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EX-32.1 - EXHIBIT 32.1 - FASTFUNDS FINANCIAL CORPfffc0818form10qexh32_1.htm
EX-31.1 - EXHIBIT 31.1 - FASTFUNDS FINANCIAL CORPfffc0818form10qexh31_1.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

 

FORM 10-Q

 

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

 

For the quarter ended June 30, 2015

 

 

OR

 

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

 

For the transition period from _______to_______

 

Commission File No. 000-33053

 

FASTFUNDS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

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

 

319 Clematis Street, Suite 400

West Palm Beach, Florida 33401

(Address of principal executive offices) (Zip code)

 

(561) 514-9042

(Registrant's telephone number including area code)

 

 

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

 

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

 

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

 

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

 

 

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

 

Number of shares of outstanding of the Registrant’s $0.0001 par value common stock as of August 15, 2015 was 738,252,007 shares.

 
 

 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

  Page
Part I.  Financial Information  
   
Item 1.  Financial Statements  
   
Condensed Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014 2
   
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited) 3
   
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)   4
   
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
   
Item 2.  Management’s Discussion and Analysis                                                                                                     24
   
Item 3.  Quantitative and Qualitative Disclosures about Market Risks 27
   
Item 4.  Controls and Procedures 27
   
Part II.  Other Information  
   
Item 1. Legal Proceedings 28
   
Item 1A. Risk Factors 28
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
   
Item 3. Defaults Upon Senior Securities 28
   
Item 5. Other Information 28
   
Item 6. Exhibits 28
   
Item 7.  Signatures 29

 
 

 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
       
CONDENSED CONSOLIDATED BALANCE SHEETS
       
   June 30,  December 31,
   2015  2014
   (unaudited)   
ASSETS  
       
Current assets:          
Cash and cash equivalents  $37,769   $3,367 
Accounts receivable   85,404    169,702 
Notes receivable   22,050    62,050 
Prepaid expenses   29,686    38,212 
Deferred financing costs   19,824    8,931 
Other current assets   76    76 
           
Total current assets   194,809    282,338 
           
Fixed assets, net   1,973    2,313 
Investment in unconsolidated investee   237,000    15,000 
Other assets   3,323    1,850 
Goodwill   85,362    85,362 
Long term investments (Note 4)   89,575    89,575 
           
Total other assets   417,233    194,100 
           
    Total assets  $612,042   $476,438 
           
LIABILITIES AND STOCKHOLDERS' DEFICIENCY          
           
Current liabilities:          
Bank Overdraft  $—     $1,860 
Accounts payable   795,390    881,086 
License fee payable   250,000    250,000 
Due to related party   75,000    75,000 
Accrued expenses, including related parties $46,465 (2015) and $41,898 (2013) (Note 5)   3,976,716    3,734,029 
Note Payable   60,000    60,000 
Convertible promissory notes (Note 6), including related parties of $13,895 (2015) and $74,597 (2014)   2,200,061    2,198,391 
Litigation contingency (Note 7)   2,484,922    2,484,922 
Convertible debentures payable, net   633,369    662,643 
Derivative liabilities (Note 6)   1,417,030    1,057,602 
           
Total current liabilities   11,892,488    11,405,533 
           
           
Commitments and contingencies (Notes 4, 6,and 8)          
           
Stockholders' deficiency (Note 8):          
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; 368,283,106 (2015) and 14,414,581 (2014) shares issued and outstanding   368,283    14,415 
Additional paid-in capital   16,402,687    16,305,314 
Treasury stock, 50,000 shares of common stock   —      —   
Accumulated deficit   (28,090,143)   (27,292,757)
           
Total stockholders' deficiency   (11,316,561)   (10,970,416)
Less noncontrolling interests   36,115    41,321 
Total deficit   (11,280,446)   (10,929,095)
           
Total liabilities and stockholders' deficit  $612,042   $476,438 

 

2
 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
             
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             
(Unaudited)
             
   Three months ended June 30,  Six months ended June 30,
   2014  2014  2015  2014
             
Revenue, net  $194,295   $7,327   $402,270   $14,366 
                     
Operating expenses:                    
Cost of Sales   121,634    —      260,539    —   
Processing fees   5,889    6,502    11,833    12,853 
Returned checks (collected)   —      (1,120)   —      (1,420)
Other   389    390    737    794 
                     
Total operating expenses   127,912    5,772    273,109    12,227 
                     
Gross profit   66,383    1,555    129,161    2,139 
                     
Selling, general and administrative   127,389    167,277    354,709    346,602 
Loss from operations   (61,006)   (165,722)   (225,548)   (344,463)
                     
