of unamortized discount of $4,865. As of December 31, 2015, the outstanding principal balance of this note is $15,500.

 

On July 20, 2015, the Company issued a $15,500 convertible promissory note to Carebourn Capital. The note bears interest at 12%, is convertible at a 50% discount of the average of the three lowest day’s closing prices for the twenty (20) days preceding conversion and matures April 20, 2016. The Company received $12,500 after debt issuance costs of $3,000. The debt issuance costs will be amortized over the earlier of the nine month term of the Note or any redemptions and accordingly $2,000 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. The Company recorded an initial derivative liability of $17,360, debt discount of $15,500 and derivative expense of $1,860. The debt discount of $15,500 is being amortized into interest expense over the term of the note. Amortization for the year ended December 31, 2015, totaled $9,244 and the carrying value of the notes as of December 31, 2015, is $9,244, net of unamortized discount of $6,256. As of December 31, 2015, the outstanding principal balance of this note is $15,500.

 

On December 3, 2015, the Company issued a convertible promissory note for $30,000 to SBI Investments, LLC. The note is due on demand, bears interest at 12% and is convertible at a 50% discount of the lowest trading price for the twenty (20) days preceding conversion and matures on August 1, 2016. The Company recorded an initial derivative liability of $32,400, debt discount of $30,000 and derivative expense of $2,400. The debt discount of $30,000 is being amortized into interest expense over the term of the note. The Company received $27,500 after debt issuance costs of $2,500. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $259 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. Amortization for the year ended December 31, 2015, totaled $3,471, and the carrying value of the notes as of December 31, 2015, is $3,471, net of unamortized discount of $26,529. As of December 31, 2015, the outstanding principal balance of this note is $30,000.

 

On December 4, 2015, the Company issued a convertible promissory note for $35,200 to LG Capital (“LG”). The note bears interest at 8%, is convertible at a 50% discount of the lowest trading price for the twenty (20) days preceding conversion and matures on December 4, 2016. The Company recorded an initial derivative liability of $38,016, debt discount of $35,200 and derivative expense of $2,816. The debt discount of $35,200 is being amortized into interest expense over the term of the note. The Company received $30,000 after debt issuance costs of $2,000 and an original issuer discount of 10% ($3,520). The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $520 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2015. Amortization for the year ended December 31, 2015, totaled $2,597, and the carrying value of the notes as of December 31, 2015, is $12,597, net of unamortized discount of $32,603. As of December 31, 2015, the outstanding principal balance of this note is $35,200.

 

On December 21, 2015, the Company issued a $20,000 convertible promissory note to More Capital. The note bears interest at 3% per month and matures April 20, 2016. The note is convertible at the market price of the Company’s common stock on the day of conversion. As of December 31, 2015, the outstanding principal balance of this note is $20,000.

 

On December 22, 2015, the Company issued a $50,000 convertible promissory note to Carebourn Capital. The note bears interest at 3% per month and matures February 22, 2016. The note is convertible at the market price of the company’s common stock on the day of conversion. As of December 31, 2015, the outstanding principal balance of this note is $50,000.

 

On December 30, 2015, the Company issued a $10,000 convertible promissory note to More Capital. The note is due on demand, bears interest at 3% per month and matures March 2, 2016. The note is convertible at the market price of the company’s common stock on the day of conversion. As of December 31, 2015, the outstanding principal balance of this note is $10,000.

 

The Company has determined that the conversion features of the 2012, 2013, 2014 and the 2015 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 2015 Notes as of their dates of issuance and in their entirety as of December 31, 2015 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 3 inputs within the fair value hierarchy.

 

A summary of the derivative liabilities related to convertible notes as of December 31, 2015 and December 31, 2014 is as follows:

 

Derivative Liability Balance 12/31/14				Initial Derivative Liability				Redeemed convertible notes				Fair value change- Year ended 12/31/15				Derivative Liability Balance 12/31/15
$	1,057,602				668,956				(1,028,790	)			662,074			$	1,359,843

 

A summary of debentures payable as of December 31, 2015 and December 31, 2014 is as follows:

 

		2015 Face Value				2014 Face Value
2012 and 2013 Notes		$	80,075			$	88,075
2014 Notes		$	507,619			$	709,999
2015 Notes		$	599,597			$	—
Note discount		$	(137,106	)		$	(135,431	)
Total		$	1,050,135			$	662,643

 

9. Commitments and contingencies:

 

Litigation:

 

The Forest County Potawatomi Community (“FCPC”) has initiated an action against Chex, an inactive subsidiary of the Company, in the FCPC tribal court asserting that Chex breached a contract with FCPC during the 2002 to 2006 time period. Chex is inactive and did not defend this action. On October 1, 2009 a judgment was entered against Chex in the FCPC Tribal Court in the amount of $2,484,922. The Company has included $2,484,922 in litigation contingency on the consolidated balance sheets as of December 31, 2015 and December 31, 2014.

