UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended MARCH 31, 2015 ¨ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______ Commission File No. 333-57946 ALUMIFUEL POWER CORPORATION (Exact Name of Registrant as Specified in its Charter) Wyoming 88-0448626 (State or other jurisdiction of (IRS Employer 7315 East Peakview Avenue Englewood, Colorado 80111 (Address of principal executive offices) (Zip code) (303) 796-8940 (Registrant's telephone number including area code) _____________________________ (Former name, address and fiscal year) 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 x 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 x Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x Number of shares of common stock outstanding at ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014 3 Condensed Consolidated 4 Condensed Consolidated Statement of Changes in Shareholders' Deficit for the 5 Condensed Consolidated 6 Notes to Condensed Consolidated Unaudited Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 Item 4T. Controls and Procedures 27 Part II – Other Information 28 Item 1. Legal Proceedings 28 Item 2. Unregistered Sales of Equity Securities 28 Item 3. Defaults upon Senior Securities 28 Item 4. Mine Safety Disclosures 28 Item 5. Other Information 28 Item 6. Exhibits 28 Item 7. Signatures 29 ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheetsx QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarter ended JUNE 30, 2014o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _______to_______x Nevada (FormeroooJuly 31, 2014: 2,531,611,417May 5, 2015: 1,430,437,555Index to Financial Statements(Unaudited) Page Balance Sheets at June 30,Statement of Operations for the Three Months ended March 31, 2015 and 2014 (Unaudited) and December 31, 2013 F-1 Consolidated Statement of Operations for the Three and Six Months ended June 30, 2014 and the Three and Six Months ended June 30, 2013 (Unaudited)F-2SixThree months ended June 30, 2014March 31, 2015 (Unaudited) F-3 StatementStatements of Cash Flows for the SixThree Months ended June 30,March 31, 2015 and 2014 and the Six Months ended June 30, 2013 (Unaudited) F-4 F-5 3 6 6 8 Signatures 10 2 June 30, December 31, 2014 2013 (Unaudited) Assets Cash $ 26,993 $ 9,872 �� Prepaid expenses — — Notes receivable (Note 4) — — Work in progress (Note 1) — — Other current assets — — Total current assets 26,993 9,872 Property and equipment, less accumulated depreciation of $7,479 (2014) and $7,283 (2013) (Note 1) 28 196 Deferred debt issuance costs (Note 4) 6,671 2,082 Total long-term assets 6,699 2,278 Total assets $ 33,692 $ 12,150 Liabilities and Shareholders’ Deficit Current liabilities: Accounts and notes payable: Accounts payable, related party (Note 3) $ 405,362 $ 425,346 Accounts payable, other 526,688 524,747 Derivative liability, convertible notes payable (Note 4) 710,104 704,032 Notes payable, related party (Note 3) 14,961 42,868 Notes payable, other (Note 4) 447,453 580,063 Convertible notes payable, net of discount of $204,758 (2014) and $137,253 (2013) (Note 4) 407,369 390,240 Payroll liabilities (Note 7) 142,017 134,083 Accrued expenses (Note 7) 600,000 500,000 Dividends payable (Note 9) 94,101 78,071 Accrued interest payable: Interest payable, convertible notes (Note 4) 97,691 93,347 Interest payable, related party notes (Note 3) 7,720 9,180 Interest payable, notes payable other (Note 4) 82,100 65,547 Total current liabilities 3,535,566 3,547,524 Total long-term liabilities - - Total liablities 3,535,566 3,547,524 Commitments and contingencies — — Shareholders’ deficit: (Notes 1 & 9) Preferred stock, $.001 par value; 10,000,000 shares authorized, 404,055 (2014) and 404,055 (2013) shares issued and outstanding 404,055 404,055 Common stock, $.001 par value; 3,500,000,000 (2014) and 750,000,000 (2013) shares authorized, 2,431,611,417 (2014) and 631,402,195 (2013) shares issued and outstanding 2,431,611 631,402 Additional paid-in capital 13,695,425 14,322,968 Accumulated deficit (24,153,782 ) (22,939,333 ) Total shareholders' deficit of the Company (7,622,691 ) (7,580,908 ) Non-controlling interest (Note 1) 4,125,817 4,045,534 Total shareholders' deficit (3,496,874 ) (3,535,374 ) Total liabilities and shareholders' deficit $ 38,692 $ 12,150 F-1
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash | $ | 1,977 | $ | 972 | ||||
Notes receivable, related parties (Note 5) | 23,220 | — | ||||||
Total current assets | 25,197 | 972 | ||||||
Deferred debt issuance costs (Note 4) | 9,310 | 4,473 | ||||||
Total long-term assets | 9,310 | 4,473 | ||||||
Total assets | $ | 34,507 | $ | 5,445 | ||||
Liabilities and Shareholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts and notes payable: | ||||||||
Accounts payable, related party (Note 3) | $ | 500,677 | $ | 467,759 | ||||
Accounts payable, other | 519,204 | 518,349 | ||||||
Derivative liability, convertible notes payable (Note 3) | 599,879 | 567,905 | ||||||
Notes payable, related party (Note 4) | 14,461 | 21,461 | ||||||
Notes payable, other (Note 3) | 372,953 | 392,953 | ||||||
Convertible notes payable, net of discount of $145,606 (2015) and $114,211 (2014) (Note 4) | 522,150 | 548,301 | ||||||
Payroll liabilities (Note 7) | 154,152 | 150,059 | ||||||
Accrued expenses (Note 7) | 753,846 | 700,000 | ||||||
Dividends payable (Note 9) | 118,365 | 110,395 | ||||||
Accrued interest payable: | ||||||||
Interest payable, convertible notes (Note 4) | 137,873 | 129,386 | ||||||
Interest payable, related party notes (Note 3) | 8,588 | 8,310 | ||||||
Interest payable, notes payable other (Note 4) | 90,562 | 89,724 | ||||||
Total current liabilities | 3,792,710 | 3,704,602 | ||||||
Series B preferred stock obligation, net (Note 9) | 680,482 | 661,648 | ||||||
Shareholders’ deficit: (Notes 1 & 9) | ||||||||
Preferred stock, $.001 par value; unlimited shares authorized, no shares outstanding | — | — | ||||||
Common stock, $.001 par value; unlimited shares authorized, 713,237,827 (2015) and 23,463,415 (2014) shares issued and outstanding, respectively | 713,236 | 23,463 | ||||||
Additional paid-in capital | 15,911,181 | 16,303,784 | ||||||
Accumulated deficit | (25,040,458 | ) | (24,663,547 | ) | ||||
Total shareholders' deficit of the Company | (8,416,041 | ) | (8,336,300 | ) | ||||
Non-controlling interest (Note 1) | 3,977,356 | 3,975,495 | ||||||
Total shareholders' deficit | (4,438,685 | ) | (4,360,805 | ) | ||||
Total liabilities and shareholders' deficit | $ | 34,507 | $ | 5,445 |
See accompanying notes to condensed consolidated financial statements.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenue (Note 1) | ||||||||||||||||
Reactor sales | $ | - | $ | - | $ | - | 13,440 | |||||||||
Consulting fees | - | - | - | $ | - | |||||||||||
Total revenue | - | - | - | 13,440 | ||||||||||||
Cost of goods sold (Note 1) | - | - | (21,421 | ) | ||||||||||||
Gross loss | - | - | - | (7,981 | ) | |||||||||||
Operating costs and expenses: | ||||||||||||||||
Selling, general and administrative expenses | ||||||||||||||||
Related party (Note 3) | 83,100 | 83,215 | 167,507 | 167,069 | ||||||||||||
Stock-based compensation (Note 9) | - | 239 | - | 3,239 | ||||||||||||
Depreciation | 84 | 161 | 168 | 747 | ||||||||||||
Other (Note 6) | 108,501 | 103,306 | 226,947 | 226,282 | ||||||||||||
Total operating costs and expenses | (191,685 | ) | (186,921 | ) | (394,622 | ) | (397,337 | ) | ||||||||
Loss from operations | (191,685 | ) | (186,921 | ) | (394,622 | ) | (405,318 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Litigation contingency | - | 351,232 | - | 351,232 | ||||||||||||
Interest (expense) income, amortization | ||||||||||||||||
of convertible note discount (Note 4) | (244,023 | ) | (129,953 | ) | (403,071 | ) | (238,866 | ) | ||||||||
Interest expense (Notes 3 & 4) | (41,716 | ) | (26,256 | ) | (299,825 | ) | (51,346 | ) | ||||||||
Fair value adjustment of derivative liabilities (Note 4) | 82,972 | 69,575 | (116,931 | ) | (94,792 | ) | ||||||||||
(202,767 | ) | 264,598 | (819,827 | ) | (33,772 | ) | ||||||||||
Loss before income taxes | (394,452 | ) | 77,677 | (1,214,449 | ) | (439,090 | ) | |||||||||
Income tax provision (Note 8) | - | - | - | - | ||||||||||||
Net loss | (394,452 | ) | 77,677 | (1,214,449 | ) | (439,090 | ) | |||||||||
Net loss attributable to non-controlling interest (Note 1) | 32,741 | 17,492 | 32,741 | 9,030 | ||||||||||||
Net loss attributable to Company | $ | (361,711 | ) | $ | 95,169 | $ | (1,181,708 | ) | $ | (430,060 | ) | |||||
Basic and diluted loss per common share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Weighted average common shares outstanding (Notes 1 & 9) | 2,201,041,954 | 39,033,845 | 1,700,469,737 | 32,685,292 |
Three months | Three months | |||||||
ended | ended | |||||||
March 31, | March 31, | |||||||
2015 | 2014 | |||||||
Revenue | $ | - | $ | - | ||||
Total revenue | - | - | ||||||
Operating costs and expenses: | ||||||||
Selling, general and administrative expenses | ||||||||
Management fees related parties (Note 3) | 83,510 | 84,407 | ||||||
Depreciation | - | 84 | ||||||
Other (Note 6) | 80,750 | 118,446 | ||||||
Total operating costs and expenses | (164,260 | ) | (202,937 | ) | ||||
Loss from operations | (164,260 | ) | (202,937 | ) | ||||
Other (expense) | ||||||||
Stock based compensation (Note 9) | (16,000 | ) | - | |||||
Interest expense, amortization of convertible note discounts (Note 4) | (108,979 | ) | (159,048 | ) | ||||