Other income (expense):                    
Interest expense   (304,907)   (624,135)   (496,221)   (1,105,935)
Derivative liability income (expense)   (63,618)   359,063    (75,768)   313,027 
Interest Income   —      13,500    —      13,500 
Total other expense   (368,525)   (251,572)   (571,989)   (779,408)
                     
                     
Net loss  $(429,531)  $(417,294)  $(797,537)  $(1,123,871)
                     
Less (plus) net loss (gain) attributable to non controlling interest   (2,088)   —      5,205    —   
                     
Net loss attributable to common stockholders  $(431,619)  $(417,294)  $(792,332)  $(1,123,871)
                     
Net loss per share  $(0.00)  $(0.06)  $(0.01)  $(0.19)
                     
Weighted average number of common shares outstanding Basic and diluted   191,045,766    6,932,919    104,966,405    6,026,626 

 

 

3
 

FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
       
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       
(Unaudited)
       
   Six Months Ended June 30,
   2015  2014
Cash flows from operating activities:          
Net loss  $(797,537)  $(1,123,871)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization on fixed assets   340    —   
Issuance of preferred stock as compensation   —      106,673 
Amortization of discount on convertible notes   226,292    822,854 
Initial derivative liability expense on convertible debentures   75,768    24,205 
Change in fair value of derivative liability   —      (337,232)
Issuance of warrants for services   45,000    —   
Amortization of deferred financing costs   9,857    13,984 
Decrease (increase) in assets:          
Accounts receivable   84,298    3,658 
Interest receivable   —      (13,500)
Other current assets   7,053    1,067 
Increase in liabilities          
Accounts payable and accrued expenses   87,161    262,298 
           
Net cash used in operating activities   (261,768)   (239,865)
           
Cash flows from investing activities:          
Investment in unconsolidated subsidiary   (222,000)   —   
Payments on issuance of notes receivable   —      (25,000)
Payment of security deposit   —      (1,000)
Payments from issuance of note receivable   —      1,680 
           
Net cash used in investing activities   (222,000)   (24,320)
           
Cash flows from financing activities:          
Borrowings on convertible notes, net   524,000    440,500 
Repayments on convertible notes, net   (7,500)   —   
Borrowings on notes and loans payable, related   27,500    5,000 
Borrowings on notes and loans payable, other   93,500    —   
Repayments on notes and loans payable, related   (77,336)   (45,791)
Repayments on notes and loans payable, other   (41,994)   (5,000)
Payment of deferred financing costs   —      —   
           
Net cash provided by financing activities   518,170    394,709 
           
Net increase in cash and cash equivalents   34,402    130,524 
Cash and cash equivalents, beginning   3,367    2,057 
           
Cash and cash equivalents, ending  $37,769   $132,581 
           
Supplemental disclosure of cash flow information:          
           
Cash paid for interest  $225   $12,358 
           
Cash paid for income taxes  $—     $—   
           
Schedule of Non-Cash Investing and Financing Activities          
           
Conversion of convertible notes and interest to common stock  $—     $—   
           
Reclass of derivative liability to equity upon conversion of convertible debt  $232,242   $378,531 
           
Conversion of convertible debentures to common stock  $216,196   $378,531 

 

4
 

 

FASTFUNDS FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

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

 

Business and organization:

 

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

 

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

 

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

 

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

 

Carbon has an exclusive US license related to provisional patent Serial number 61/077,376 and a US Patent to be issued. The patent titled, “METHOD OF SEPARATING CARBON DIOXIDE”, related to methods of decomposing a gaseous medium, more specifically, relating to methods of utilizing radio frequency energy to separate the elemental components of gases such as carbon dioxide. ATD plans to commence research and development with a goal of potential commercialization; subject to financing, but has not commenced these activities as of the date of this report

 

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

 

5
 

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

 

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

   

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

 

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

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

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

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

 

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

 

6
 

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. 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 $85,362.

 

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.

 

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. Developed over the past several months, WMII has built an extensive database of prospective customers and retail relationships that exceed over 1,000 medical and recreational dispensaries throughout the Colorado, Washington State and California regions. In addition to marketing the Company's Cannabis GreenCard, WMII will market several other products that it retains distribution rights to, such as the THC Test Kit. The company paid $15,000 for its interest in WMII.

 

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.

 

On May 15, 2015, FastFunds Financial Corporation (“FFFC”) acquired a 49% Limited Liability Company interest in Pure Grow Systems, LLC 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 June 30, 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 Systems anticipates launching its website and first product line within the next 60 days.

