UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q/A

 

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

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

 

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

 

Commission file number: 0-33519

 

 

GLOBAL FUTURE CITY HOLDING INC.

(formerly FITT HIGHWAY PRODUCTS, INC.)

 

(Exact name of Registrant as specified in its charter)

 

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

 

26381 Crown Valley Parkway, Suite 230, Mission Viejo, CA 92691

(Address of principal executive offices)

 

(949) 582-5933

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

 

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

 

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

 

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer (Do not check if smaller reporting company) o	Smaller Reporting Company ý

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No ý

 

As of November 14, 2014, there were 37,488,649 shares of our common stock issued and outstanding.

 

 

 

EXPLANATORY NOTE

 

 

 

This Amendment No. 1 to the Quarterly Report on Form 10-Q is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. No other changes have been made to the Form 10-Q, as originally filed on November 14, 2014.

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

(formerly FITT HIGHWAY PRODUCTS, INC.)

FORM 10-Q

SEPTEMBER 30, 2014

 

INDEX

 

Part I – Financial Information
Item 1.	Consolidated Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition or Plan of Operation	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
Item 4T.	Controls and Procedures	20
Part II – Other Information
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
Signatures		21
Certifications

 

 

 

 

 

 

 

 

PART I -- FINANCIAL INFORMATION

ITEM I – CONSOLIDATED FINANCIAL STATEMENTS

 

GLOBAL FUTURE CITY HOLDING INC.

(formerly FITT HIGHWAY PRODUCTS, INC.)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		September 30, 2014				December 31, 2013
Assets
Current assets:
Cash and cash equivalents		$	63,731			$	585
Inventories			52,496				52,496
Prepaid expenses			5,979				4,232
Total current assets			122,206				57,313
Property and equipment, net			7,579				12,169
Total assets		$	129,785			$	69,482
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable		$	773,811			$	694,003
Accrued expenses and deposits			695,448				324,522
Accrued compensation			2,021,225				1,712,724
Notes payable			1,650,000				1,650,000
Advances from related parties			157,203				159,074
Total current liabilities			5,297,687				4,540,323
Total liabilities			5,297,687				4,540,323
Shareholders’ deficit:
Preferred stock, $0.001 par value: 20,000,000 shares authorized and no shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively			–				–
Common stock, $0.001 par value: 150,000,000 shares authorized, 37,488,649 and 38,018,748 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively			37,489				38,019
Additional paid-in capital			303,429				213,876
Accumulated deficit			(5,508,820	)			(4,722,736	)
Total shareholders’ deficit			(5,167,902	)			(4,470,841	)
Total liabilities and shareholders’ deficit		$	129,785			$	69,482

 

See accompanying Notes to Consolidated Financial Statements.

 

 

GLOBAL FUTURE CITY HOLDING INC.

(formerly FITT HIGHWAY PRODUCTS, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Net sales		$	–			$	3,933			$	–			$	6,422
Cost of goods sold:
Cost of goods			–				1,409				–				2,398
Inventory impairment			–				206				–				29,200
Total cost of goods sold			–				1,615				–				31,598
Gross profit (loss)			–				2,318				–				(25,176	)
Operating expenses:
Selling and marketing			347				72,044				25,020				192,308
General and administrative			190,342				54,791				591,443				181,027
Fair value of contributed services			–				70,085				–				210,255
Total operating expenses			190,689				196,920				616,463				583,590
Operating loss			(190,689	)			(194,602	)			(616,463	)			(608,766	)
Other (income) expense:
Interest expense			42,099				55,964				124,279				421,409
Interest income			–				(8,791	)			–				(24,257	)
Loss on extinguishment of debt			9,948				–				43,542				–
Other expense, net			600				200				1,800				600
Loss before income taxes			(243,336	)			(241,975	)			(786,084	)			(1,006,518	)
Provision for income taxes			–				–				–				–
Net loss		$	(243,336	)		$	(241,975	)		$	(786,084	)		$	(1,006,518	)
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)		$	(0.02	)		$	(0.03	)
Weighted average number of common shares used in basic and diluted per share calculations			37,477,236				32,963,832				37,630,519				32,841,637

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

GLOBAL FUTURE CITY HOLDING INC.

(formerly FITT HIGHWAY PRODUCTS, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended September 30,
		2014				2013
Cash flows from operating activities:
Net loss		$	(786,084	)		$	(1,006,518	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on extinguishment of debt			43,542				–
Common stock issued for compensation and services rendered			12,500				110,750
Fair value of contributed services			–				210,255
Inventory impairment			–				29,200
Depreciation			4,590				4,256
Amortization of debt discount and beneficial conversion feature			2,500				303,171
Changes in operating assets and liabilities:
Accounts receivable			–				824
Inventories			–				14,649
Prepaid and other			(1,747	)			(29,662	)
Accounts payable			79,808				43,034
Accrued expenses			113,958				140,012
Accrued compensation			280,950				–
Net cash used in operating activities			(249,983	)			(180,029	)
Cash flows from investing activities:
Capital expenditures			–				(3,015	)
Repayments to related party			(1,871	)			77,947
Advances to shareholder			–				(127,428	)
Net cash used in investing activities			(1,871	)			(52,496	)
Cash flows from financing activities:
Proceeds from issuance of notes payable			40,000				230,000
Proceeds from deposit on proposed business combination			300,000				–
Payment to shareholder to facilitate proposed business combination			(25,000	)			–
Proceeds from capital contributions			–				64,500
Net cash provided by financing activities			315,000				294,500
Net increase in cash and cash equivalents			63,146				61,975
Cash and cash equivalents at beginning of period			585				7,268
Cash and cash equivalents at end of period		$	63,731			$	69,243
Supplemental disclosure of cash flow information:
Cash paid for interest		$	422			$	422
Cash paid for income taxes		$	–			$	–
Supplemental disclosure of non-cash investing and financing activities:
Repayment of advances with common stock		$	27,551			$	–
Conversion of notes payable and accrued interest		$	70,479			$	–
Discount on notes payable		$	2,500			$	30,000

 

See accompanying Notes to Consolidated Financial Statements.

 

 

GLOBAL FUTURE CITY HOLDING INC.

(formerly FITT HIGHWAY PRODUCTS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(UNAUDITED)

 

1.