 

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.

 

 

10. Income taxes:

 

The operations of the Company for periods subsequent to its acquisition by HPI and through August 2004, at which time HPI’s ownership interest fell below 80% are included in consolidated federal income tax returns filed by HPI. Subsequent to August 2004 and through January 29, 2006 the Company will file a separate income tax return. As of January 30, 2006, HPI’s ownership interest again exceeded 80% and the operations of the Company will be included in a consolidated federal income tax from that date through October 29, 2006 when the ownership fell below 80%. As of October 30, 2006, the Company will be filing separate income tax returns. For financial reporting purposes, the Company’s provision for income taxes has been computed, and current and deferred taxes have been allocated on a basis as if the Company has filed a separate income tax return for each year presented. Management assesses the realization of its deferred tax assets to determine if it is more likely than not that the Company's deferred tax assets will be realizable. The Company adjusts the valuation allowance based on this assessment.

 

Income tax expense for 2015 and 2014 is as follows: 

 

		2015				2014
Current:
Federal		$	—			$	—
State			—				—
			—				—
Deferred:
Federal			1,134,000				1,445,000
State			124,000				158,000
Valuation allowance			(1,258,000	)			(1,603,000	)
			—				—
		$	—			$	—

 

The following is a summary of the Company’s deferred tax assets and liabilities at December 31, 2015 and 2014:

 

		2015				2014
Deferred tax assets - current:
Stock-based compensation and other		$	—			$	980,000
Net operating loss carry forwards			3,334,000				2,524,000
			3,334,000				3,504,000
Less valuation allowance			(5,858,000	)			(3,504,000	)
Net deferred tax assets		$	—			$	—

 

A reconciliation between the expected tax expense (benefit) and the effective tax rate for the years ended December 31, 2015 and 204 are as follows:

 

		2015				2014
Statutory federal income tax rate			(34	%)			(34	%)
State taxes, net of federal income tax			(4	%)			(4	%)
Effect of change in valuation allowance			(7	%)			(7	%)
Non deductible expenses and other			45	%			45	%
			0	%			0	%

 

As of December 31, 2015, the Company had a tax net operating loss carry forward of approximately $12,851,000. Any unused portion of this carry forward expires in 2030. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

 

11. Stockholders’ deficit:

 

Common stock:

 

During the year ended on December 31, 2014, the Company issued 12,427,352 shares of common stock upon the conversion of $822,767 of debentures payable and accrued and unpaid interest.

 

During the year ended on December 31, 2015, the Company issued 2,810,437,696 shares of common stock upon the conversion of $369,138 of debentures payable and accrued and unpaid interest and the cashless exercise of warrants.

 

Effective February 2, 2015, the Company completed a one share for six hundred share (1 for 600) reverse split of its common stock. All per share figures in these statements have been adjusted to reflect the effects of the reverse split.

 

Preferred stock

 

The Company is authorized to issue 5,000,000 shares of preferred stock. On October 19, 2012, the Board of Directors approved the filing of a Certificate of Designation (“COD”) establishing the designations, preferences, limitations and relative rights for 1,000,000 shares of the Company’s Class A Preferred Stock.

 

As of December 31, 2013 there were 819,000 shares of Class A preferred stock outstanding. The shares have been pledged as collateral by CCC (the sole holder of the shares) and subsequently pledged the 819,000 shares of Class A Preferred stock they own as collateral in conjunction with the issuance of the $50,000 convertible note issued to Flux Carbon Starter Fund, LLC.