 

7
 

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:

 

In the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern. The Company’s interim financial statements for the three and six months ended June 30, 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 $797,537 for the six months ended June 30, 2015, and has a working capital deficit of $11,097,679 and an accumulated deficit of $28,090,143 as of June 30, 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.

 

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

 

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

 

2.    Summary of significant accounting policies:

 

 Basis of presentation and principles of consolidation:

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit and include the consolidated accounts of Fastfunds Financial Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 19, 2015. Interim results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

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.

 

8
 

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.

 

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 in each quarter of the fiscal year.

 

Non-controlling 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 six month periods ended June 30, 2015 and 2014, as the impact of the potential common shares related to convertible debt, warrants, and stock options, which total 3,527,664,150 and 6,418,044, respectively, would be anti-dilutive.

 

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.

 

9
 

Fair value of financial instruments:

 

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

 

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

 

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

 

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

 

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.

 

10
 

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

 

Stock-based compensation:

 

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

 

There were no options granted during the three and six months ended June 30, 2015 and 2014.

 

The Company’s stock option plan is more fully described in Note 10.

 

Income Taxes

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

 

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

 

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

 

Reclassifications:

 

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

 

Recent Accounting Pronouncements Not Yet Adopted:

 

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

 

11
 

3.     Concentration of revenue:

 

A significant portion of the Company's revenues for the six months ended June 30, 2015 were generated from five customers as follows:

 

        Accounts Receivable
   % of Total Revenues  as of June 30, 2015
           
Customer A   16.49%  $80 
Customer B   12.69%  $15,495 
Customer C   9.25%  $0 
Customer D   9.17%  $15,432 
Customer E   6.76%  $402 

 

4.     Notes receivable:

 

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 June 30, 2015, the outstanding principal amount on the promissory note is $22,050.

 

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.

 

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 $133,805 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 $85,362, included on the June 30, 2015 balance sheet, as a result of the acquisition.

 

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. The company paid $15,000 in cash in closing the acquisition. Since acquisition and until the period ended June 30, 2015, WMII has not begun any significant operating activities and has generated no revenues for the Company.

 

On May 15, 2015, the company acquired a 49% Limited Liability Company interest in Pure Grow Systems, LLC 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 June 30, 2015, $222,000 has been remitted by the company in acquisition of a minority stake of Pure Grow.

 

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6.     Accrued liabilities:

 

Accrued liabilities at June 30, 2015 and December 31, 2014 were $3,976,715 and $3,734,029, respectively, and were comprised of:

 

   2015  2014
Legal fees  $23,594   $23,594 
Interest   3,584,951    3,336,669 
Consultants and advisors   151,429    157,024 
Registration rights   98,013    98,013 
Other   118,729    118,729 
   $3,976,716   $3,734,029 

 

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

 

Promissory notes, including related parties at June 30, 2015 and December 31, 2014, consist of the following:

 

   2015  2014
Promissory notes payable:          
           
Various, including related parties of $24,567 (2015) and $157,322 (2014); interest rate ranging from 8% to 10% [A]  $109,342   $171,422 
           
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 
   $2,200,061   $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 six months ended June 30, 2015 the Company issued notes of $121,000 ($5,000 to related parties) and made payments of $116,630 (including $74,830 to related parties).
   
[B]These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). 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 $3,434,686 and is included in accrued expenses on the consolidated balance sheets.

 

 

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 $2,482,922 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The Company is not aware of any payments being made by any of the guarantors and accordingly, the Company includes these liabilities on the June 30, 2015 and December 31, 2014 balance sheet items promissory notes payable and accrued expenses.

 

13
 

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 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, 2014, the Company issued 2,240,336 shares of common stock upon the conversion of $163,670 of the Note. As of June 30, 2015, 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 conversion feature of the 2013 Note is a 50% discount to the average of the three lowest day closing bid prices for the ten trading days prior to conversion. The March 2013 Note matured November 14, 2013, is in default, and the Default Rate was effective at that date. During the six months ended June 30, 2015, the Company issued 14,057,342 shares of common stock upon conversion of $6,087 of the note. The balance of the March 2013 Note is $20,489 as of June 30, 2015.

 

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 June 30, 2015.

 

On October 18, 2013, the Company issued four (4) convertible notes each in the amount of $25,625 to Gel (the 2013 Gel Notes). The conversion price for the 2013 Gel Notes is equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. Also on October 18, 2013, Gel issued the Company four secured promissory notes, each in the amount of $25,000, due April 21, 2014. The Company received the $100,000 on March 6, 2014. During the year ended December 31, 2014, the Company issued 944,260 shares upon conversion of $83,295 of the notes. As of June 30, 2015, the four convertible promissory notes in the aggregate of $19,205 of principal amount owed Gel was outstanding.