Interest expense (Notes 3 & 4) | (54,833 | ) | (258,109 | ) | ||||
Fair value adjustment of derivative liabilities (Note 4) | (32,839 | ) | (199,903 | ) | ||||
(212,651 | ) | (617,060 | ) | |||||
Loss before income taxes | (376,911 | ) | (819,997 | ) | ||||
Income tax provision (Note 8) | - | - | ||||||
Net loss | $ | (376,911 | ) | $ | (819,997 | ) | ||
Net loss attributable to non-controlling interest (Note 1) | 16,349 | 16,231 | ||||||
Net loss attributable to Company | $ | (360,562 | ) | $ | (803,766 | ) | ||
Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.14 | ) | ||
| ||||||||
Weighted average common shares outstanding (Notes 1 & 9) | 240,911,996 | 5,738,464 |
See accompanying notes to condensed consolidated financial statements.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders’ Deficit
Three months ended June 30, 2014
(Unaudited)
Common stock | Preferred stock | Additional paid-in | Accumulated | Non-controlling | Total shareholders | ||||||||||||||||||||
Shares | Par value | Shares | Par value | capital | deficit | interest | deficit | ||||||||||||||||||
Balance at December 31, 2013 | 631,402,195 | $ | 631,402 | 404,055 | $ | 405,055 | 14,322,968 | $ | (22,939,333 | ) | $ | 4,045,534 | $ | (3,535,374 | ) | ||||||||||
January through June 2014, issuance of common | |||||||||||||||||||||||||
stock to convertible noteholders (Notes 4 & 9) | 1,553,063,509 | 1,553,063 | - | - | (554,956 | ) | - | - | 998,107 | ||||||||||||||||
January through June 2014, issuance of common | 247,145,713 | 247,146 | - | - | 23,726 | - | - | 270,872 | |||||||||||||||||
stock on conversion of debt (Notes 4 & 9) | |||||||||||||||||||||||||
January through June 2014, dividends on Series B | |||||||||||||||||||||||||
Preferred Stock (Note 9) | - | - | - | - | (16,030 | ) | - | - | (16,030 | ) | |||||||||||||||
Equity of AlumiFuel Power International, | |||||||||||||||||||||||||
Inc. subsidiary, net of non-controlling interest (Note 1) | - | - | - | - | (80,283 | ) | - | 47,542 | (32,741 | ) | |||||||||||||||
Net loss | - | - | - | - | - | (1,214,449 | ) | 32,741 | (1,181,708 | ) | |||||||||||||||
Balance at June 30, 2014 | 2,431,611,417 | $ | 2,431,611 | 404,055 | $ | 405,055 | $ | 13,695,425 | $ | (24,153,782 | ) | $ | 4,125,817 | $ | (3,496,874 | ) |
Common stock | Additional paid-in | Accumulated | Non-controlling | Total shareholders | ||||||||||||||||||||
Shares | Par value | capital | deficit | interest | deficit | |||||||||||||||||||
Balance at December 31, 2014 | 23,463,415 | $ | 23,463 | $ | 16,303,784 | $ | (24,663,547 | ) | $ | 3,975,495 | $ | (4,360,805 | ) | |||||||||||
January through March 2015, issuance of common stock upon conversion of convertible debt (Notes 4 & 9) | 685,772,412 | 685,773 | (543,967 | ) | - | - | 141,806 | |||||||||||||||||
| ||||||||||||||||||||||||
Reclassification of derivative liabilities upon conversion of convertible debt (Note 4) | - | - | 141,225 | - | - | 141,225 | ||||||||||||||||||
| ||||||||||||||||||||||||
January through March 2015, issuance of common stock for services (Note 9) | 4,000,000 | 4,000 | 12,000 | - | - | 16,000 | ||||||||||||||||||
| ||||||||||||||||||||||||
Equity of AlumiFuel Power International, Inc. subsidiary, net of non-controlling interest (Note 1) | - | - | (1,861 | ) | - | (14,488 | ) | (16,349 | ) | |||||||||||||||
Net loss | - | - | - | (376,911 | ) | 16,349 | (360,562 | ) | ||||||||||||||||
Balance at March 31, 2015 | 713,235,827 | $ | 713,236 | $ | 15,911,181 | $ | (25,040,458 | ) | $ | 3,977,356 | $ | (4,438,685 | ) |
See accompanying notes to condensed consolidated financial statements.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six months | Six months | |||||||
ended | ended | |||||||
June 30, | June 30, | |||||||
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,214,449 | ) | $ | (439,090 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Non-cash interest expense (Note 9) | 291,388 | 228,208 | ||||||
Stock based compensation (Note 9) | - | 3,239 | ||||||
Debt issuance costs (Note 4) | 6,411 | 8,553 | ||||||
Beneficial conversion feature (Note 9) | 229,806 | 18,400 | ||||||
Allowance for bad debt (Note 5) | - | - | ||||||
Recovery of bad debt expense (Note 5) | (38,500 | ) | (39,850 | ) | ||||
Depreciation and amortization | 168 | 747 | ||||||
Change in fair value of derivative liability (Note 4) | (61,268 | ) | (73,733 | ) | ||||
Amortization of discount on debentures payable (Note 4) | 257,616 | 164,775 | ||||||
Change in non-controlling interest (Note 1) | - | (32,059 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts and other receivables | 38,500 | 39,533 | ||||||
Work in progress | - | 18,732 | ||||||
Prepaid expenses and other assets | - | 313 | ||||||
Accounts payable and accrued expenses | 114,875 | (227,524 | ) | |||||
Related party payables (Note 3) | 10,016 | 9,266 | ||||||
Dividends payable (Note 9) | (16,030 | ) | 16,029 | |||||
Interest payable | 107,005 | 45,506 | ||||||
Net cash used in operating activities | (274,462 | ) | (258,955 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of equipment | - | - | ||||||
Issuance of notes receivable (Note 5) | - | - | ||||||
Net cash used in investing activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from convertible notes (Note 4) | 290,000 | 98,500 | ||||||
Proceeds from notes payable, related (Note 3) | - | 18,600 | ||||||
Proceeds from notes payable, other (Note 4) | 48,400 | 196,180 | ||||||
Prodeeds from sales of notes receivable (Note 5) | - | - | ||||||
Proceeds from sales of common stock (Note 9) | - | - | ||||||
Proceeds from sales of subsidiary equity (Notes 1 & 9) | - | - | ||||||
Proceeds from sale of subsidiary stock by parent (Notes 1 & 9) | - | - | ||||||
Payments under capital leases (Note 7) | - | (389 | ) | |||||
Payments on notes payable (Note 4) | (7,910 | ) | (43,959 | ) | ||||
Payments on notes payable, related (Note 3) | (27,907 | ) | (4,291 | ) | ||||
Payments to placement agents (Note 4) | (11,000 | ) | (4,000 | ) | ||||
Payments on convertible notes payable (Note 4) | - | - | ||||||
Payments on redemption of preferred stock (Note 4) | - | - | ||||||
Net cash provided by financing activities | 291,583 | 260,641 | ||||||
Net change in cash and cash equivalents | 17,121 | 1,686 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of period | 9,872 | 5,216 | ||||||
End of period | $ | 26,993 | $ | 6,902 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 5,949 | $ | 13,291 | ||||
Noncash financing transactions: | ||||||||
Notes and interest payable converted to stock | $ | 398,526 | $ | 109,482 |
Three months | Three months | |||||||
ended | ended | |||||||
March 31, | March 31, | |||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (376,911 | ) | $ | (819,997 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Non-cash interest expense (Note 9) | - | 338,387 | ||||||
Stock based compensation (Note 9) | 16,000 | - | ||||||
Amortization of debt issuance costs (Note 4) | 3,663 | 5,515 | ||||||
Beneficial conversion feature (Note 9) | - | 219,752 | ||||||
Accretion of Series B preferred stock (Note 9) | 18,834 | - | ||||||
Recovery of bad debt expense (Note 5) | (28,100 | ) | (13,500 | ) | ||||
Depreciation and amortization (Note 1) | - | 84 | ||||||
Change in fair value of derivative liability (Note 4) | 31,974 | (123,751 | ) | |||||
Amortization of discount on debentures payable (Note 4) | 108,979 | 158,111 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and other receivables | 23,220 | 13,500 | ||||||
Prepaid expenses and other assets | - | - | ||||||
Accounts payable and accrued expenses | 67,296 | 62,250 | ||||||
Related party payables (Note 3) | 32,918 | 42,192 | ||||||
Dividends payable (Note 9) | (7,970 | ) | (7,970 | ) | ||||
Interest payable | 9,603 | 25,667 | ||||||
Net cash used in operating activities | (100,495 | ) | (99,760 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from convertible notes (Note 4) | 101,000 | 180,000 | ||||||
Proceeds from notes payable, other (Note 4) | 16,000 | 23,600 | ||||||
Payments on notes payable (Note 4) | (7,000 | ) | (7,910 | ) | ||||
Payments on notes payable, related (Note 3) | - | (12,317 | ) | |||||
Payments to placement agents (Note 4) | (8,500 | ) | (11,000 | ) | ||||
Net cash provided by financing activities | 101,500 | 172,373 | ||||||
Net change in cash and cash equivalents | 1,005 | 72,613 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of year | 972 | 9,872 | ||||||
End of year | $ | 1,977 | $ | 82,485 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 5,015 | $ | 2,699 | ||||
Noncash financing transactions: | ||||||||
Notes and interest payable converted to stock | $ | 141,806 | $ | 229,718 | ||||
Reclassification of derivative liabilities upon conversion of convertible debt | $ | 141,225 | $ | - |
See accompanying notes to condensed consolidated financial statements.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of presentation
The interim unaudited financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and for the three and six month periods ended June 30,March 31, 2015 and 2014 and 2013 include the financial statements of AlumiFuel Power Corporation (the “Company”) and its subsidiaries HPI Partners, LLC (“HPI”), AlumiFuel Power, Inc. (“API”), AlumiFuel Power Technologies, Inc. ("APTI"), Novofuel, Inc. ("Novofuel"), and 58% owned subsidiary AlumiFuel Power International, Inc. ("AFPI").