Business

 

Business

Global Future City Holding Inc., formerly FITT Highway Products, Inc. (the “Company”) is in the business of manufacturing (on an outsource basis), distribution and sale of energy drinks. We market three two-ounce energy shots named “F.I.T.T. Energy for Life” (the “FITT Energy Shot”), “F.I.T.T. Energy Extreme” and "F.I.T.T. Energy Rx". We have significant debt and our profitability and cash flow have been dependent upon our success in marketing our three energy shot products. As discussed in Note 10, we have agreed to sell 80% of our common stock to Sky Rover Holdings Ltd. (“Sky Rover”). If we are successful in closing this transaction, our business will also include the marketing and promotion of an E-Gold coin (the “EDG Coin”), a type of cryptoasset created by Sky Rover, to merchants and consumers.

 

Name Change

On October 16, 2014, our Board of Directors approved an agreement and plan to merge with our newly formed and wholly-owned subsidiary, Global Future City Holding Inc., a Nevada corporation, to effectuate a name change from FITT Highway Products, Inc. to Global Future City Holding Inc. Global was formed solely for the purpose of this name change and our Company would be the surviving entity following the merger. The Articles of Merger effectuating the merger and name change were filed with the Nevada Secretary of State on October 16, 2014 and became effective October 29, 2014. In connection with the name change, our ticker symbol was changed from FHWY to FTCY.

 

Merger with FITT

In 2012, F.I.T.T Energy Products, Inc. (“FITT”) proposed negotiating a business combination with us and, on November 5, 2012, our Board of Directors approved commencing formal negotiations with FITT in this regard. On June 12, 2013, the Board, by unanimous written consent, recommended that our stockholders approve the Company entering into a Merger and Reorganization Agreement (the “Merger Agreement”) with FITT and on June 12, 2013, holders of a majority of the voting power of all shares of our common and preferred stock entitled to vote, by written consent in lieu of a special meeting of our stockholders, approved the following action: entry into the Merger Agreement with FITT whereby FITT would be merged into the Company, with the Company being the surviving entity (the “Merger”). The Merger Agreement, which was entered into on June 18, 2013, required that FITT obtain an independent valuation which would serve as the basis for a share exchange once all necessary approvals were obtained. A Definitive Information Statement on Schedule 14C (“DEF 14C”) was mailed to our shareholders on October 8, 2013 and the Merger became effective on October 29, 2013. On October 29, 2013, we issued 33,000,000 shares of common stock to the shareholders of FITT in the manner set out in the Merger Agreement. As such, the FITT shareholders owned approximately 89% of the post merged company as of the transaction date. Global Future City Holding Inc. and FITT are hereafter known collectively as the “Company”.

 

For accounting purposes, this merger was treated as a reverse-acquisition since control of our Company passed to the FITT shareholders. As a result of this accounting treatment, subsequent to October 29, 2013, the effective date of the reverse-acquisition, the historical financial statements of FITT, the accounting acquirer, are presented for all periods prior to the acquisition as a change in reporting entity. The financial statements of Global Future City Holding Inc. are included from October 29, 2013. The assets acquired and liabilities assumed of Global Future City Holding Inc. were recorded at fair value, which approximated the carrying value, on the acquisition date and included in the financial information post-merger. The following is pro-forma revenue and earnings information for the three and nine months ended September 30, 2013 assuming both our Company and FITT had been combined as of January 1, 2013.

 

 

		Three Months Ended September 30, 2013				Nine Months Ended September 30, 2013
Sales, net		$	3,933			$	6,422
Income before income taxes		$	(533,138	)		$	(1,127,205	)

 

Pro-forma income for the three and nine months ended September 30, 2013 includes approximately $15,309 and $595,304, respectively in non-cash gains on extinguishment of debt and creditor obligations.

 

Management’s Plan of Operations

We have not generated significant revenues for the three-and nine month periods ended September 30, 2014 and 2013, respectively and we have not been able to attract sufficient capital to help finance our business Our inability to raise capital has adversely affected our efforts to expand our distribution network, develop our sales and marketing programs, and increase brand awareness. As a result, we sought merger partners. On May 6, 2014, we entered into a Share Exchange Agreement with Greenome Development Group Inc. (“Greenome”) under which we agreed to sell to Greenome 80% of our outstanding common stock. As a result of various factors which Management believed would affect the ability to close the Greenome agreement, on September 19, 2014, we terminated the Share Exchange Agreement and entered into a Stock Purchase Agreement with Sky Rover under which we agreed to sell to Sky Rover 80% of our outstanding common stock. In addition, we entered into a Financing Agreement with Greenome under which we agreed to loan Greenome up to $3.0 million of funds still yet to be raised. See Note 10 for additional information.

 

Our consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business.  The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that might result from the outcome of this uncertainty. We are continuing to generate losses and to attempt to seek capital. In addition, we have significant debt. We intend to continue to attempt to compromise our remaining debt. These factors raise substantial doubt about our ability to continue as a going concern. If we are unable to generate positive cash flow from operations or raise adequate capital we may have to reduce or cease operations.

 

2.	Reverse Stock Split

 

On November 29, 2012, our Board executed a unanimous written consent authorizing and recommending that our stockholders approve a proposal to institute a one-for-sixty (1:60) reverse stock split. On the same day, holders of a majority of the voting power of all shares of our common and preferred stock entitled to vote, by written consent in lieu of a special meeting of our stockholders, approved the Board’s recommendation. The reverse split became effective February 15, 2013. All references to shares and per share information in these consolidated financial statements have been restated to give effect to the Reverse Split.

 

3.	Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

The consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year 2013 as reported in our Form 10-K have been omitted. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals necessary to present fairly our financial position, results of operation and cash flows. The results of operations for the three and nine month periods ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and related notes which are part of our Annual Report on Form 10-K for the year ended December 31, 2013.

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Global Future City Holding Inc. and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes. Actual results could differ from those estimates.

 

Use of Estimates

The preparation of the consolidated financial statements in conformity 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 date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.

 

Recent Accounting Pronouncements

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

 

4.	Inventories

 

Inventories consist of the following at:

 

		September 30, 2014				December 31, 2013
Finished goods		$	51,905			$	51,905
Raw materials – boxes and labels			591				591
		$	52,496			$	52,496

 

Subsequent to September 30, 2014, we sold inventory recorded at $45,334 to a customer for net proceeds of $51,256 and retained the remaining inventory for use as samples or for future sale.