 

On November 22, 2013, the Company issued a $35,000 (the Fong Note) and $30,000 (the Hollander Note) convertible notes to Mr. Fong and Mr. Hollander, respectively, in satisfaction of unpaid fees. During the six months ended June 30, 2015, the Company issued 1,363,636 shares of common stock in satisfaction of $1,000 of the Hollander note. The outstanding principal balances of the Fong and Hollander notes as of June 30, 2015 are $35,000 and $7,000 respectively.

 

2014 Notes


On January 28, 2014, the Company issued a convertible promissory note to Mr. Fong for $25,500 in satisfaction of accrued and unpaid fees due Mr. Fong. Also on January 28, 2014, the Company entered into a Debt Settlement and Release Agreement (the “DSR”) with Mr. Fong, Mary Virginia Knight (“Knight”) or Knight assigns. This note matured January 28, 2015 and is in default. 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 June 30, 2015, the outstanding principal balance of this note is $10,500.

 

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On February 10, 2014, the Company issued two (2) convertible promissory notes in the amounts of $95,814 and $95,813 in exchange for previously accrued legal fees. The notes bear interest at 8% per annum and are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. This note matured February 10, 2015 and is 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. During the six months ended June 30, 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. As of June 30, 2015, the balances of the notes, including amounts now held by third parties, totaled $179,127.

 

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 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2014. This note matured February 20, 2015 and is in default. During the six months ended June 30, 2015, the Company issued 1,391,990 shares of common stock in satisfaction of $26,500 in convertible note principal and $1,317 of accrued and unpaid interest. As of June 30, 2015, the outstanding principal balance of these notes is $13,500.

 

On March 6, 2014 the Company issued a $50,000 convertible promissory note to Gel, under the same terms and conditions as the 2012 Gel Notes. This note matured March 6, 2015 and is in default. During the six months ended June 30, 2015, the Company issued 24,979,349 shares of common stock in satisfaction of $19,205 in convertible note principal and $2,863 in accrued and unpaid interest. As of June 30, 2015, the outstanding principal balance of this note is $30,795.

 

On March 27, 2014, the Company issued an $831,000 secured convertible promissory note (the “Note”) to Typenex (the “Lender”). The Typenex 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 % interest rate and matures on the seventeenth month after funding. Typenex funded $75,000 on April 1, 2014 and also delivered nine (9) secured promissory notes to the Company, each in the amount of $75,000. Each payment received will constitute an “Issue Date”. The Company also granted Typenex the right to purchase at any time on or after each Issue Date until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share equal to $44,250 divided by the Market Price (as defined in the Note). 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 six months ended June 30, 2015, the company issued 4,405,110 shares of common stock upon conversion of $17,078 of note principal. As of June 30, 2015, the outstanding principal balance of this note is $69,426. Amortization for the six months ended June 30, 2015, totaled $39,600 and the carrying value of the note as of June 30, 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. During the year ended December 31, 2014, the Company issued 851,467 shares of common stock in satisfaction of $25,544 in convertible note principal. During the six months ended June 30, 2015, the Company issued 1,528,123 shares in satisfaction of $1,956 in convertible note principal. As of June 30, 2015, the principal balance of these notes has been satisfied.

 

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 note matured on February 16, 2015 and is in default. During the six months ended June 30, 2015, the company issued 24,880,488 shares of common stock upon conversion of $12,997 of note principal. As of June 30, 2015, a principal balance of $5,428 remains outstanding.

 

15
 

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 has been expensed for the six months ended June 30, 2015, 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 six months ended June 30, 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 June 30, 2015, a principal balance of $35,676 remains outstanding. Amortization for the six months ended June 30, 2015, totaled $2,372 and the carrying value of the note as of June 30, 2015, is $35,676, net of unamortized discount of $0.

 

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, bears interest at 8% and is convertible at 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 $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. As of June 30, 2015, the full principal balance of $50,000 remains outstanding. Amortization for the six months ended June 30, 2015, totaled $4,167 and the carrying value of the note as of June 30, 2015, is $50,000, net of unamortized discount of $0.

 

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% and are 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 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. Accordingly, $3,417 has been expensed for the six months ended June 30, 2015, as debt issuance costs (included in interest expense). 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. During the six months ended June 30, 2015, the company issued 126,069,682 shares of common stock upon conversion of $86,770 of note principal. As of June 30, 2015, a principal balance of $50,186 remains outstanding. Amortization for the six months ended June 30, 2015, totaled $38,258 and the carrying value of the notes as of June 30, 2015, is $50,186, 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 $1,250 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 2015. The note matures on October 9, 2015. As of June 30, 2015, the outstanding principal balance of this note is $27,500. Amortization for the six months ended June 30, 2015, totaled $8,165 and the carrying value of the notes as of June 30, 2015, is $19,167, net of unamortized discount of $7,333.