Effective September 5, 2014, the Company announced planschanged is state of Domicile from Nevada to change its strategic direction. In addition,Wyoming. On September 18, 2014, the Company announcedreceived notice that it has formed a new subsidiary, Bitcoin Capital Corporation,the Wyoming Secretary of State had accepted an amendment to pursue early stage opportunities in Bitcoinits articles of incorporation through which the number of shares of authorized common and other cryptocurrency. Aspreferred stock of the filingCompany went from 3,500,000,000 shares of this report, Bitcoin Capital Corporation has not begun operating. The$0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock, to unlimited shares of $0.001 par value common stock and unlimited shares of $0.001 par value preferred stock.
On November 19, 2014, the Company also announced thateffected a 1 for 250 reverse split of its boardcommon stock following which a total of directors had approved3,840,199,334 shares of issued and outstanding pre-split common stock became 15,360,797 shares of post-split common stock. As a name changeresult of the reverse split, the number of shares outstanding and per share information for all prior periods presented have been retroactively restated to AFPW Holdings, Inc. althoughreflect the name change has not yet been completed.
Certain information and footnote disclosures normally included in unaudited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. All of the intercompany accounts have been eliminated in consolidation. The interim unaudited financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2013,2014, notes and accounting policies thereto included in the Company’s Annual Report on Form 10-K.
In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented have been made. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the year.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company had no revenue during the ninethree months ended June 30, 2014,March 31, 2015, and has an accumulated deficit of $24,153,782$25,040,458 from its inception through that date. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
Interim financial data presented herein are unaudited.
Non-Controlling Interests
In February 2010, the Company formed its subsidiary, AFPI. The total number of AFPI shares outstanding at December 31, 20132014 and June 30, 2014March 31, 2015 was 68,114,864.
The value of all shares of AFPI held by the Company have been eliminated on consolidation of the financial statements at June 30, 2014March 31, 2015 as intercompany accounts. At June 30, 2014March 31, 2015 there were 28,511,985 shares held by shareholders other than the Company representing 42% of the outstanding common shares of AFPI as of that date. This represents aA non-controlling interest in AFPI that totaled $4,125,817 based on AFPI's outstanding total equity of $9,586,104$3,977,356 is included in the Company’s condensed consolidated balance sheet at June 30, 2014.March 31, 2015. In addition, $32,741 in$16,349 of the net loss of AFPI of $78,213$39,056 for the sixthree months ended June 30, 2014March 31, 2015 has been attributed to the non-controlling interest of those stockholders.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2: Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash equivalents at June 30, 2014March 31, 2015 were $-0-.
Stock-based Compensation
The Company has certain stock option plans approved by its stockholders, and also grants options and warrants to consultants outside of its stock option plan pursuant to individual agreements.
The Company accounts for compensation expense for its stock-based employee compensation plans and issuances of options and warrants to consultants in accordance with ASC Topic 718 formerly known as SFAS No. 123R "Share Based Payment" which replaced SFAS No. 123, "Accounting for Stock-Based Compensation" (“SFAS No. 123”) and supersedes Opinion No. 25 of the Accounting Principles Board, "Accounting for– Compensation – Stock Issued to Employees" (APB 25). The Company has elected the modified-prospective method, under which prior periods are not revised for comparative purposes.Compensation. See Note 5. Capital Stock for further information on the Company's stock options plans and other warrant/option issuances.
Debt Issue Costs
The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method over the lives of the related debt. The straight-line method results in amortization that is not materially different from that calculated under the effective interest method.
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 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.
Loss per Common Share
Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. StockCommon stock underlying stock options, warrants, and common stock underlying convertible promissory notes are not considered in the calculations for the periods ended June 30,March 31, 2015 and 2014, and
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounting for obligations and instruments potentially settled in the Company’s common stock
In connection with any obligations and instruments potentially to be settled in the Company's stock, the Company accounts for the instruments 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 thatare indexed to, and potentially settled in, the Company's stock.Under this pronouncement, 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 subsequentlyaccounted 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 asequity. 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 remainclassified 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 inearnings. The classification of a contract is reassessed at each balance sheet date.
Derivative Instruments
In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative instruments under the provisions of ASC Topic 815, “Derivatives and Hedging”, formerly known as, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"Hedging".
Recently issued accounting pronouncements
Management reviewed accounting pronouncements issued during the sixnine months ended June 30, 2014,March 31, 2015, and no pronouncements were adopted.
Note 3: Related Party
Related Party Accounts Payable
The Board of Directors has estimated the value of management services for the Company at the monthly rate of $8,000 and $2,000 for the president and secretary/treasurer, respectively. The estimates were determined by comparing the level of effort to the cost of similar labor in the local market and this expense totaled $60,000$30,000 for each of the sixthree months ended June 30, 2014March 31, 2015 and 2013.2014. In addition, beginning October 1, 2010 the Company's president and treasurer were accruing a management fee of $7,500 and $3,500, respectively, for their services as managers of AFPI. This amount totaled $42,000$33,000 for each of the sixthree months ended June 30, 2014March 31, 2015 and 2013.2014. As of June 30,March 31, 2015 and 2014, and 2013, the Company owed $340,392$432,142 and $313,392,$377,892, respectively to its officers for management services.
In September 2009, the Company's board directors authorized a bonus program for the Company's officers related to their efforts raising capital to fund the Company's operations. Accordingly, the Company's president and secretary are eligible to receive a bonus based on 50% of the traditional "Lehman Formula" whereby they will receive 2.5% of the total proceeds of the first $1,000,000 in capital raised by the Company, 2.0% of the next $1,000,000, 1.5% of the next $1,000,000, 1% of the next $1,000,000 and .5% of any proceeds above $4,000,000. The amount is capped at $150,000 per fiscal year. During the sixthree month periods ended June 30,March 31, 2015 and 2014, and 2013, the Company recorded $2,507$1,010 and $2,069,$1,907, respectively to a corporation owned by Messrs. Fong and Olson under this bonus program. At June 30,March 31, 2015 and 2014, and 2013, respectively, there was $5,555$1,420 and $1,052$4,955 payable under the bonus plan.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the sixthree month periods ended June 30,March 31, 2015 and 2014, and 2013, APTI paid a management fee of $6,500 per month to a company owned by the Company’s officers for services related to its bookkeeping, accounting and corporate governance functions. For each of the sixthree month periods ended June 30,March 31, 2015 and 2014, and 2013, these management fees totaled $39,000.$19,500. As of June 30,March 31, 2015 and 2014, and 2013, the Company owed $12,985$21,685 and $285,$10,770, respectively, in accrued fees and related expenses.
The Company rented office space, including the use of certain office machines, phone systems and long distance fees, from a company owned by its officers at $1,500 per month in 2014 and $1,200 per month in 2013.2014. This fee is month-to-month and is based on the amount of space occupied by the Company and includes the use of certain office equipment and services. Rent expense totaled $9,000$13,500 the sixthree months ended June 30, 2014March 31, 2015 and $7,200$10,800 for the same period in 2013.2014. A total of $9,000$1,500 and $1,200$10,000 in rent expense was accrued but unpaid at June 30,March 31, 2015 and 2014, and 2013, respectively.