 

The COD for Class A Preferred stock states; each share of the Class A Preferred Stock shall be entitled to a number of votes determined at any time and from time to time determined as follows: any holder of Class A Preferred Stock can vote such shares as if converted based on the Conversion Rights in below. The Class A Preferred Stock shall have a right to vote on all matters presented or submitted to the Corporation’s stockholders for approval in pari passu with holders of the Corporation’s common stock, and not as a separate class. Each share of the Class A Preferred Stock shall automatically convert (the “Conversion”) into shares of the Corporation’s common stock at the moment there are sufficient authorized and unissued shares of common stock to allow for the Conversion. The number of shares of common stock to which a holder of Class A Preferred Stock shall be entitled upon a conversion shall equal the product obtained by (a) multiplying the number of fully diluted common shares by twenty five hundredths (0.25), then (b) multiplying the result by a fraction, the numerator of which will be the number of shares of Class A Preferred stock being converted and the denominator of which will be the number of authorized shares of Class A Preferred stock. As of December 31, 2014 and 2015 there are 819,000 shares of Class A Preferred stock outstanding.

 

On December 14, 2012, Board of Directors approved the filing of a COD establishing the designations, preferences, limitations and relative rights of the Company’s Class B Preferred Stock. The COD allows the Board of Directors in its sole discretion to issue up to 2,000,000 shares of Class B Preferred Stock. The COD for Class B Preferred stock states; each share of the Class B Preferred Stock shall be entitled to a number of votes determined at any time and from time to time determined as follows: any holder of Class B Preferred Stock can vote such shares as if converted based on the Conversion Rights in below. The Class B Preferred Stock shall have a right to vote on all matters presented or submitted to the Corporation’s stockholders for approval in pari passu with holders of the Corporation’s common stock, and not as a separate class. Each share of the Class B Preferred Stock shall automatically convert (the “Conversion”) into shares of the Corporation’s common stock at the moment there are sufficient authorized and unissued shares of common stock to allow for the Conversion. The Class B Preferred Stock will convert in their entirety, simultaneously to equal the amount of shares of common stock resulting from the amount of series B Preferred Stock outstanding multiplied by sixty (60). The Conversion shares will be issued pro rata so that each holder of the Class B Preferred Stock will receive the appropriate number of shares of common stock equal to their percentage ownership of their Class B Preferred Stock. As of December 31, 2014 and 20154 there are 1,791,667 and 1,791,667, respectively, shares of Class B Preferred stock outstanding.

 

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 determined with reference to a third party study, 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 3,000 shares of common stock. Options are generally granted with an exercise price equal to the Company’s market price of its common stock on the date of the grant and vest immediately upon issuance.

 

There were no options granted during the years ended December 31, 2015 and 2014. 

 

All options outstanding at December 31, 2015 are fully vested and exercisable. A summary of outstanding balances at December 31, 2014 and 2015 is as follows:

 

								Weighted-
				Weighted- Average				Average Remaining				Aggregate Intrinsic
Options				exercise price				contractual life				Value
	1,650			$	0.34				0.98			$	0

 

Warrants:

 

In conjunction with the March 27, 2014 convertible note, the Company also granted the lender 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). These warrants shares were sold to two unrelated third parties during the year ended December 31, 2015

 

The warrant shares expire on the five year anniversary of the issuance and had an exercise price of of $0.0025 per share at issuance. The Company estimated the fair value of the warrant shares on the date of issuance at $26 based on the Black Scholes Option pricing method utilizing following assumptions:

 

Estimated market value of common stock on measurement date: $0.0003

Exercise price: $0.00004

Risk free interest rate: 1.6%

Term in years: 3.28 years

Expected volatility: 482%

Expected dividends: 0.00%

 

A summary of warrant activity is shown in the table below:

 

 

				Number of Warrant Shares Outstanding
	Fair value at Issuance March 27, 2014				105,514
	Fair Value at December 31, 2014				105,514
	Cashless exercise of warrants				(17,500	)
	Fair value at December 31, 2015				88,014

 

12. 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.

 

13. Related party transactions:

 

Management and director fees:

 

For the years ended December 31, 2015 and 2014, the Company accrued expenses of $150,000 and $127,500, respectively, for our Chairman, Mr. Fong’s services. Mr. Fong received $159,695 and $110,941 in cash payments for the years ended December 31, 2015 and 2014, respectively. In November 2013, the Company issued a convertible promissory note to Mr. Fong in payment of $35,000 of accrued and unpaid fees. As of December 31, 2015, Mr. Fong is owed $25,500 for these services, included in accrued expenses on the balance sheet.