 

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% and is convertible at 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 $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 matures on September 2, 2015. As of June 30, 2015, the full principal balance of $25,000 remains outstanding. Amortization for the six months ended June 30, 2015, totaled $15,272 and the carrying value of the notes as of June 30, 2015, is $19,160, net of unamortized discount of $5,840.

 

16
 

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% 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. During the six months ended June 30, 2015, the Company paid $7,500 in settlement of the note principal and $190 in settlement of accrued interest. As of June 30, 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 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 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. During the six months ended June 30, 2015, the company issued 47,464,384 shares of common stock upon conversion of $25,000 of note principal. As of June 30, 2015, this 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 $441 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 is due on demand, 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. As of June 30, 2015, the outstanding principal balance of this note is $26,500. Amortization for the six months ended June 30, 2015, totaled $10,455 and the carrying value of the notes as of June 30, 2015, is $10,455, net of unamortized discount of $16,045.

 

On April 10, 2015, the Company issued a $40,500 convertible promissory note to Carebourn Capital. The April 10 Carebourn Note carries an original issuer discount of $3,000. The company paid $3,000 in debt issuance costs related to this note on June 16, 2015. The debt issuance costs will be amortized over the earlier of the nine month term of the Note or any redemptions, and accordingly, $1,000 has been expensed as debt issuance costs (included in interest expense) for the three and six months ended June 30, 2015. The note is due on demand, 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 June 30, 2015, the full principal balance of $40,500 remains outstanding. Amortization for the six months ended June 30, 2015, totaled $11,929, and the carrying value of the notes as of June 30, 2015, is $11,929, net of unamortized discount of $28,571.

 

On April 15, 2015, the Company issued a convertible promissory note for $26,500 to LG Capital (“LG”). The note is due on demand, 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 $633 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 2015. The note matures on October 9, 2015. As of June 30, 2015, the outstanding principal balance of this note is $27,500. Amortization for the six months ended June 30, 2015, totaled $19,167 and the carrying value of the notes as of June 30, 2015, is $19,167, net of unamortized discount of $7,333.

 

17
 

On May 6, 2015, the Company issued a $40,000 convertible promissory note to Pure Energy 714, a New Jersey LLC. The note is due on demand, 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 $764 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 $25,000 is being amortized into interest expense over the term of the note Amortization for the six months ended June 30, 2015, totaled $20,634 and the carrying value of the notes as of June 30, 2015, is $8,257, net of unamortized discount of $19,366. During the six months ended June 30, 2015, the company issued 38,587,833 shares of common stock upon conversion of $12,377 of note principal. As of June 30, 2015, the outstanding principal balance of this note is $27,623.

 

On May 15, 2015, the Company issued a $128,000 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 12% and 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 $767 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 six months ended June 30, 2015, totaled $21,333 and the carrying value of the notes as of June 30, 2015, is $21,333, net of unamortized discount of $106,667. As of June 30, 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 is due on demand, bears interest at 12% and 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 $567 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 six months ended June 30, 2015, totaled $3,449 and the carrying value of the notes as of June 30, 2015, is $3,449, net of unamortized discount of $24,551. As of June 30, 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 is due on demand, bears interest at 12% and 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 matures November 29, 2015. 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 six months ended June 30, 2015, totaled $21,739 and the carrying value of the notes as of June 30, 2015, is $21,739, net of unamortized discount of $103,261. As of June 30, 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 is due on demand, bears interest at 12% and 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 $350 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 six months ended June 30, 2015, totaled $2,236 and the carrying value of the notes as of June 30, 2015, is $2,236, net of unamortized discount of $25,764. As of June 30, 2015, the outstanding principal balance of this note is $28,000.

 

18
 

On June 19, 2015, the Company issued a convertible promissory note for $36,750 to LG Capital (“LG”). The note is due on demand, 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 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 $633 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 2015. Amortization for the six months ended June 30, 2015, totaled $1,105 and the carrying value of the notes as of June 30, 2015, is $1,105, net of unamortized discount of $35,645. As of June 30, 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 due on demand, 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 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 $50 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 six months ended June 30, 2015, totaled $410 and the carrying value of the notes as of June 30, 2015, is $410, net of unamortized discount of $24,590. As of June 30, 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 is due on demand, bears interest at 12% and 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 $67 has been expensed as debt issuance costs (included in interest expense) for the six months ended June 30, 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 six months ended June 30, 2015, totaled $226 and the carrying value of the notes as of June 30, 2015, is $226, net of unamortized discount of $15,274. As of June 30, 2015, the outstanding principal balance of this note is $15,500.