Accounts payable to related parties consisted of the following at June 30, 2014:
Management fees, rent and bonus payable to officers | $ | 370,217 | ||
Accrued expenses payable to subsidiary officer | 30,145 | |||
Total accounts payable, related party | $ | 400,362 |
Management fees, rent and bonus payable to officers | $ | 467,032 |
| ||
Accrued expenses payable to subsidiary officer | 33,645 |
| |||
Total accounts payable, related party | $ | 500,677 |
|
Related Party Notes Payable
AlumiFuel Power Corporation
The Company owed $500 and $0, respectively,issues promissory notes to its president for loans made to it from time-to-time in demand notes with 8% interest. There was $0officers, and $0 in accrued interest payable at June 30, 2014 and 2013, respectively.
Notes Payable – Related Parties and 2013, the Company owed $350 to a corporation affiliated with the Company's officers in demand notes with an interest rate of 8%. There was $321 and $293 in accrued interest payable on these notes at June 30, 2014 and 2013, respectively.
Principal balance 12/31/14 | $ | 21,461 |
| |
Notes repaid quarter ended 3/31/15 | (7,000 | ) | ||
Principal balance 3/31/15 | $ | 14,461 |
|
HPI Partners, LLC
In 2009, various notes issued by HPI were converted to equity by its officers. Following those conversions, $235 in interest remained due and payable, which was outstanding at both June 30, 2014March 31, 2015 and 2013.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Total Total notes and interest payable to related parties consisted of the following at December 31, 2014 Notes payable to officers; interest at 8% and due on demand $ 1,511 $ 1,511 Notes payable to affiliates of Company officers; interest at 8% and due on demand 12,950 19,950 Notes payable, related party 14,461 21,461 Interest payable related party 8,588 8,310 Total principal and interest payable, related party $ 23,049 $ 29,771 Note 4: Notes Payable AlumiFuel Power Corporation At At both At March 31, 2015 and At March 31, 2015 and During the year ended December 31, 2010 a note payable in the amount of $30,000 was issued and repaid to an unaffiliated third party leaving an interest balance due of $57. This amount remained unpaid as of both AlumiFuel Power, Inc. AlumiFuel Power, Inc. owes $1,050 in unpaid interest on notes issued prior to ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AlumiFuel Power International, Inc. At March 31, 2015 and HPI Partners, LLC In 2009, various notes issued by HPI were converted to equity by third parties. Following those conversions, $647 in interest remained due and payable, which was outstanding at both Total Notes and interest payable to others consisted of the following at Notes payable, non-affiliates; interest at 8% and due on demand $ 155,823 $ 175,823 Notes payable, non-affiliates; interest at 10% and due in March 2014-July 2015 217,130 217,130 Notes payable 372,953 392,953 Interest payable, non-affiliates 90,562 89,724 Total principal and interest payable, other $ 463,515 $ 482,677 Certain of our demand promissory notes issued to unaffiliated third parties contain provisions for conversion to common stock at market price on the date of conversion. AlumiFuel Power Corporation Convertible Promissory Notes Convertible Notes and Debentures with Embedded Derivatives: From time-to-time, June 30, 2014March 31, 2015 and 2013:F-9ALUMIFUEL POWER CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2014 2013 Notes payable to officers; interest at 8% and due on demand $ 500 $ 500 Notes payable to affiliates of Company officers; interest at 8% and due on demand 14,461 41,016 Notes payable, related party 14,961 41,516 Interest payable related party 7,720 8,088 Total principal and interest payable, related party $ 22,861 $ 49,604 March 31,
2015 June 30,March 31, 2015 and 2014, and 2013, the Company owed $123,405$67,005 and $171,631,$105,405, respectively, to an unaffiliated trustentity, the Gulfstream 1998 Irrevocable Trust at an interest rate of 8% and due on demand. During the sixthree months ended June 30, 2014,March 31, 2015, the trust loaned the Company $28,400;$16,000; and sold $59,500$26,000 in principal on these notes to unaffiliated third parties that became convertible notes. In addition, the trust converted $7,600 of these notes to common stock during the same period.debentures. Please see convertible notes below and Note 9 “Capital Stock” below for further information on these transactions. During the six months ended June 30, 2013, the trust loaned the Company $52,200 and sold $18,400 in principal on these notes to an unaffiliated third party that converted that balance to common stock of the Company. The Company made payments on these notes during the six month period ended June 30, 2014 totaling $7,910 in principal and $2,290 in accrued interest. The Company made payments on these notes during the six month period ended June 30, 2013 totaling $17,109 in principal and $12,352 in accrued interest. There was $16,404$13,126 and $7,832`$20,091 in accrued interest payable on these notes at June 30,March 31, 2015 and December 31, 2014, and 2013, respectively.June 30,March 31, 2015 and 2014, and 2013, the Company owed $32,732 to an unaffiliated third party with interest payable at 8% and due on demand. There was $6,879$8,845 and $4,261$6,227 in accrued interest payable on these notes at June 30,March 31, 2015 and 2014, respectively.2013, respectively.At June 30, 2014, and 2013, the Company owed an unaffiliated third party $43,086 and $87,088, respectively.$43,086. These notes are due on demand and carry an interest rate of 8%. There was $33,421 loaned during the six month period ended June 30, 2013. There was $8,026$10,613 and $6,127$8,199 in accrued interest payable at June 30,March 31, 2015 and December 31, 2014, respectively.2013, respectively.At June 30, 2014, and 2013, the Company owed an unaffiliated third party $13,000 and $113,000, respectively.$13,000. There aswas $113,000 payable on these notes at December 31, 2013 and during the six months ended June 30, 2014, $100,000 of these notes was reissued as a convertible note as explained more fully under “Convertible Notes” below. A total of $13,500 was loaned and repaid during the three month period ended June 30, 2013.2014. These notes carry current interest rates of 8% per annum. As of June 30, 2014March 31, 2015 and 2013,December 312014, there was $20,055$20,839 and $13,275$20,583 in accrued interest payable on these notes.As of both June 30, 2014 and 2013, we owed an unaffiliated third party $6,000 in a demand note with 8% interest. During the six months ended June 30, 2014, this note was assigned to a third party and converted to common stock of the Company including the conversion of $6,000 in principal and $1,132 in accrued interest. As of June 30, 2014 and 2013, there was $0 and $705, respectively, in accrued interest payable on this note.
notes, respectively.June 30, 2014March 31, 2015 and 2013.F-10ALUMIFUEL POWER CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDuring the year ended December 31, 2011, a note for $6,800 was purchased by a third party investor and converted to 22,666 shares of the Company’s common stock. The shares were never issued. As a result, the Company has agreed to allow this noteholder to complete a new conversion of this note as of February 2014 for a total of 34,000,000 shares or $0.0002 per share.
2014.2013.
2015.In February 2011, an unaffiliated third party loaned the Company $75,000. This note called for a payment of $50,000 in thirty days with a balance due no later than 90 days from its issuancecarries and interest rate of 12% per annum. The $50,000 was repaid during the quarter ended June 30, 2011. No further payments have been made on this note leaving a balance due at both June 30, 2014 and 2013 of $25,000 with interest payable of $10,275 (2014) and $7,274 (2013).During the quarter ended June 30, 2012, $26,100 in accrued interest payable to an unaffiliated third party was converted to a convertible promissory note leaving an interest balance due of $5 at both June 30, 2014 and 2013.At June 30,December 31, 2014, the company owed $210,230$217,130 from unaffiliated third parties paid in Euros totaling 159,250. This principal amount due was $97,060 as of June 30, 2013.164,250. These notes are due one year from issuance with an interest rate of 10% and may be converted to AFPI common stock after six months outstanding and if AFPI's common stock begins trading again. A majority of these notes are beyond their maturity date and are therefore in default. As of June 30,March 31, 2015 and December 31, 2014, and 2013, there was a total of $18,702$35,378 and $2,094,$29,329, respectively, in interest payable on these notes.June 30, 2014March 31, 2015 and 2013.June 30, 2014March 31, 2015 and 2013: 2014 2013 Notes payable, non-affiliates; interest at 8% and due on demand $ 212,223 $ 415,451 Notes payable, non-affiliates; interest at 10% and due in March 2014-February 2015 210,230 97,060 Notes payable, non-affiliates; interest at 12% and due on demand 25,000 25,000 Notes payable 447,453 537,511 Interest payable, non-affiliates 82,100 43,327 Total principal and interest payable, other $ 529,553 $ 580,838 F-11ALUMIFUEL POWER CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2015 2014 we issuethe Company issues convertible promissory notes and debentures with conversion features that we have determined represent an embedded derivative as they are convertible into a variable number of shares upon conversion. Accordingly, these notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The Company believes that the aforementioned embedded derivatives meet the criteria of ASC 815 (formerly SFAS 133 and EITF 00-19), and should be accounted for separately as derivatives with a corresponding value recorded as a liability. Accordingly, the fair value of these derivative instruments are recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the notes in the period in which they are issued. Such discount is capitalized and amortized over the life of the notes. The change in the fair value of the liability for derivative contracts is credited to other income (expense) in the consolidated statements of operations at the end of each quarter. The face amount of the corresponding notes are stripped of their conversion feature due to the accounting for the conversion feature as a derivative, which is recorded using the residual proceeds to the conversion option attributed to the debt.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2009/2010 Convertible Debentures In September 2009 through January 2010 we issued $435,000 of 6% unsecured convertible debentures in transactions with private investors (the “Debentures”). Of that amount, $10,000 of these debentures remained unpaid as of The beneficial conversion feature (an embedded derivative) included in the Debentures resulted in an initial debt discount of $435,000 and an initial loss on the valuation of derivative liabilities of $71,190 for a derivative liability balance of $506,190 at Among other terms of the offering, the Debentures were originally due in January 2013, but At January 2012 Convertible Notes In January 2012 we issued two convertible notes of $25,000 each for a total of $50,000 to an unaffiliated third party investor. These notes 2014 Asher Convertible Notes In January 2014, the Company entered into a note agreement with an institutional investor for the issuance of a convertible promissory The 2014 Asher Convertible We received net proceeds from the 2014 Asher Convertible The beneficial conversion feature (an embedded derivative) included in the 2014 Asher Convertible During the year ended December 31, 2014, the holder converted a total of $21,000 in face value of the June 30, 2014.issuance.The fair value of the remaining Debentures were calculated at issue date utilizing the following assumptions: 11/15/2009 $ 77,778 3 years $ 0.045 $ 0.09 193 % 1.38 %