 

5.	Accrued Expenses

 

Accrued expenses consist of the following at:

 

		September 30, 2014				December 31, 2013
Accrued interest		$	407,983			$	312,057
Accrued royalties and commissions			11,666				11,666
Deposit on proposed business combination			275,000				–
Other			799				799
		$	695,448			$	324,522

 

6.	Accrued Compensation

Accrued compensation consists of the following at:

 

		September 30, 2014				December 31, 2013
Accrued officer’s compensation - CEO		$	1,065,032			$	912,343
Accrued other compensation - employee			449,462				330,599
Accrued payroll taxes – delinquent			320,865				311,595
Accrued payroll taxes on accrued payroll (not yet due)			185,866				158,187
		$	2,021,225			$	1,712,724

 

 

 

In prior years, we made minimal payments to our employees and accrued most of their compensation. In addition, we have delinquent payroll taxes incurred mainly under previous management. In October 2010, the IRS filed a federal tax lien against us in the amount of $136,678 related to past-due payroll taxes. The Company has accrued estimated interest for non-payment of those past due payroll liabilities.

 

Accrued Officer’s Compensation - CEO

Settlement Agreement

In order to facilitate the investment by Sky Rover discussed in Note 1, on September 19, 2014 we entered into a Settlement Agreement with our CEO which will become effective once all closing conditions for the Stock Purchase Agreement with Sky Rover have become effective as more fully described in Note 10. Under the Settlement Agreement, our CEO agreed to forgive all accrued but unpaid salary which amounted to $1,065,032 at September 30, 2014 and any additional accrued salary though the closing date of the Stock Purchase Agreement. In addition, our CEO gave up his right to any severance payment which would be due him under his employment agreement upon the closing of the Stock Purchase Agreement. For our part, we agreed to issue our CEO a promissory note for the amount of unpaid advances made to us by him in the amount of $142,203. The note will bear interest at 8% per annum and becomes due and payable one year from its effective date. Finally, the CEO will be allowed to retain no less than 2,000,000 shares of our common stock issued to him in the Merger with FITT. The terms of the Settlement Agreement with our CEO will only be effective and recorded once all closing conditions to the Stock Purchase Agreement with Sky Rover have been met.

 

Advance Repayment

Prior to the Merger, FITT made advances to our CEO, either personally or to a company he owns, of $691,805, including annual interest of 6%. During the fourth quarter of 2013, our CEO repaid the advances through an agreement to surrender 668,386 shares of common stock of our post-merged company which were beneficially owned by him as part of the Merger. The shares were valued at approximately $1.04, the volume weighted adjusted price of the common stock for the 20 trading days prior to his agreement to surrender the shares. While the advances were formally relieved in fiscal 2013, the shares were surrendered during the first quarter 2014.

 

Although we believe these advances made to our CEO by FITT have been appropriately accounted for, it is reasonably possible that a future examination by an external party may deem a portion of these advances to be compensatory. If such determination is made, the Company may be liable for employer payroll taxes on advances deemed compensatory.  Based on our estimation, if such a determination is made, the corresponding liability could range from approximately $17,000 to approximately $50,000.

 

Accrued Other Compensation – Employee

Settlement Agreement

Subsequent to September 30, 2014 we entered into a Settlement Agreement with our employee who served as our Controller. The Settlement Agreement will become effective once all closing conditions for the Stock Purchase Agreement with Sky Rover have become effective. Under the Settlement Agreement, our employee agreed to forgive all accrued but unpaid salary which amounted to $449,462 at September 30, 2014 and any additional accrued salary though the closing date of the Stock Purchase Agreement. In addition, our employee gave up his right to any severance payment which might be due him under his employment agreement upon the closing of the Stock Purchase Agreement. For our part, we agreed to repay our employee $3,699 for advances he had made to our Company and repay a relative of our employee $15,984 for employee health insurance premiums she had made on behalf of our Company. Finally, the employee will be allowed to retain no less than 300,000 shares of our common stock issued to him in the Merger with FITT. The terms of the Settlement Agreement with our employee will only be effective and recorded once all closing conditions to the Stock Purchase Agreement with Sky Rover have been met.

 

Advance Repayment

Effective January 14, 2014 an employee repaid certain advances made to him in 2013 in the amount of $27,551 through an agreement to surrender 27,350 shares of common stock of our post-merged company which were beneficially owned by him. The shares were valued at the volume weighted adjusted price of the common stock for the 20 trading days prior to his agreement to surrender the shares.

 

 

7.	Notes Payable

 

Notes payable consists of the following at:

 

		September 30, 2014				December 31, 2013
Convertible promissory notes – debt acquisition		$	200,000			$	200,000
Notes payable – original bridge			170,000				170,000
Notes payable – bridge loan #1			355,000				405,000
Notes payable – bridge loan #2			350,000				350,000
Notes payable – bridge loan #3			500,000				500,000
Convertible promissory note – Asher/Goldenrise			55,000				–
Convertible promissory note – service agreement			20,000				20,000
Note payable – other			–				5,000
Subtotal			1,650,000				1,650,000
Less current portion			(1,650,000	)			(1,650,000	)
Long-term portion		$	–			$	–

 

Convertible Promissory Notes – Debt Acquisition

During the first quarter of 2013 we entered into Debt Acquisition Agreements (“Debt Agreements”) with two parties affiliated with each other (the “Debt Funders”). Under the Debt Agreements, we issued convertible promissory notes totaling $150,000, $50,000 of which was subsequently converted to equity. The notes bear interest at 10% per annum and are repayable at two times the principal amount of the notes. Repayment is to be made by conversion into shares of our common stock based on a 20-day volume weighted average price with the minimum conversion price based on a market valuation for our company of $10 million the maximum based on a market valuation of $20 million. The due date by which the Debt Funders were to convert the notes is December 31, 2013, but such conversion has not yet been made.

 

Note Payable – Original Bridge

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

 

Note Payable – Bridge Loan #1

This debt arose from an offering we initiated in 2010 of up to $1.0 million of units of securities, each unit consisting of a 12% unsecured promissory note and 0.083 shares of common stock of FHWY for every dollar invested. In connection with this offering, we issued notes with face value totaling $580,000. During the three-month periods ended December 31, 2013 and March 31, 2014, respectively, noteholders converted $175,000 and $50,000 into equity, respectively. The notes were repayable 12 months from the date of issue and repayment was to come from a pool of 10% of cash receipts from the sales of the FITT Original product. Although we have received sales proceeds from FITT Original, no payments have been made to date on these notes payable. As such, the Bridge Loan #1 notes payable are in default and have been recorded as current liabilities in the accompanying Consolidated Balance Sheets for all periods presented.