 

The Company has determined that the conversion features of the 2012, 2013, 2014 and 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 June 30, 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 June 30, 2015 and December 31, 2015 is as follows:

 

 

Derivative

Liability Balance

1/1/15

Initial Derivative Liability

Redeemed

convertible notes

Fair value change- three months ended 6/30/2015 Derivative Liability Balance 6/30/15  
$      1,057,602 565,420 (232,242) (26,250) $      1,417,030  
                   

 

19
 

A summary of debentures payable as of June 30, 2015 and December 30, 2014 is as follows:

 

 

2015

Face Value

2014

Face Value

2013 Notes $  80,989 $  88,075
                   2014 Notes                     $ 464,843 $709,999
   2015 Notes                     $ 507,373       —
Note discount $(419,836) $(135,431)
Total $633,369 $662,643

 

8.    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 June 30, 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.

 

9.     Income taxes:

 

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

 

As of June 30, 2015, the Company had a tax net operating loss carry forward of approximately $9,481,000.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.

 

10.  Stockholders’ deficiency:

 

Common stock:

 

During the six months ended June 30, 2015, the Company issued 353,868,525 shares of common stock upon the conversion of $214,041 of debentures payable and $6,336 of accrued and unpaid interest.

 

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.

 

20
 

Preferred stock

 

There were no shares of Class A or B preferred stock issued during the six months ended June 30, 2015.

 

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 June 30, 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 June 30, 2015 there are 1,791,667, 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.

 

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.

 

21
 

There were no options granted during the six months ended June 30, 2015.

 

All options outstanding at June 30, 2015 are fully vested and exercisable. A summary of outstanding balances at June 30, 2015 and December 31, 2014 is as follows:

 

    Weighted-   Weighted-   Aggregate
    Average   Average   Intrinsic
Options   exercise price  

Remaining

contractual life

  Value
             
1,650   $0.34   0.98   $0
             

 

11.  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.

 

12.  Related party transactions:

 

 Management and director fees:

 

For the three and six months ended June 30, 2015, the Company accrued expenses of $37,500 and $75,000, respectively, for Mr. Fong, the Company’s President and Chairman. Mr. Fong received $51,095 in cash payments for the three months ended June 30, 2015 and $80,595 for the six months ended June 30, 2015. In January 2014, the Company issued a convertible note to Mr. Fong in payment of $25,500 of accrued and unpaid fees. As of June 30, 2015, Mr. Fong is owed $1,424 for these services, included in accrued expenses on the consolidated balance sheet.

 

Acquisition of Carbon Capture:

 

On May 25, 2012, the Company’s newly formed subsidiary ATD acquired Carbon Capture USA (“Carbon”) from Carbon Capture Corporation, a Colorado corporation ("CCC"). CCC is privately held by Mr. Henry Fong, a director of the Company and is the control person of CCC. Pursuant to the Agreement, ATD acquired from CCC all of the issued and outstanding common stock of Carbon in exchange for one-hundred fifty thousand (150,000) newly issued unregistered shares of the Company’s common stock. As of December 31, 2013, Carbon has exchanged the 150,000 shares of common stock for 1,500,000 shares of Class B preferred stock. The Class B preferred stock automatically converts to 150,000 shares of common stock whenever there are sufficient shares of common stock to allow for the conversion. Pursuant to the terms and conditions of the preferred stock, the Company determined there were not any additional costs to be recognized.

 

22
 

Notes payable:

 

As disclosed in Note 6, the Company has issued notes payable to various related parties. The balances of December 31, 2014 and June 30, 2015, and the activity for the three months ended June 30, 2015 follows:

 

 

Noteholder

 

Balance

3/31/15

 

 

Additions

 

 

Payments

 

 

Sold

 

Balance

6/30/15

HPI Partners (1) $ 35,625 $ $ 24,730 $ $ 10,895
AFPW (1)   22,000     22,000    
Henry Fong (2)   3,000         3,000
SurgLine Int’l (1)   10,672         10,672
Total $ 71,297 $ $ 46,730 $ $ 24,567

 

The activity for the six months ended June 30, 2015 is as follows:

 

 

Noteholder

 

Balance

1/1/15

 

 

Additions

 

 

Payments

 

 

Sold

 

Balance

6/30/15

HPI Partners (1) $ 63,725 $ $ 52,830 $ $ 10,895
AFPW (1)     22,000   22,000    
Henry Fong (2)     3,000       3,000
SurgLine Int’l (1)   10,672         10,672
Total $ 74,397 $ 15,000 $ 110,941 $ $ 24,567

 

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.