issuance.have beenwere extended to December 31, 2013. The Debentures are convertible at a conversion price equal to 75% of the lowest closing bid price per share of the Company’s common stock for the twenty (20) trading days immediately preceding the date of conversion.June 30, 2014,March 31, 2015, the Company revalued the derivative liability balance of the remaining outstanding Debentures. Therefore, forFor the period from their issuance to that date,Three months ended March 31, 2015, the Company has recorded an expense and decreasedincreased the previously recorded liabilities by $492,857$9 resulting in a derivative liability balance of $13,333$5,003 at June 30, 2014.The fair value of the Debentures was calculated at June 30, 2014 utilizing the following assumptions:F-12ALUMIFUEL POWER CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFair Value Term $ 13,333 3 years $ 0.000225 430 % .875 % arewere due six months from issuance, carry interest at 10% per annum and are convertible at $0.0012 per share. The Company has determined that the conversion feature does not represent an embedded derivative as the conversion price was known and was not variable making it conventional. The Company determined there was a beneficial conversion feature related to the January 2012 Convertible Notes based on the difference between the conversion price of $0.0012 and the market price of the Company’s common stock on the issue dates and recorded as interest expense $4,167 with an offset to additional paid-in capital. In January 2014, the Company agreed to allow the investor itto convert $1,700 of this note to stock at a discount to market of 50%. Accordingly, 34,000,000 shares were issued at a conversion price of $0.00005 per share.January 2012 Interest NoteIn January 2012, we convertedshare leaving a total of $26,100 in interest payable on $75,000 in notes of the Company and AFPI to an unaffiliated note holder to a convertible note. This note isbalance due in January 2013 and carries an interest rate of 8% per annum. The note is convertible into shares of our common stock at a 50% discount to the lowest three trading prices in the ten days prior to conversion.The beneficial conversion feature (an embedded derivative) included in the January 2012 Interest Note resulted in an initial debt discount of $26,100 and an initial loss on the valuation of derivative liabilities of $11,186 for a derivative liability balance of $37,286 at issuance.As of June 30, 2014, the holders converted the entire $26,100 principal plus $4,565 in accrued interest to 84,094,065 shares of our common stock, or $0.00036 per share. As a result of these transactions, the derivative liability was $0 as of June 30, 2014.2013 Asher Convertible NotesDuring the year ended December 31, 2013, the Company entered into note agreements with an institutional investor for the issuance of convertible promissory notes in the aggregate amount of $50,000 on the following dates and in the following amounts (the "2013 Asher Convertible Notes"):Date of Issue Amount Due Date 5/31/13 $ 27,500 February 24, 2014 7/31/13 $ 22,500 April 22, 2014 The 2013 Asher Convertible Notes are convertible at 50% of the average of the lowest three trading prices per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion and carry an interest rate of 8% per annum.We received net proceeds from the 2013 Asher Convertible Notes of $45,000 after debt issuance costs of $5,000 paid for lender legal fees. These debt issuance costs will be amortized over the terms of the 2013 Asher Convertible Notes or such shorter period as the Notes may be outstanding. As of June 30, 2014, $5,000 of these costs had been expensed as debt issuance costs.F-13ALUMIFUEL POWER CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe beneficial conversion feature (an embedded derivative) included in the 2013 Asher Convertible Notes resulted in total initial debt discounts of $50,000 and a total initial loss on the valuation of derivative liabilities of $38,500 for a derivative liability balance of $88,500 total at issuance.During the quarter ended March 31, 2014, the 2013 Asher Convertible Notes holders converted the remaining principal balance2015 of $39,610 plus $2,200 in interest to 228,309,524 shares of our common stock, or $0.00018 per share. As a result of all conversions, the Company recorded a decrease to the derivative liability of $79,220 taking it to $0.During the six months ended June 30,notesnote in the aggregate amount of $22,500 on the following dates and in the following amounts (the "2014 Asher Convertible Notes"):Date of Issue Amount Due Date 1/28/14 $ 22,500 October 22, 2014 Notes areNote is convertible at 50% of the average of the lowest three closing bid prices per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion and carrycarries an interest rate of 8% per annum.NotesNote of $20,000 after debt issuance costs of $2,500 paid for lender legal fees. These debt issuance costs will bewere amortized over the termsnine month term of the 2014 Asher Convertible Notes or such shorter period as the Notes may be outstanding. AsNote and of June 30,December 31, 2014, $1,389all of these costs had been expensed as debt issuance costs.NotesNote resulted in total initial debt discounts of $22,500 and a total initial loss on the valuation of derivative liabilities of $17,500$1,800 for a derivative liability balance of $45,000$24,300 total at issuance.The fairissuance.Converted AFPI Notesnote to 840,000 shares of our common stock, or $0.025 per share. As a result of this transaction, the Company recorded a decrease to the derivative liability of $22,680 and the balance due on the notes was calculated at issue date utilizing the following assumptions: Term 1/28/14 $ 22,500 9 months $ 0.0001 $ 0.0009 279 % 0.09 %
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding 2014 Asher Notes. Therefore, for the period from its issuance to June 30, 2014, the Company has recorded an expense and increased the previously recorded liabilities by $1,667Note resulting in a derivative liability balance of $46,667$2,240 at June 30, 2014.
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 35,000 | 9 months | $ | 0.000015 | 259 | % | 0.09 | % |
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
10/17/12 | $ | 10,000 | 1 year | $ | 0.00005 | $ | 0.0002 | 236 | % | 0.18 | % |
2014 and are convertible at 50% of the lowest closing price per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion.
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
11/29/12 | $ | 50,000 | 9 months | $ | 0.00005 | $ | 0.0001 | 255 | % | 0.16 | % | ||||||||||
11/30/12 | $ | 61,300 | 9 months | $ | 0.00005 | $ | 0.0001 | 255 | % | 0.16 | % |
During the year ended December 31, 2013 a private investor purchased a total of $118,351 in existing notes from one of our third party note holders and loaned an additional $32,000 in new notes for a total of $118,351 (together the “2013 CareBourn Notes”). The assumed notes have an interest rate of 6% per annum. The new notes are due in December 2013 and have an 8% interest rate.
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
2/5/13 | $ | 59,683 | 6 months | $ | 0.00005 | $ | 0.0001 | 271 | % | 0.11 | % | ||||||||||
3/7/13 | $ | 15,000 | 9 months | $ | 0.00005 | $ | 0.0001 | 295 | % | 0.13 | % | ||||||||||
3/22/13 | $ | 17,000 | 9 months | $ | 0.00005 | $ | 0.0001 | 295 | % | 0.13 | % | ||||||||||
11/14/13 | $ | 58,667 | 6 months | $ | 0.0004 | $ | 0.0002 | 133 | % | 0.10 | % |
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 25,102 | 6 months | $ | 0.00015 | 217 | % | 0.07 | % |
The beneficial conversion feature (an embedded derivative) included in the 2014 CareBourn Notes resulted in an initial debt discount of $180,000$205,000 and an initial loss on the valuation of derivative liabilities of $239,344$72,950 for a derivative liability balance of $419,344$277,950 at issuance.
During the year ended December 31, 2014, the note holders converted a total of $4,711 in face value of the 20132014 CareBourn Notes to 2,021,000 shares of our common stock, or $0.002 per share. As a result of the conversion of these notes, the Company recorded a decrease to the derivative liability and as of December 31, 2014, the total face value of the 2014 CareBourn Notes outstanding was calculated at issue date utilizing$250,289.
During the following assumptions:
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
1/1/14 | $ | 200,000 | 9 months | $ | 0.0001 | $ | 0.0003 | 258 | % | 0.11 | % | ||||||||||
1/2/14 | $ | 70,000 | 9 months | $ | 0.0001 | $ | 0.0003 | 258 | % | 0.11 | % | ||||||||||
2/18/14 | $ | 15,556 | 6 months | $ | 0.0009 | $ | 0.00045 | 250 | % | 0.07 | % | ||||||||||
5/1/13 | $ | 85,455 | 9 months | $ | 0.0055 | $ | 0.035 | 292 | % | 0.09 | % | ||||||||||
5/30/14 | $ | 33,333 | 9 months | $ | 0.0003 | $ | 0.0006 | 260 | % | 0.07 | % | ||||||||||
6/20/14 | $ | 15,000 | 9 months | $ | 0.0002 | 0.0003 | 260 | % | 0.09 | % |
At June 30, 2014,March 31, 2015, the Company revalued the derivative liability balance of the remaining outstanding 2014 CareBourn Notes. For the period from their issuance to that datethree months ended March 31, 2015 there was an decreaseno change in the fair value of $112,677 to the previously recorded liabilities resulting in a derivative liability balance of $306,667$242,363 at June 30, 2014.