 

Notes payable:

 

As disclosed in Note 5, the Company has issued notes payable to various related parties. All additions and payments are made in cash, and no conversions occurred during the years ended December 31, 2014 and 2015. The balances of December 31, 2014 and 2015, and the activity for the years ended December 31, 2014 and 2015 follows:

 

Noteholder		Balance 12/31/13				Additions				Payments				Balance 12/31/14
Gulfstream Financial Partners (1)		$	1,750			$	—			$	1,750			$	—
HPI Partners (1)			144,725				—				81,000				63,725
AFPW (1)			6,953				—				6,953				—
Henry Fong (2)			2,088				15,000				17,088				—
HF Services (1)			4,150				—				4,150				—
SurgLine Int’l (1)			10,672				—				—				10,672
Total		$	170,338			$	15,000			$	110,941			$	74,397

 

Noteholder		Balance 12/31/14				Additions				Payments				Sold				Balance 12/31/15
MV Knight (3)		$	—			$	8,900			$	—			$	—			$	8,900
HPI Partners (1)			63,725				—				63,330				—				395
Henry Fong (2)			—				3,000				—				—				3,000
HF Services (1)			—				15,000				14,700				—				300
SurgLine Int’l (1)			10,672				—				—				—				10,672
Total		$	74,397			$	26,900			$	78,030			$	—			$	23,267

 

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.

 

(3)

Related to an officer and director of the company

 

14. Segment reporting:

 

During the years ended December 31, 2015 and 2014, the Company operated in two reportable segments: Brawnstone and Nova.

 

Brawnstone, in which the Company owns a 70% interest, is a licensed armed security, private investigation, security technology solution provider and tactical training company servicing active accounts with several Government affiliated HUD housing establishments, schools, and industrial facilities across the Ohio region.

 

Nova, a wholly owned subsidiary of the Company, was formed to design, market and service credit card products aimed at the sub-prime market consisting mainly of consumers who may not qualify for traditional credit card products. Nova charges a monthly fee on active cards and receives proceeds, if any, from Merrick Bank after their bank charges for servicing the credit cards. The accounting policies of the segments are the same as those described in the Note 1.  The Company’s reportable segments are strategic business units that offer products. 

 

For the year ended December 31, 2014, segment results are as follows:

 

		Brawnstone (from acquisition on July 24, 2014)				Nova				Corporate				Total
Net Revenues		$	535,629			$	27,246			$	—			$	562,875
Cost of sales			439,820				25,483				—				465,303
Operating costs			150,136				—				572,860				722,996
Other non-cash items:
Other expense			—				—				2,055,576				2,055,576
Segment income or (loss)			(54,327	)			1,763				(2,628,436	)			(2,681,000	)
Segment assets		$	146,873			$	41,046			$	288,519			$	476,438

 

For the year ended December 31, 2015, segment results are as follows:

 

		Brawnstone				Nova				Corporate				Total
Net Revenues		$	797,929			$	24,244			$	—			$	822,173
Cost of sales			574,606				25,052				—				599,691
Operating costs			257,047				—				369,588				626,635
Other non-cash items:
Other expense			8,729				—				2,136,712				2,145,441
Segment loss			(42,453	)			(841	)			(2,506,300	)			(2,549,594	)
Segment assets		$	76,620			$	51,047			$	370,853			$	498,520

 

15. Subsequent events:

 

On March 21, 2016, the Company and Paymaster Limited reached a settlement for the transfer of Paymaster’s Cumulative Convertible Redeemable Preference Shares (the “Preferred Shares”) initially acquired by the Company on March 30, 2011. The Preferred Shares were initially transferred to the Company in exchange for an agreement 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 the Preferred Shares with a value of $400,000, and an annual dividend of 7.5% over thirty-six (36) months.

 

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.

 

In the March 21, 2016 agreement, the Company agreed to return the Preferred Shares to Paymaster in exchange for a one-time payment of $275,000. The company received this cash payment during the first quarter of 2016 and will report a gain on the transaction.

 

Between January 1, 2016 and May 13, 2016, 1,936,628,386 shares of common stock were issued upon conversion of $77,516 in debentures payable and $2,637 in accrued and unpaid interest.

 

From January 1, 2016 through May 31, 2016, the Company received $15,000 from the issuance of an $18,000 convertible promissory note, which may cause dilution to our stockholders. The conversion price for this note is equal to 50% of the average of the three lowest closing bid prices of the Common Stock as reported on the exchange which the Company’s shares are traded, for any of the twenty previous trading days including the day upon which a Notice of Conversion is received by the Company.

 

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

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Date: May 24, 2016	FASTFUNDS FINANCIAL CORPORATION (Registrant)
	By /S/ HENRY FONG
	Principal Executive Officer
	Principal Accounting Officer
	Director