 

13.  Subsequent events:

 

From July 1, 2015, through August 15, 2015, the Company has issued 369,968,901 shares of common stock upon conversion of $9,000 in warrant conversions, $46,910 of convertible promissory note principal, and $217 of accrued interest.

 

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

 

23
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

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

 

GENERAL

 

FastFunds Financial Corporation (“FFFC”) is a holding company and through January 31, 2006 operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). As disclosed in the December 31, 2014 10-K, FFFC also has several other non-operating wholly-owned subsidiaries. FFFC and its subsidiaries are referred to as (the “Company”).

 

OVERVIEW

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2014 and 2013. The financial statements presented for the six months ended June 30, 2015 and 2014 include FFFC and its subsidiaries.

 

In light of the foregoing, and the Company’s sale of substantially all of its assets in January 2006, the historical data presented below is not indicative of future results. You should read this information in conjunction with the audited consolidated financial statements of the Company, including the notes to those statements for the year ended December 31, 2013, filed with the SEC on April 15, 2014, and the following “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

 

The Company’s financial statements for the six months ended June 30, 2015 and 2014 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 $11,265,692 and an accumulated deficit of approximately $28,045,294 as of June 30, 2015. Moreover, it presently has minimal ongoing business operations or sources of revenue, and little available resources with which to obtain or develop new operations.

 

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

 

LIQUIDITY AND CAPITAL RESOURCES

 

For the six months ended June 30, 2015, net cash used in operating activities was $261,768 compared to $239,865 for the six months ended June 30, 2014. Net loss was $797,537 and $1,123,871 for the six months ended June 30, 2015 and 2014, respectively. Included in the net loss for the six months ended June 30, 2015 was $226,292 for the amortization of debt discounts. The current period loss also included operating expenses of approximately $273,109 and selling, general and administrative, interest expense of $496,221 related to convertible promissory notes and derivative liability expense of $75,768 due to the change in fair value of derivative liabilities.

 

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Included in the net loss for the six months ended June 30, 2014 was $836,838 for the amortization of note discounts and deferred financing costs related to convertible notes and $106,673 of stock compensation expense related to the issuance of 1,000 shares of Class C preferred stock. The current period loss also included an initial derivative liability expense of $24,205 as a result of the fair value of newly issued convertible notes, operating expenses of approximately $240,000 and interest expense of $269,097 related to convertible promissory notes and convertible debentures. These amounts were partially offset by a credit to derivative liability expense of $337,232 due to the change in fair value of derivative liabilities.

 

Net cash used in investing activities for the six months ended June 30, 2015, was solely related to the Company’s payment of $222,000 in cash for a 49% minority stake in Pure Grow LLC.

 

Net cash used in investing activities for the six months ended June 30, 2014, primarily consisted of a payment of $25,000 in exchange for a note receivable.

 

Net cash provided by financing activities for the six months ended June 30, 2015 was $518,170 compared to $394,709 for the six months ended June 30, 2014. During the six months ended June 30, 2015, the Company received $524,000 from the issuance of convertible notes, $27,500 from borrowings on notes and loans payable from related parties, and $93,500 from the issuance of notes payable to third parties. The company repaid $119,330 of notes payable ($77,336 to related parties).

 

During the six months ended June 30, 2014, the Company received $440,500 from the issuance of convertible notes and $5,000 from the issuance of notes payable related parties. The Company repaid $50,791 of notes payable ($45,791 related parties). 

 

For the six months ended June 30, 2015, cash and cash equivalents increased by $34,402 compared to an increase of $130,524 for the six months ended June 30, 2014. Ending cash and cash equivalents at June 30, 2015 was $37,769 compared to $132,581 at June 30, 2014.

 

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

 

REVENUES

 

Total revenues for the three and six months ended June 30, 2015 were $194,295 and $402,270 compared to $7,327 and $14,366 for the three and six months ended June 30, 2014. Revenues in the three and six month period ended June 30, 2015 consist of Brawnstone sales revenue and of credit card income on Nova’s remaining portfolio. For all other periods mentioned, revenue consisted of only Nova credit card income.

 

OPERATING EXPENSES

 

Operating expenses for the three and six months ended June 30, 2015, were $127,912 and $273,109, respectively compared to $5,772 and $12,227 for the three and six months ended June 30, 2014. Operating expenses incurred during the three and six months ended June 30, 2015 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. Operating expenses incurred during the during the three and six months ended June 30, 2014 consisted solely of third party servicing fees of Nova’s remaining credit card portfolio.