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 230,000 | 9 months | $ | 0.00015 | 259 | % | 0.09 | % |
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
6/6/13 | $ | 31,660 | 1 year | $ | 0.0025 | $ | 0.0073 | 367 | % | 0.14 | % |
Bohn Convertible Note
In May 2013 we issued a $20,000 8% unsecured convertible note with a private investor (the “Bohn Convertible Note”). The Bohn Convertible Note is due in November at a conversion price of 75% of the lowest trading price per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion.
The beneficial conversion feature (an embedded derivative) included in the Bohn Convertible Note resulted in an initial debt discount of $20,000 and an initial loss on the valuation of derivative liabilities of $11,429 for a derivative liability balance of $31,429 at issuance.
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
6/6/13 | $ | 31,249 | 6 months | $ | 0.0028 | $ | 0.0060 | 292 | % | 0.08 | % |
At June 30, 2014March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding Bohn Convertible Note. Therefore, for the period from their issuance to June 30, 2014,March 31, 2015, the Company has recorded decreasedincreased the previously recordedderivative liabilities by $4,762$3,000 resulting in a derivative liability balance of $26,667$23,000 at June 30, 2014.
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 36,667 | 6 months | $ | 0.000015 | 218 | % | 0.07 | % |
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Wexford Convertible Note
In May 2013, we issued a $75,000 convertible note to the former landlord of API as part of a settlement agreement with respect to a Judgment by Confession entered against API in the Court of Common Pleas Philadelphia County in Philadelphia as described more fully in Note 7 - Commitments and Contingencies below. This note was due in May 2014 and carries an interest rate of 8% per annum. This note may be converted at any time beginning on November 30, 2013 into shares of our common stock at the average of the lowest three (3) Trading Prices for the common stock during the ten trading days prior to the Conversion Date. As this note is convertible at market, there is no imbedded derivative and therefore no corresponding derivative liability.
WHC Capital Notes
During the yearnine months ended December 31, 2013, an unaffiliated institutional investorSeptember 30, 2014, WHC purchased three notes totaling $19,900$101,300 from one of our third party note holders and issued a new notes in the amount of $10,000$45,000 for a total of $29,900$146,300 in amounts due (the "WHC Notes"). The WHC Notes may be converted at any time at a discount to market of 50% of the lowest closing price per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion as adjusted for splits and other events. This notes have an interest rate of 8% per annum and are due in June 2014.
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
7/25/13 | 18,078 | 11 months | 0.00115 | 0.0019 | 337 | % | 0.12 | % | |||||||||||||
8/13/13 | 7,000 | 11 months | 0.0005 | 0.0014 | 396 | % | 0.11 | % | |||||||||||||
11/26/13 | 20,000 | 12 months | 0.00015 | 0.0005 | 305 | % | 0.13 | % | |||||||||||||
12/6/13 | 10,000 | 12 months | 0.00015 | 0.0005 | 305 | % | 0.13 | % |
The beneficial conversion feature (an embedded derivative) included in the WHC 2014 Notes resulted in an initial debt discount of $49,600$146,300 and an initial loss on the valuation of derivative liabilities of $59,765$66,901 for a derivative liability balance of $129,365$213,201 at issuance.
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
3/6/14 | 93,365 | 12 months | 0.00085 | 0.0015 | 338 | % | 0.12 | % | |||||||||||||
3/14/14 | 36,000 | 12 months | 0.0005 | 0.0014 | 338 | % | 0.12 | % |
During the six monthsyear ended June 30,December 31, 2014, the note holders converted a total of $49,600$57,565 in face value and $234 in interest due on the WHC 2014 Notes to 120,331,4001,891,356 shares of our common stock, or $0.0004$0.03 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $90,298totaling $51,645 and as of June 30,December 31, 2014, the total face value of the WHC 2014 Notes outstanding was $20,000.
During the three months ended March 31, 2015, the note holders converted a total of $10,378 in face value on the WHC 2014 Notes to 44,315,300 shares of our common stock, or $0.0002 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability and as of March 31, 2015, the total face value of the WHC 2014 Notes outstanding was $78,358.
At June 30, 2014March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding WHC 2014 Notes. Therefore, forFor the period from their issuance to Junethree months ended March 30, 2014,2015, the Company has recorded an expense and increaseddecreased the previously recordedderivative liabilities by $4,000$11,623 resulting in a derivative liability balance of $40,000$87,761 at June 30, 2014.
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | InterestRate | |||||||||||
$ | 40,000 | 12 months | 0.00015 | 280 | % | 0.11 | % |
Schaper Notes
In December 2013 we issued a $15,000 8% unsecured convertible note with a private investor and in January 2014 issued an additional $10,000 note under the same terms (together the “Schaper Notes”). The Schaper Notes are due in August and October 2014 and have a conversion price of 50% of the lowest three trading prices per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion.
The beneficial conversion feature (an embedded derivative) included in the Schaper Notes resulted in an initial debt discount of $25,000 and an initial loss on the valuation of derivative liabilities of $15,000 for a derivative liability balance of $40,000 at issuance.
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
12/3/13 | $ | 20,000 | 9 months | $ | 0.00015 | $ | 0.0004 | 252 | % | 0.12 | % | ||||||||||
1/28/14 | $ | 20,000 | 9 months | $ | 0.0008 | $ | 0.0009 | 278 | % | 0.08 | % |
At June 30, 2014March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding Schaper Notes. Therefore, forFor the period from its issuance to June 30, 2014,three months ended March 31, 2015, the Company has decreasedincreased the previously recorded liabilities by $6,667$1,029 resulting in a derivative liability balance of $33,333$27,529 at June 30, 2014.
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 33,333 | 9 months | $ | 0.000015 | 259 | % | 0.09 | % |
JSJ Notes
In February 2014 wethe Company issued a $25,000 12% unsecured convertible note with a private investor (the “JSJ Convertible Note”). This note iswas due on August 14, 2014 and is convertible into common stock at 50% of the lowest three closing bid prices for the twenty (20) days immediate preceding the date of conversion.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The beneficial conversion feature (an embedded derivative) included in the JSJ Convertible Note resulted in an initial debt discount of $25,000 and an initial loss on the valuation of derivative liabilities of $8,333$1,500 for a derivative liability balance of $33,333$26,500 at issuance.
During the year ended December 31, 2014, the note holders converted a total of $18,377 in face value of the JSJ Convertible Note was calculated at issue date utilizingNotes to 2,066,015 shares of our common stock, or $0.009 per share. As a result of these transactions the following assumptions:
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
2/19/14 | $ | 33,333 | 6 months | $ | 0.0003 | $ | 0.0016 | 250 | % | 0.08 | % |
During the following assumptions:
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 26,667 | 6 months | $ | 0.00015 | 217 | % | 0.07 | % |
LG Funding Notes
In February 2014 we issued a $40,000 8% unsecured convertible note with a private investor (the “LG Convertible Note”).investor. This note iswas due on February 15, 2015 and is convertible into common stock at 50% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion. In JunJune 2014 we issued an additional $25,000 note to this same investor with the same terms and
We received net proceeds from the LG Convertible Note of $38,000$61,500 after debt issuance costs of $2,000.$3,500. These debt issuance costs will be amortized over the terms of the LG Convertible Notes or such shorter period as the Notes may be outstanding. As of June 30,December 31, 2014, $729$2,567 of these costs had been expensed as debt issuance costs.
The beneficial conversion feature (an embedded derivative) included in the LG Convertible NoteNotes resulted in an initial debt discount of $40,000$65,000 and an initial loss on the valuation of derivative liabilities of $5,000$5,200 for a derivative liability balance of $45,000$70,200 at issuance.
During the year ended December 31, 2014, the note holders converted a total of $10,600 in face value and $452 in accrued interest of the LG Funding Notes to 884,141 shares of our common stock, or $0.0125 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $11,448 and as of December 31, 2014, the total face value of the LG Convertible NoteFunding Notes outstanding was calculated at issue date utilizing$54,400.
During the following assumptions:
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
2/24/14 | $ | 45,000 | 1 year | $ | 0.0008 | $ | 0.0021 | 338 | % | 0.12 | % | ||||||||||
6/19/14 | $ | 50,000 | 1 year | $ | 0.00015 | $ | 0.0004 | 280 | % | 0.11 | % |
At June 30, 2014March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding LG Convertible Notes. Therefore, for the period from their issuance to June 30, 2014,March 31, 2015, the Company has decreased the previously recorded liabilities by $8,333$56,226 resulting in a derivative liability balance of $86,667$38,774 at June 30, 2014.
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 86,667 | 1 year | $ | 0.000015 | 280 | % | 0.11 | % |
Iconic Notes
In February 2014 wethe Company issued a $27,500 5% unsecured convertible note with a private investor (the “Iconic Convertible Note”). This note is due on February 26, 2015 and is convertible into common stock at 50% of the lowest trading price for the twenty-five (25) days immediate preceding the date of conversion.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company received net proceeds from the Iconic Convertible Note of $25,000 after debt issuance costs of $2,500. These debt issuance costs will be amortized over the terms of the Iconic Convertible Notes or such shorter period as the Notes may be outstanding. As of June 30,December 31, 2014, $833$2,135 of these costs had been expensed as debt issuance costs.