 

Note Payable – Bridge Loan #2

In November 2011, we initiated a Bridge Loan offering of up to $1.0 million of units of securities, each unit consisting of a 10% convertible promissory note (interest rate increasing to 18% upon an event of default) and 5.5 shares of our common stock for every dollar invested with repayment to be made at two times the principal amount of the notes. The notes mature at various dates, all of which are within twelve months of the date of issuance. In connection with this offering, we issued notes with principal amounts totaling $255,000 (repayment amounts totaling $510,000). During the three-month period ended December 31, 2013, $160,000 in repayment amounts were converted to equity. In the event we file a registration statement with the SEC and it is declared effective, we have the option to repay the original principal plus accrued interest in shares of our common stock calculated at the offering price within the registration. No payments have been made to date on these notes payable. As such, the Bridge Loan #2 notes payable are in default and have been recorded as current liabilities in the accompanying Consolidated Balance Sheets for all periods presented.

 

The additional principal of $255,000 was accreted over the respective term of each of the notes. We also recorded an initial discount on the notes of $11,275 based on the estimated fair market value of our common shares on the date of issuance. In connection with the debt discount and accretion, during the three and nine months ended September 30, 2013, we charged interest expense of $9,205 and $23,253, respectively. As of December 31, 2013, there was no remaining unamortized discount.

 

Note Payable – Bridge Loan #3

In December 2012 we initiated a Bridge Loan offering of up to $1.0 million of units of securities, each unit consisting of a 10% convertible promissory note (interest rate increasing to 18% upon an event of default). During the second quarter of 2013, we issued a note with face value totaling $250,000 in connection with the offering and received proceeds of $225,000. The note is repayable at two times the principal amount of the note (repayment amount of $500,000) and matured June 30, 2013. We have the option to repay the note in cash, shares of common stock of the merged entity, or a combination of cash and shares of common stock. Any portion of payment made in shares of our common stock are to be valued at the 20-day volume weighted adjusted market price of the stock of the merged entity. No payments have been made to date on these notes payable. As such, the Bridge Loan #3 notes payable are in default and have been recorded as current liabilities in the accompanying Consolidated Balance Sheets for all periods presented.

 

We recorded an initial discount of $25,000 on this note which we amortized through June 30, 2013, the effective maturity date of the note. The additional principal of $250,000 was accreted through the effective maturity date of June 30, 2013.

 

Convertible Promissory Note – Asher/Goldenrise

On January 6, 2014 we issued a convertible promissory note to Asher Enterprises, Inc. (“Asher”) in the amount of $42,500. The note bore interest at 8% per annum and matured on October 8, 2014. Any amount of principal or interest which was not paid by the maturity date would bear interest at 22% per annum from the maturity date. The note was convertible into common stock beginning 180 days from the date of the note at a conversion price of 58% of the market price of our stock. The note has a ratchet provision, which adjusted the conversion price in the event of a capital raise at a lower amount per share than the conversion price.

 

We recorded an on-issuance discount of $2,500 on this note which we were amortizing through October 8, 2014, the maturity date, and accelerated the amortization due to the note assumption by Goldenrise below. During the three and nine months ended September 30, 2014, $909 and $2,500, respectively was amortized to expense.

 

Prior to the date the note became convertible, we began negotiating the repayment of this note to Asher. On July 15, 2014, we formalized and entered into an Assignment Agreement with Asher and Goldenrise Development, Inc. (“Goldenrise”) under which Asher agreed to assign the note to Goldenrise for consideration of $55,000. Also effective on July 15, 2014 and subsequent to the assignment, we amended the note to revise the principal amount to $55,000 and to modify the conversion feature so that the conversion price cannot be lower than $0.15 per share. The amendment also eliminated the note’s ratchet provision. As such, derivative accounting does not apply under the new terms. During the third quarter ending September 30, 2014, we accounted for the July 15, 2014 assignment and amendment as an extinguishment of debt and recorded a loss on extinguishment of debt in the amount of $9,948.

 

Convertible Promissory Notes – Service Agreement

During the first quarter of 2013, FHWY became obligated to issue convertible promissory notes totaling $20,000 to a company under a Service Agreement. The notes bear no interest and were to be repayable through a conversion into shares of our common stock. We have determined that the service provider has not performed any services under the agreement and the note is in dispute.

 

 

Note Payable - Other

On April 3, 2013, we issued a note payable in the amount of $5,000 together with 28,440 shares of our restricted common stock. The note carried an interest rate of 10% per annum and matured on October 3, 2013. During the second quarter of 2013, we recorded an initial discount on this note of $5,000 based on the estimated fair market value of our common shares on the date of issuance. The debt discount was amortized over the 6-month term of the note. During the three months ended March 31, 2014, this note was converted to equity.

 

Debt Conversions

In February 2014, a creditor holding notes payable with repayment amounts totaling $55,000 ($50,000 in Notes Payable- Bridge Loan #1 and $5,000 in Notes Payable – Other) converted his notes and related accrued interest into 115,637 shares of common stock of our merged company. Prior to conversion, these notes contained no stated conversion features. We valued the shares at their fair market value on the date of conversion and during the nine months ended September 30, 2014, we recorded a loss on extinguishment of debt totaling $33,594 in connection with this transaction.

 

8.	Related Parties

 

Advances from related parties consist of the following at:

 

		September 30, 2014				December 31, 2013
Advances from CEO		$	142,203			$	144,074
Advances from employee
Advances from Shareholder			15,000				15,000
		$	157,203			$	159,074

 

Also see Note 6 for additional information regarding related parties transactions.

 

9.	Capital Stock

 

Preferred Stock

We have authorized the issuance of a total of 20,000,000 shares of our preferred stock, each share having a par value of $0.001. On May 15, 2012, our Board of Directors agreed to issue 105,000 shares of our preferred stock, designated as Series A, to FITT as a reduction of $315,000 in debt we owed them. Upon finalization of the Merger, these shares were cancelled and no shares remain outstanding.