 

SELLING GENERAL AND ADMINISTRATIVE EXPENSES

 

Corporate operating expenses for the three and six months ended June 30, 2015 were $127,389 and $354,709 compared to $167,277 and $346,602 for the three and six months ended June 30, 2014, respectively. The expenses were comprised of the following:

 

   Three months ended June 30,  Six months ended June 30,
   2015  2014  2015  2014
Accounting and legal  $750   $12,474   $3,677   $29,149 
Stock compensation expense   —      —      —      106,673 
Management and director fees   37,500    22,500    75,000    37,500 
Consulting and other professional   55,794    98,825    83,228    124,425 
Transfer agent and filing fees   5,894    2,967    9,874    11,757 
Other   27,451    30,511    182,931    37,098 
   $127,389   $167,277   $354,709   $346,602 
                     

 

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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). Included in three and six months ended June 30, 2015, were accounting and auditing fees of $750 and $3,677, respectively.

 

Consulting and other professional fees decreased for the three and six months periods ended June 30, 2015, compared to the three and six months ended June 30, 2014. The current period expenses included 33,960 (three months) and $40,460 (six months) in consulting fees, $5,000 (three months) and $8,204 (six months) as part of a marketing agreement to increase the Company’s social media presence, $0 (three months) and $3,955 (six months) in investor relations costs and $16,834 (three months) and 30,609 (six months) in additional outside consulting fees.

 

Consulting and other professional fees for the three and six month periods ended June 30, 2014 included $13,175 (three months) and $24,175 (six months) of costs related to Cannabis Angel initiatives, $7,000 (three months) and $12,000 (six months) as part of a marketing agreement to increase the Company’s social media presence, $52,400 (three months) and $55,250 (six months) in investor relations costs and $26,250 and 433,000 in additional outside services costs. The 2013 periods include consulting expenses of $15,600 (six months) and investor relations costs of $942 (three months) and $$4,442 (six months).

 

General and other administrative costs for the three and six months ended June 30, 2015 were $27,451 and $182,931, respectively, compared to $30,511 and $37,098, respectively for the three and six months ended June 30, 2014. Expenses for the six months ended June 30, 2015 include rent expense of $3,620 (three months) and $7,240 (six months), travel expense of $1,681 (three months) and $5,795 (six months), royalty fees of $10,000 (three months) and $15,000 (six months) and Brawnstone specific operating costs of $59,588 (three months) and $146,487 (six months).

 

Expenses for the six months ended June 30, 2014 include rent expense of $3,340 (three months) and $6,534 (six months), travel expense of $7,964 (three months) and $9,923 (six months), internet expenses of $2,311 (three months and $9,160 (six months), moving expense of $3,800 (six months) and other general and administrative costs of $7,681.

 

OTHER INCOME (EXPENSE)

 

Other expense, net for the three and six months ended June 30, 2015 was $368,525 and $571,989, respectively, compared to $251,572 and $779,408 for the three and six months ended June 30, 2014, respectively.

 

The three and six months ended June 30, 2015, included derivative liability income (expense) of $(63,618) and $(75,768) respectively mainly due to the initial derivative expense recognized as a consequence of the issuance of convertible debentures. Interest expense for the three and six month periods totaled $304,907 and $496,221, respectively.

 

 The three and six months ended June 30, 2014, included derivative liability income of $359,063 and $313,027. The credit (income) was predominantly a result of the change in fair value of the conversion features in the Typenex note of $373,235 for the three and six months ended June 30, 2014, based on the Black Scholes valuation as of June 30, 2014.

 

CONTRACTUAL OBLIGATIONS

 

Not Applicable

 

CRITICAL ACCOUNTING POLICIES

 

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

 

Our significant accounting policies are described in more detail in our 2014 Annual Report on Form 10-K.

 

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.


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

 

Changes in Internal Control Over Financial Reporting


During the quarter ended June 30, 2015, there were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

 

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

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Refer to Note 6 of the Condensed Consolidated Financial Statements

 

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

 

During the six months ended June 30, 2015, the Company issued 353,868,525 shares of common stock upon the conversion of $214,041 of debentures payable and $6,336 of accrued and unpaid interest The shares were issued at approximately $0.0001 per share.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Other Information

 

None.

 

Item 5. Exhibits

 

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

 

 

 

 

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SIGNATURES

 

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

 

  FastFunds Financial Corporation
  (Registrant)
   
Date: August 19, 2015 By: /s/ Henry Fong
  Henry Fong
  Chief Executive Officer

 

 

 

 

 

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