The beneficial conversion feature (an embedded derivative) included in the Iconic Convertible Note resulted in an initial debt discount of $27,500 and an initial loss on the valuation of derivative liabilities of $27,500$1,375 for a derivative liability balance of $55,000$28,875 at issuance.
In November 2014 the lender declared an event of default on the note for failure to maintain sufficient shares of the Company’s common stock in reserve for issuance under the note. As a result, the Company incurred $9,664 in default fees that are added to the principal balance of the note. In addition, the interest rate for the remaining balance of the note increased to 20%.
During the three months ended December 31, 2014, the note holder converted a total of $1,350 in face value of the Iconic Convertible Note was calculated at issue date utilizing the following assumptions:
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
3/3/14 | $ | 55,000 | 1 year | $ | 0.0002 | $ | 0.0018 | 338 | % | 0.12 | % |
During the following assumptions:
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 55,000 | 1 year | $ | 0.000015 | 280 | % | 0.11 | % |
ADAR Convertible Note
On June 30, 2013 wethe Company issued a $25,000 8% unsecured convertible note with a private investor (the “ADAR Convertible Note”). This note is due on February 20, 2015 and is convertible into common stock at 50% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion.
The Company received net proceeds from the ADAR Convertible Note of $23,500 after debt issuance costs of $1,500. These debt issuance costs will be amortized over the terms of the ADAR Convertible Notes or such shorter period as the Notes may be outstanding. As of June 30,December 31, 2014, $375$1,238 of these costs had been expensed as debt issuance costs.
The beneficial conversion feature (an embedded derivative) included in the ADAR Convertible Note resulted in an initial debt discount of $25,000 and an initial loss on the valuation of derivative liabilities of $55,000$2,000 for a derivative liability balance of $80,000$27,000 at issuance.
During the year ended December 31, 2014, the note holder converted a total of $7,500 in face value of the ADARAdar Convertible NoteNotes to 600,000 shares of our common stock, or $0.0125 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $8,100 and as of December 31, 2014, the total face value of the Adar Notes outstanding was calculated at issue date utilizing the following assumptions:
Issuance Date | Fair Value | Term | Assumed Conversion Price | Market Price on Grant Date | Volatility Percentage | Interest Rate | |||||||||||||||
3/31/14 | $ | 80,000 | 1 year | $ | 0.00045 | $ | 0.0008 | 340 | % | 0.13 | % |
At June 30, 2014March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding ADAR Convertible Note.Note resulting in a derivative liability balance of $18,900 at March 31, 2015.
Beaufort Notes
In November 2014 the Company issued a $16,000 unsecured convertible note with a private investor (the “Beaufort Note”). This note is due in May 2015 and is convertible into common stock at 50% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion. In addition, this investor also purchased $15,100 in promissory notes from the Gulfstream Trust for a total amount of notes outstanding of $31,100, which is convertible into common stock at 60% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion. The Beaufort Note accrues 5% interest only if it remains unpaid at maturity and only for the amount then owing at maturity through the payment date.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company received net proceeds from the Beaufort Note of $12,500 after debt issuance costs of $3,500. These debt issuance costs will be amortized over the terms of the Beaufort Note or such shorter period as the Note may be outstanding. As of December 31, 2014, $583 of these costs had been expensed as debt issuance costs.
The beneficial conversion feature (an embedded derivative) included in the Beaufort Notes resulted in an initial debt discount of $31,100 and an initial loss on the valuation of derivative liabilities of $1,244 for a derivative liability balance of $32,344 at issuance.
During the year ended December 31, 2014, the note holders converted a total of $1,739 in face value of the LG Funding Notes to 2,728,000 shares of our common stock, or $0.0006 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $1,656 and as of December 31, 2014, the total face value of the Beaufort Notes outstanding was $29,361.
During the three months ended March 31, 2015, the note holders converted a total of $13,361 in face value of the Beaufort Notes to 62,295,857 shares of our common stock, or $0.0002 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability and as of March 31, 2015, the total face value of the Beaufort Notes outstanding was $16,000.
At March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding Beaufort Notes resulting in a derivative liability balance of $16,640 at March 31, 2015.
Pure Energy 714 2015 Notes
During the quarter ended March 31, 2015, an unaffiliated institutional investor purchased a note totaling $21,000 in principal and 3,360 in accrued interest from one of our third party note holders and issued a new note in the amount of $24,360 (the "Pure Energy 2015 Note"). The Pure Energy 2015 Note may be converted at any time at a discount to market of 60% of the lowest closing price per share of the Company’s common stock for the thirty (30) trading days immediately preceding the date of conversion as adjusted for splits and other events. This notes have an interest rate of 8% per annum and are due in July 2015.
The beneficial conversion feature (an embedded derivative) included in the Pure Energy 2015 Note resulted in an initial debt discount of $24,360 and an initial loss on the valuation of derivative liabilities of $974 for a derivative liability balance of $25,334 at issuance.
During the three months ended March 31, 2015, the note holders converted a total of $12,150 in face value of the Pure Energy 2015 Note to 113,407,736 shares of our common stock, or $0.0001 per share. As a result of these transactions, the Company decreased the derivative liability and as of March 31, 2015, the total face value of the Pure Energy 2015 Note outstanding was $12,210.
At March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding Pure Energy 2015 Notes. Therefore, for the period from their issuance to JuneMarch 30, 2014,2015, the Company decreased the previously recorded liabilities by $30,000$12,636 resulting in a derivative liability balance of $50,000$12,698 at June 30, 2014.
Black Forest Capital 2015 Notes
During the quarter ended March 31, 2015, an unaffiliated institutional investor purchased notes totaling $15,000 in principal from one of our third party note holders and issued a new note in the amount of $15,000. In addition, this investor loaned the Company an additional $5,000 through a convertible note. These two notes together comprise a principal balance of $20,000 (together the “Black Forest Capital 2015 Notes”). The fair valuePure Energy 2015 Notes may be converted at any time at a discount to market of 50% of the Iconic Convertible Note was calculated at June 30, 2014 utilizinglowest closing price per share of the following assumptions:
Fair Value | Term | Assumed Conversion Price | Volatility Percentage | Interest Rate | |||||||||||
$ | 50,000 | 1 year | $ | 0.000015 | 280 | % | 0.11 | % |
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The beneficial conversion feature (an embedded derivative) included in the Black Forest Capital 2015 Notes resulted in an initial debt discount of $20,000 and an initial loss on the valuation of derivative liabilities of $1,100 for a derivative liability balance of $21,100 at issuance.
The Company received net proceeds from the Black Forest Capital 2015 Notes of $19,000 after debt issuance costs of $1,000. These debt issuance costs will be amortized over the terms of the Black Forest Capital 2015 Notes or such shorter period as the Notes may be outstanding. As of March 31, 2015, $83 of these costs had been expensed as debt issuance costs.
During the three months ended March 31, 2015, the note holders converted a total of $1,413 in face value of the Black Forest Capital 2015 Notes to 28,260,000 shares of our common stock, or $0.00005 per share. As a result of these transactions, the Company decreased the derivative liability and as of March 31, 2015, the total face value of the Black Forest Capital 2015 Note outstanding was $18,587.
At March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding Black Forest Capital Notes. Therefore, for the period from their issuance to March 30, 2015, the Company has recorded an expense and decreased the previously recorded liabilities by $1,470 resulting in a derivative liability balance of $19,630 at March 31, 2015.
CareBourn Capital 2015 Notes
During the three month period ended March 30, 2015 we issued a total of $65,600 in two 12% unsecured convertible notes with a private investor (together the “CareBourn 2015 Notes”). The CareBourn 2015 Notes are due in December 2015 and have a conversion price of 50% of the lowest trading price per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion.
The beneficial conversion feature (an embedded derivative) included in the CareBourn 2015 Notes resulted in an initial debt discount of $64,500 and an initial loss on the valuation of derivative liabilities of $4,354 for a derivative liability balance of $68,854 at issuance.
The Company received net proceeds from the CareBourn 2015 Notes of $58,500 after debt issuance costs of $6,000. These debt issuance costs will be amortized over the terms of the CareBourn 2015 Notes or such shorter period as the Notes may be outstanding. As of March 31, 2015, $333 of these costs had been expensed as debt issuance costs.
At March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding CareBourn 2015 Notes. There was no change for the period from its issuance to March 31, 2015, resulting in a derivative liability balance of $68,854 at March 31, 2015.
LG Capital 2015 Notes
During the three month period ended March 30, 2015 we issued a $31,500 8% unsecured convertible note with a private investor (the “LG 2015 Note”). The LG 2015 Note are due in February 2016 and have a conversion price of 50% of the lowest trading price per share of the Company’s common stock for the twenty (20) trading days immediately preceding the date of conversion.
The beneficial conversion feature (an embedded derivative) included in the LG 2015 Note resulted in an initial debt discount of $31,500 and an initial loss on the valuation of derivative liabilities of $3,780 for a derivative liability balance of $35,280 at issuance.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company received net proceeds from the LG 2015 Note of $30,000 after debt issuance costs of $1,500. These debt issuance costs will be amortized over the terms of the LG 2015 Note or such shorter period as the Notes may be outstanding. As of March 31, 2015, $250 of these costs had been expensed as debt issuance costs.