 

Common Stock

We have authorized the issuance of 150,000,000 shares of our common stock, each share having a par value of $0.001. Following is the activity for our shares of common stock during the nine months ended September 30, 2014:

 

		Shares
Shares outstanding December 31, 2013			38,018,748
Issuance for extinguishment of debt			115,637			See Note 7
Issuance for services			50,000
Surrender of shares to repay advances:
CEO			(668,386	)		See Note 6
Employee			(27,350	)		See Note 6
Shares outstanding September 30, 2014			37,488,649

 

Common Stock Issued for Services

During the three and nine months ended September 30, 2014, we issued 50,000 shares of common stock for services relating to investor relations and the development of shareholder awareness. The shares were valued at $12,500 which was our determination of the fair market value of the shares. We recorded general and administrative expense of $12,500 in connection with the share issuance. See Note 11 for additional information.

 

 

During the nine months ended September 30, 2013, we issued 526,599 shares of common stock in payment for services relating to retail distribution, product representation and strategic counseling. The shares were valued at $27,500 which was our determination of the fair market value of the shares. We recorded selling and marketing expense of $20,000 and general and administrative expense of $7,500 in connection with the share issuances.

 

Common Stock Issued for Compensation

During the three and nine months ended September 30, 2013, we hired our Director of Sales and our Retail Business Manager. As part of their employment arrangements, we issued these individuals a total of 213,300 shares of our common stock. During the three and nine months ended September 30, 2013 we recorded selling and marketing expense of $23,250 and $83,250, respectively in connection with the share issuances based on our determination of the fair market value of the shares.

 

10.       Agreements with Greenome and Sky Rover

 

Greenome Share Exchange Agreement

On May 6, 2014, we entered into a Share Exchange Agreement (“SEA”) with Greenome under which we agreed to sell to Greenome 80% of our outstanding common stock at a purchase price of $400,000, $175,000 of which was payable at the closing. The SEA required that both Greenome and our Company meet certain conditions in order for a closing to take place. The SEA also required Greenome to make certain advance payments to us prior to the closing which were refundable under certain circumstances. Both parties eventually became aware that the closing conditions would be difficult to meet, and on September 19, 2014, we entered into a Financing Agreement with Greenome which also terminated the SEA.

 

On May 30, 2014, on behalf of Greenome, we entered into a stock purchase transaction with a significant shareholder for the purchase of 9,669,575 shares of our common stock. Per the agreement, we were to receive funds as indicated above from Greenome, and remit a portion of those funds totaling $125,000 to the shareholder in the following tranches: $25,000 upon the signing of the agreement with the shareholder, $25,000 within ten days of the shares being turned over to an escrow agent, and $75,000 when the Company receives the final payment of $175,000 from Greenome as part of the SEA described above. In turn, the shareholder was to submit to an escrow agent, shares of our common stock totaling 9,669,575 shares. These shares were to be released to Greenome after the second tranche of $25,000 was paid to the shareholder on a pro-rata basis. If the closing did not take place by December 31, 2014 and the final $75,000 payment to the shareholder was not made, the Company will return to the shareholder 5,769,231 common shares held by the transfer agent. As of September 30, 2014, the first payment had been made to the shareholder. The SEA was terminated per above; however, the terms of the agreement were effectively transferred from Greenome to Sky Rover per the Stock Purchase agreement described below. In October 2014 the second $25,000 payment was made by Sky Rover and a portion of the shares were released by the transfer agent.

 

Greenome Financing Agreement

Under the September 19, 2014 Financing Agreement, we agreed to raise up to $3.0 million through a private placement memorandum (“PPM”) and loan these funds to a subsidiary of Greenome (the “Greenome Sub”) under a promissory note bearing interest at the rate of 10% per annum (the “Greenome Loan”). The promissory note will mature twelve months from its inception and will be secured by the assets of the Greenome Sub.

 

Greenome has already made $180,000 in advance payments to us under the SEA. The first $150,000 of the Greenome Loan proceeds will count towards the repayment of the amount advanced us by Greenome with the remainder of the advances forgiven. If the private placement is unsuccessful, the $150,000 will be formalized into a note payable. Accordingly, the Company has maintained the advanced amounts in accrued expenses and deposits in the accompanying balance sheets, which also includes advances from Sky Rover as noted below.

 

Sky Rover Stock Purchase Agreement

On September 19, 2014 we entered into a Stock Purchase Agreement (“SPA”) with Sky Rover under which we agreed to sell to Sky Rover 80% of our outstanding common stock at a purchase price of $400,000. Sky Rover is in the business of marketing, promoting, and selling of an E-Gold coin (the “EDG Coin”), a type of cryptoasset created by Sky Rover, which is marketed to consumers and merchants. Under the agreement, Sky Rover will acquire 30,600,000 shares of our common stock, which will equal exactly 80% of the outstanding shares, for a purchase price of $400,000. $120,000 of the purchase price was received as of September 30, 2014 and included in accrued expenses and deposits in the accompanying balance sheet due to the possibility the Company will have to repay such amounts if the Company does not meet specific conditions as part of the SPA which are described below. The remaining purchase price is payable as follows: $130,000 on or prior to October 15, 2014 and the final $150,000 at the closing when certain conditions have been met. Subsequent to September 30, 2014, we received additional proceeds of $150,000. Our Company’s conditions include the mitigation of certain of our debt and the restructure of our notes payable with the following features:

 

·

New interest rates of no greater than 10% per annum

 

·

New maturity dates no earlier than August 1, 2015

 

·

A forced conversion into free-trading shares of our common stock at any time our common stock has a closing bid price per share of $1.00 or more for 20 consecutive trading days after the closing as defined in the SPA

 

For their part, Sky Rover’s only condition to close is that they have made the applicable payments required under the SPA. The closing is to be no later than December 31, 2014. If we do not meet the conditions imposed on us by the agreement, we will be obligated to repay Sky Rover for monies received from them (50% in cash and 50% in common stock valued at $0.20 per share). If Sky Rover does not meet their condition, no monies received from them will need to be repaid.

 

11.	Other Agreements

 

The Scott Group Agreement

On July 21, 2014, we entered into a Consulting Agreement with The Scott Group, whose CEO is Steve Scott. Under the agreement, which has a term of sixty (60) days, The Scott Group will provide a variety of public relations services to assist us in increasing our investor base and shareholder awareness and in obtaining sponsorship from the brokerage community. In addition, The Scott Group will assist us with converting our debt. As compensation for the services, we agreed to pay The Scott Group $2,500 per month for the months of July and August 2014 and to issue them 50,000 shares of our common stock. We also extended the agreement through September 2014 for an additional payment of $2,500. For accounting purposes, we valued the common stock as of July 21, 2014, the date of issuance, and recorded a general and administrative expense of $20,000 ($7,500 cash and $12,500 in stock) during the third quarter ending September 30, 2014.

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

 

Disclaimer Regarding Forward-Looking Statements

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them.  Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements.  You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

Description of Business 

Global Future City Holding Inc., formerly FITT Highway Products, Inc. (the “Company”) is in the business of manufacturing (on an outsource basis), distribution and sale of energy drinks. We market three two-ounce energy shots named “F.I.T.T. Energy for Life” (the “FITT Energy Shot”), “F.I.T.T. Energy Extreme” and "F.I.T.T. Energy Rx". We have significant debt and our profitability and cash flow have been dependent upon our success in marketing our three energy shot products. As discussed in Note 10, we have agreed to sell 80% of our common stock to Sky Rover Holdings Ltd. (“Sky Rover”).

 

Even if the Sky Rover transaction closes, the Company will continue to market and sell its FITT brand of energy shots while considering additional business alternatives. These business alternatives include the marketing and promotion of an E-Gold coin (the “EGD Coin”), a type of cryptoasset created by Sky Rover, to merchants and consumers. It should be noted that the Company does not currently contemplate selling the EGD Coin at this time.

 

The Company is strongly considering the business and regulatory issues concerning the implementation of its new business prior to the Sky Rover transaction closing.

 

Products

We are marketing three two-ounce energy shots, which are F.I.T.T. Energy for Life, F.I.T.T. Energy Extreme and F.I.T.T. Energy Rx. All three energy shots were designed in collaboration with Dr. Rand Scott, a Board Certified Anesthesiologist and Pain Management Specialist.  Dr. Scott incorporated a number of unique ingredients into the products which allows for the use of lower levels of caffeine. We believe that higher levels of caffeine may be unhealthy and potentially dangerous for our consumers, especially for adolescents or people with blood pressure issues. Dr. Scott is a well-known medical/legal expert witness in his areas of medical expertise and has significant experience with the use of herbal products. In addition, Dr. Scott is one of our shareholders and has no rights to our energy shots beyond the payment of a royalty of $0.02 per bottle of each energy shot sold. Dr. Scott worked under a Product Development & Marketing Agreement with FITT (the “Scott Agreement”). According its terms, the Scott Agreement was transferred to us after the Merger and continues in full force and effect. The Scott Agreement is dated March 1, 2012 and has an initial term of 24 months. After the initial term, unless sooner terminated, the Scott Agreement automatically renews for successive one-year periods.

 

 

 

 

Ingredients:

The energy shot formulae contain ingredients selected to not only provide energy, but to also enhance mental focus, muscle strength and endurance, and promote cardiovascular health. The energy shots feature Resveratrol, a substance found naturally in grapes. While there is no scientific consensus regarding the health benefits of Resveratrol, it has the scientific world fascinated by its potential to affect age related declines and is being widely studied for that as well as its potential to cause the body to act as if it is already on a diet, and to change the distribution of fat tissue in the body. It should be noted that neither the Food and Drug Administration (“FDA”) nor any comparable regulatory agency has approved resveratrol or resveratrol-based products for the treatment of any illness, injury or condition. Our energy shots also contain L-Arginine, an amino acid in dairy, brown rice and nuts which is essential for optimum growth, and regulation of protein metabolism.  L-Arginine can make blood vessels wider, as opposed to the narrowing effect of caffeine. Further, L-Arginine may benefit in the treatment of sports related injuries, as well in building lean muscle and burning fat, since it facilitates the natural release of growth hormone (HGH) and is a building block for creatine. Additionally, the drink features L-Arginine AKG. L-Arginine AKG has been shown in a University study to help build additional strength when used during training. Beyond this, the FITT Energy Shot features antioxidant Green Tea extract, and Chromium. These ingredients have good safety profiles and have support as weight-loss aides. More than just a caffeine drink, our FITT Energy Shot adds natural energy boosters including Taurine & Guarana, as well as essential Vitamins B3, B5, B6, and B12. To optimize workouts, the FITT Energy Shot has a touch of Fructose, an easily absorbed fuel for the body and brain. All this is built on a base of healthy pomegranate and orange.

 

Operations

Since 2005, when we completed a merger with Snocone Systems, Inc., we have been unable to generate operating income and have become burdened with substantial debt. Due to a number of factors, including our substantial debt, we have had significant difficulty attracting the necessary investment dollars to produce and market our products. In addition, third parties performing marketing, production and fulfillment services have been unwilling to enter into agreements directly with us due to our poor financial condition, among other reasons. These factors raise substantial doubt about our ability to continue as a going concern unless we can substantially mitigate our debt and raise capital, as well as increase revenue producing activities.

 

Marketing

Marketing functions have been directed mainly to the retail market segment. Our marketing program described below requires significant capital which, to date, we’ve been unable to raise. If we are able to raise enough capital, we may also direct some future efforts to private labeling as well as to the use of electronic media such as the internet and social media.

 

Marketing Plan – Retail

The retail market space for our product includes convenience stores, grocery chains, drug stores, and health and fitness centers to name a few. We believe sales into the retail market will provide the most stable method for marketing our energy shots. However, significant funds are required in order to conduct a sustained and supported rollout of our products. The Company has estimated that approximately $5.0 million would be needed to conduct a proper rollout, but to date such funds have not been obtained.

 

In October 2011, we entered into an exclusive Master Marketing Agreement with GRIPS Marketing Corporation (“GRIPS”), a corporation managed by an individual with over 40 years’ experience marketing a variety of products to convenience stores and other retail outlets. In April 2012, with the assistance of GRIPS, we received a letter from Core-Mark International, a major national distributor, in which Core-Mark agreed to team up with the Company to distribute our energy shot products. The terms of the agreement with GRIPS were negotiated with the Company’s understanding that the sales personnel of large distributors like Core-Mark would be a significant factor in the sales and servicing of their retail customers. In addition, the Company was led to believe that GRIPS would be able to provide significant assistance in the acquisition of retail customers as well as in the development of programs to encourage trial of our products by ultimate end users. The Company later determined that its role in these areas needed to increase dramatically, and therefore costs, are expected to be significantly greater than initially believed. Specifically, the Company will need a larger than expected field service team to both acquire and support its retail customers, including those to which Core-Mark distributes. We will also be totally responsible for developing marketing strategies and programs including promotional programs aimed at increasing consumption frequency and product adaption. Given that the Company costs will be greater than originally anticipated, the Company believes it should negotiate new terms of its agreement with GRIPS that more properly reflect the additional costs and effort required by the Company.

 

 

 

Distribution

As noted above, in April 2012, with the assistance of GRIPS, we received a letter from Core-Mark International, a major national distributor, in which Core-Mark agreed to team up with the Company to distribute our energy shot products to Core-Mark’s customer base. Core-Mark is one of the largest broad-line, full-service marketers and distributors of packaged consumer products in North America. Founded in 1888, Core-Mark provides distribution and logistics services as well as marketing programs to over 29,000 retail locations across the United States and Canada through its 28 distribution centers. Core-Mark services traditional convenience retailers, grocers, mass merchandisers, drug, liquor and specialty stores, and other stores that carry consumer packaged goods. Core-Mark’s plan was to launch our products in California, Nevada and Arizona, then move across the country to other divisions. During the second quarter of 2012, the Company began shipping our energy shots to Core-Mark who then shipped the products to certain of its convenience store customers. The Company’s marketing program for sales into this market include in-store display racks and signage, and also include support by field sales reps and by various forms of media designed to drive the consumer to purchase the product at the retail outlets. However, without sufficient financing, we will be unable to support programs necessary to make our distribution program successful.

 

Production

Our energy shots are produced at Wellington Foods Incorporated, a contract manufacturer of liquid and powder nutritional supplements since 1974. In addition to its manufacturing facilities, Wellington has the in-house capabilities to develop products from concept for flavoring ingredient content to production, or to take an existing formula and extend the product line with new flavors or innovative ingredients. Dr. Rand Scott, one of our medical experts and a shareholder, researched and recommended the ingredients and their quantities for our energy shots, and Wellington provided the final flavoring and formulations. Wellington owns the formulae for our energy shots and is under no obligation to provide us with these products for commercial sale. We are a party to a non-disclosure agreement (“NDA”) with Wellington which precludes either party from divulging information provided, which in our view includes the ingredient components of our energy shots. However, the NDA also acknowledges that Wellington provides products to many other clients and that some of these products may be similar in formulation content or manufacturing procedures.

 

The principal raw materials used to manufacture the energy shot are plastic bottles, nutritional supplements, flavoring agents, and concentrates as well as other ingredients from independent suppliers. These raw materials are readily available from any number of sources in the United States.

 

The Industry

Energy drinks, including two-ounce shots and canned drinks, are beverages with legal stimulants, vitamins, and minerals that give users a lift of energy.  It should be noted that neither the FDA nor any comparable regulatory agency reviews or pre-approves the sale of energy drinks, including ours, since they are marketed as dietary supplements rather than drugs. Common ingredients are caffeine, taurine, ginseng, sugars, and various amounts of vitamins and minerals.  The products are consumed by individuals who are explicitly looking for the extra boost in energy.  While canned energy drinks are most commonly consumed by individuals in the 18-to-34 age group, energy shots have been appealing to a more expanded demographic. In an article discussing energy drinks published in the August 2011 issue of Beverage Industry, Garima Goel-lal, beverage analyst with Mintel International, a global leading market research company, states that “a lot of adults in the older age [group] who don’t want sugar in their beverages, but want the same benefit of an energy boost, are going toward energy shots”. In the same article, Jared Koerten, U.S. research associate for Euromonitor International, states “The appeal and benefits that energy shots offer consumers has driven sales in recent years. These products have capitalized on many consumer demands in the fast-paced global economy of today. First, these products offer extended energy to consumers who need to stay alert for long work hours. In addition, by promising ‘no crash later’, energy shots can provide a boost of energy without the accompanying loss in productivity that often stems from drinking coffee or other sugary drinks”.

 

In its June 2012 Executive Summary Report on energy drinks and energy shots, Mintel reports that sales of energy shots were nearly $1.6 billion in 2011, an increase of nearly $330 million over 2010 sales. Mintel also forecasts continued growth in energy shot sales to in excess of $3.4 billion by 2016. In this report, Ms. Goel-lal states “Energy drinks and shots continue to grow unabated, especially after the recession. In order to enjoy uninterrupted growth, the category needs to add new customers, engage in innovation, broaden its functional platform, and allay product safety concerns.” Mintel also reports that Living Essential’s 5-Hour Energy “continues to account for the lion’s share in the segment.”

 

Results of Operations for the Three Months Ended September 30, 2014 and 2013

 

Net Sales

We had no net sales during the three months ended September 30, 2014 compared to $3,933 for the comparable period in 2013. Due to lack of funding we lost our sales staff in the fourth quarter of 2013.

 

Cost of Goods Sold

There was no cost of goods sold for the three months ended September 30, 2014 versus $1,615 in the same period of 2013. The 2013 period included a charge of $206 for inventory impairment. Because of the limited amount of sales, margins indicated may not be indicative of future margins at different sales levels.

 

 

 

Selling and Marketing Expenses

Selling and marketing expenses were $347 and $72,044 for the three months ended September 30, 2014 and 2013, respectively. The 2013 period includes $58,920 in compensation expense, $23,250 of which was stock-based. Because we lost our sales staff in the fourth quarter of 2013, there was no compensation expense in the third quarter of 2014.

 

General and Administrative Expenses

General and administrative expenses for the third quarter of 2014 were $190,342, compared to $54,791 for the comparable period in 2013. In the 2014 period, we incurred certain post-merger expenses which were shown in fair value of contributed services in the 2013 period. These include $113,370 in post-Merger payroll and related expenses for our CEO and Controller, the majority of which were accrued and unpaid, along with $5,411 in insurance benefits.

 

Fair Value of Contributed Services

Fair value of contributed services was zero and $70,085 for the third quarters of 2014 and 2013, respectively. The 2013 amount represents a full quarter’s worth of costs of certain shared administrative services and the costs for services provided by our CEO and Controller who did not receive compensation from FITT prior to the Merger.

 

Interest Expense

Interest expense in the third quarter of 2014 was $42,099 compared to $55,964 for the same period in 2013, mainly on lower debt balances in 2014 as a result of conversions described in Note 7 to the accompanying consolidated financial statements.

 

Interest Income

There was no interest income during the three months ended September 30, 2014 versus $8,791 for the comparable period in 2013. The interest income in 2013 represents an interest accrual on the advances to shareholder.

 

Loss on Extinguishment of Debt

As explained in Note 7 to the accompanying consolidated financial statements, during the third quarter of 2014, we assigned a note held by Asher to Goldenrise and recorded a loss on extinguishment of debt in the amount of $9,948.

 

Results of Operations for the Nine Months Ended September 30, 2014 and 2013

 

Net Sales

We had no net sales during the nine months ended September 30, 2014 compared to $6,422 for the comparable period in 2013. Due to lack of funding we lost our sales staff in the fourth quarter of 2013.

 

Cost of Goods Sold

There was no cost of goods sold for the nine months ended September 30, 2014 versus $31,598 in the same period of 2013. The 2013 period included a charge of $29,200 for inventory impairment. Because of the limited amount of sales, margins indicated may not be indicative of future margins at different sales levels.

 

Selling and Marketing Expenses

Selling and marketing expenses were $25,020 and $192,308 for the nine months ended September 30, 2014 and 2013, respectively. The 2013 period includes $83,250 in expense for common shares we issued to two employees and a service provider. Because we lost our sales staff in the fourth quarter of 2013, compensation expense for the first nine months of 2013 was approximately $28,000 higher than for the same period in 2014. Additionally, the 2013 period includes approximately $29,000 in expenses for advertising and samples which we did not incur in 2014.

 

General and Administrative Expenses

General and administrative expenses for the nine months of 2014 were $591,443, compared to $181,027 for the comparable period in 2013. In the 2014 period, we incurred certain post-merger expenses which were shown in fair value of contributed services in the 2013 period. These include $335,220 in post-Merger payroll and related expenses for our CEO and Controller, the majority of which were accrued and unpaid, along with $32,579 in insurance benefits. The 2014 period also contains higher shared office expenses of $33,872. The 2013 expenses include $7,500 in stock-based expenses for shares issued to a service provider.

 

 

 

 

Fair Value of Contributed Services

Fair value of contributed services was zero and $210,255 for the first nine months of 2014 and 2013, respectively. The 2013 amount represents a full nine months’ worth of costs of certain shared administrative services and the costs for services provided by our CEO and Controller who did not receive compensation from FITT prior to the Merger.

 

Interest Expense

Interest expense in the nine months of 2014 was $124,279 compared to $421,409 for the same period in 2013, mainly due to prior year accretion of debt discounts which were fully accreted as of 2014. In addition, 2014 saw lower debt levels as a result of conversions described in Note 7 to the accompanying consolidated financial statements.

 

Interest Income

There was no interest income during the nine months ended September 30, 2014 versus $24,257 for the comparable period in 2013. The interest income in 2013 represents an interest accrual on the advances to shareholder.

 

Loss on Extinguishment of Debt

During the first nine months of 2014, we recorded a loss on extinguishment of debt totaling $43,542. $33,594 of the loss related to a creditor converting notes payable and related accrued interest thereon totaling $55,000 into 115,637 shares of common stock of our merged company. $9,948 of the loss related to an assignment of a note held by Asher to Goldenrise. See Note 7 to the accompanying consolidated financial statements.

 

Liquidity and Capital Resources

 

The report of our independent registered public accounting firm on the consolidated financial statements for the year ended December 31, 2013 contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern as a result of recurring losses, a working capital deficiency, and negative cash flows. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that would be necessary if we are unable to continue as a going concern.

 

As of September 30, 2014, our principal source of liquidity is from the receipt of deposits from Greenome and Sky Rover in accordance with the terms of the May 6, 2014 Share Exchange Agreement and the September 19, 2014 Stock Purchase Agreement. See Note 10 to the accompanying consolidated financial statements. Our principal short-term and long-term liquidity needs have been, and are expected to be, funding operating losses until profitability is achieved and making expenditures for general corporate purposes.

 

Management continues to seek capital through various sources. At September 30, 2014, our cash and cash equivalents were $63,731 and we had negative working capital of nearly $5.2 million.

 

DEBT

In prior years, we issued a number of notes payable and used the proceeds to fund operations. These notes payable were, in most cases, issued along with common shares of FITT or common shares of FHWY which were owned by FITT prior to the Merger. See Note 7 to the accompanying consolidated financial statements for additional information.

 

During the first quarter ended March 31, 2014, holders of $55,000 of debt (repayment value) elected to convert the obligations, including the related accrued interest totaling $15,479 into 115,637 common shares of the merged entity. Also during the first quarter of 2014, we entered into a convertible promissory note with Asher which was assigned to Goldenrise and amended. See Note 7 to the accompanying consolidated financial statements for further information.

 

 

 

 

EQUITY

In the first nine months of 2013, we issued 526,599 shares of common stock (total value of $27,500) in consideration of entering into agreements with two service providers. We also issued 213,300 shares of common stock (valued at $83,250) to our Director of Sales and our Retail Business Manager as incentives for them to accept employment with us.

 

Cash Flows

 

The following table sets forth our cash flows for the nine months ended September 30:

 

		2014				2013				Change
Operating activities
Net loss		$	(786,084	)		$	(1,006,518	)		$	220,434
Change in non-cash items			63,132				657,632				(594,500	)
Change in working capital			472,969				168,857				304,112
Total			(249,983	)			(180,029	)			(69,954	)
Investing activities			(1,871	)			(52,496	)			50,625
Financing activities			315,000				294,500				20,500
Total		$	63,146			$	61,975			$	1,171

 

Operating Activities

The change in non-cash items includes loss on extinguishment of debt, shares issued for compensation and services, the fair value of contributed services, depreciation, and amortization of debt discount/debt accretion. The change in working capital is primarily related to increases in accounts payable, accrued expenses and accrued compensation.

 

Investing Activities

Cash used in investing activities consists of capital expenditures, along with cash advances to and repayments from a related party and our major shareholder.

 

Financing Activities

Cash provided from the issuance of notes payable was $40,000 and $230,000 in the 2014 and 2013 periods, respectively. The 2014 period includes $300,000 in deposits and $25,000 in payments relating to a proposed business combination while the 2013 period included $64,500 in capital contributions from a major shareholder.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our President and Chief Financial Officer (the “Certifying Officer”) has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this report.  Based upon such evaluation, the Certifying Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

ITEM 4T.

CONTROLS AND PROCEDURES

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

 

PART II – OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

None

 

ITEM 1A.

RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES

 

There have been no events which are required to be reported under this item.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

There have been no events which are required to be reported under this item.

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

ITEM 5.

OTHER INFORMATION

 

None

 

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

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

 

 

	GLOBAL FUTURE CITY HOLDING INC. (Registrant)
Dated: November 14, 2014
	By: /s/ Michael R. Dunn
	Michael R. Dunn
	Its:  Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)