At March 31, 2015 the Company revalued the derivative liability balance of the remaining outstanding LG 2015 Note. There was no change for the period from its issuance to March 31, 2015, resulting in a derivative liability balance of $35,280 at March 31, 2015.
Convertible notes payable, net of discounts; and interest payable consisted of the following at June 30, 2014:
| March 31, 2015 |
| |||
Convertible debentures; non-affiliates; interest at 6% and due December 2013; outstanding principal of $10,000 face value; net of discount of $0 |
| $ | 10,000 |
| |
January 2012 Convertible Notes; non-affiliate; interest at 8%; due January 2013 | 48,300 |
| |||
2014 Asher Convertible Notes; non-affiliate, interest at 8%; due May 2012; $1,500 face value net of discount of $250 | 1,500 |
| |||
2014 CareBourn Notes; non-affiliate; interest at 8%-12; due August 14 through July 2015; $215,241 face value net of discount of $11,111 | 204,130 |
| |||
Bohn Convertible Note; non-affiliate; interest at 8%; $20,000 face value net of discount of $0 | 20,000 |
| |||
Wexford Convertible Note; non-affiliate; interest at 8%; $75,000 face value net of discount of $0 | 75,000 |
| |||
WHC Convertible Notes; non-affiliate; interest at 8%; $78,358 face value net of discount of $15,656 | 62,702 |
| |||
Schaper Notes; non-affiliate; interest at 8%; due August 2014; face value $25,000 net of discount of $0 | 25,000 |
| |||
LG Funding Notes; non-affiliate; interest at 8%; due February 2015; face value $34,060 net of discount of $5,208 | 28,852 |
| |||
ADAR Notes; non-affiliate; interest at 8%; due February 2015; face value $17,500 net of discount of $0 | 17,500 |
| |||
CareBourn 2015 Notes; non-affiliate; interest at 12%; due December 2015; $64,500 face value net of discount of $61,556 | 2,944 |
| |||
Black Forest Capital 2015 Notes; non-affiliate; interest at 10%; due March 2016; $18,587 face value net of discount of $12,962 | 5,625 |
| |||
LG Capital 2015 Notes; non-affiliate; interest at 8%; due February 2016; $31,500 face value net of discount of $26,250 | 5,250 |
| |||
Pure Energy 2015 Notes; non-affiliate; interest at 8%; due July 2015; $12,210 face value net of discount of $7,530 | 4,680 |
| |||
Beaufort Notes; non-affiliate; interest at 8%; due May 2015; face value $16,000 net of discount of $5,333 | 10,667 |
| |||
Total convertible notes, net of discount | 522,150 |
| |||
Discount on convertible notes | 145,606 |
| |||
Total convertible notes payable | 667,756 |
| |||
Interest payable, convertible notes | 137,873 |
| |||
Total convertible notes payable and accrued interest payable |
| $ | 791,908 |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5: Notes Receivable
At June 30, 2014March 31, 2015 there was $113,853$56,753 in loans due the Company from FastFunds Financial Corporation (“FFFC”), an affiliate in which the Company is a minority stockholder, to assist FFFC in payment of its ongoing payment obligations and protect the Company's investment. During the six months ended June 30, 2014, FFFC was able to repay $38,500This amount included $22,000 in principal on these loans. Management of the Company evaluated the likelihood of payment on these notes and has determined that an allowance of the entire balance due is appropriate. The Company has allowed for all interest due on these notes and did not record any interest receivablenew loans made during the six month periodquarter ended June 30, 2014.December 31, 2015 and $34,753 made in periods several years prior. As of June 30, 2013,March 31, 2014, FFFC owed the Company $206,353$138,853 and paid $66,250$13,500 against these notes. Given the uncertainty of payments on thesethe older notes, if payments are received they are considered recovery of allowed for debt in the case of principal and recorded in "other income (expense)" in our statements of operations while interest income is offset against interest expense.
As of June 30, 2014,March 31, 2015, the Company had $8,000 due from an affiliated publicly traded company. This note carries interest at 8% per annum and is due on demand. The entire principal balance of $8,000 plus $1,222 in accrued interest remained receivable and has been allowed for given management’s assessment that recovery of these amounts is unlikely.
Note 6: Other Expense
Other expense for the three and nine month periods ended June 30,March 31, 2015 and 2014 and 2013 consisted of the following:
Three months ended June 30, 2014 | Three months ended June 30, 2013 | Six months ended June 30, 2014 | Six months ended June 30, 2013 | |||||||||||||
General and administrative | $ | 20,346 | $ | 28,869 | $ | 45,354 | $ | 58,097 | ||||||||
Salaries and employee benefits | 53,425 | 53,698 | 113,767 | 112,248 | ||||||||||||
Legal and accounting | 16,965 | 13,155 | 34,015 | 21,655 | ||||||||||||
Bad debt expense | - | 1,400 | - | 1,400 | ||||||||||||
Recovery of allowed for debt | (25,000 | ) | (50,800 | ) | (38,500 | ) | (66,250 | ) | ||||||||
Professional services | 42,765 | 56,984 | 72,311 | 99,132 | ||||||||||||
$ | 108,501 | $ | 103,306 | $ | 226,947 | $ | 226,282 |
Three months ended March 31, 2015 | Three months ended March 31, 2014 |
| ||||||
General and administrative |
| $ | 31,249 |
|
| $ | 31,504 |
|
Salaries and employee benefits | 53,846 | 53,846 |
| |||||
Legal and accounting | 3,655 | 17,050 |
| |||||
Bad debt expense | - | - |
| |||||
Recovery of allowed for debt | (28,100 | ) | (13,500 | ) | ||||
Professional services | 20,100 | 29,546 |
| |||||
| $ | 80,750 |
|
| $ | 118,446 |
|
Note 7: Commitments and Contingencies
Payroll Liabilities
Following the formation of API in May 2008, HPI hired certain former employees of Hydrogen Power, Inc. and maintained an office in Seattle, Washington for a period of approximately five months. During that time, API paid wages to these employees without the benefit of a payroll management service. Upon API's move from Seattle to Philadelphia, Pennsylvania in October 2008, the Company retained the services of a payroll management service to handle its payroll functions. During the period from May to October 2008, the Company recorded $52,576 in payroll liabilities due from wages paid to its employees and has been recording estimated penalties and interest quarterly on the balance for an estimated balance due at December 31, 20132014 of $134,083.$150,059. During the sixthree months ended June 30, 2014March 31, 2015 an additional expense of $7,934$4,057 was recorded for a total accrued balance of $142,017$154,152 as of that date. This amount is included on the balance sheets at June 30, 2014March 31, 2015 as “payroll liabilities”.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8: Income Tax
The Company records its income taxes in accordance with Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”. The Company has incurred significant net operating losses since inception resulting in a deferred tax asset, which was fully allowed for; therefore, the net benefit and expense resulted in $-0- income taxes.
Note 9: Capital Stock
Common Stock
During the sixthree month period ended June 30, 2014,March 31, 2015, we issued a total of 1,553,063,509685,772,412 shares of our common stock on the conversion of $372,194$141,806 in principal and interest on our various convertible promissory notes. In addition to the converted principal and interest on the notes, the Company recorded $625,914 inreclassed $141,225 of derivative liabilities for to additional expense forpaid-in capital upon conversion of the derivative liability for a total cost to the Company of $589,939 or $0.00064 per share.
During the sixthree month period ended June 30, 2014,March 31, 2015, we issued 247,145,7134,000,000 shares of our common stock in stock for services valued at $16,000 based on the $0.004 market price for our common stock on the date of grant.
Preferred Stock
In August 2011, the Company authorized the issuance of up to noteholders upon750,000 shares of $0.001 par value Series B Preferred Stock (the "Series B Preferred"). The Series B Preferred has a stated value of $1.00 and pays a dividend of 8% payable quarterly in our common stock. In the conversionevent of $26,332 in promissory notes and accrued interest. In additiona liquidation of the Company, the holders of Series B Preferred then outstanding will be entitled to receive a liquidation preference, before any distribution is made to the faceholders of our common stock, in an aggregate amount equal to the par value of their shares of Series B Preferred. Each share of Series B Preferred is convertible into that number of shares of common stock on terms that are equal to (i) 100% of the Stated Value divided by (ii) 52% of the average of the three lowest day closing bid prices of the Company’s common stock for the 10 trading days immediately preceding the conversion. There is a Mandatory Conversion Date of July 12, 2016. At any time after the date of issuance of the Series B Preferred until the Mandatory Conversion Date, we may redeem, in cash, the Series B Preferred in accordance with the following: (a) if prior to or on the first anniversary of the date of issue at 105% of the Stated Value thereof and (b) if after the first anniversary of the date of issue and prior to the Mandatory Conversion Date at 110% of the Stated Value thereof (the “Redemption Price”).
There were 404,055 shares of our Series B Preferred Stock outstanding at March 31, 2015 and 2014. There were $118,365 and $86,042 in dividends payable on our Series B Preferred stock at March 31, 2013 respectively, including $7,970 in dividends accrued in each of the three month periods then ended.
The Company previously recorded the value of the notes,preferred stock in equity and has determined that liability classification is required because the CompanySeries B Preferred Stock is convertible into a variable number of shares based on a fixed dollar amount. Accordingly, $18,835 in accretion was recorded $229,806 in additionalas interest expense for the difference between the conversion price and the market price on the issuance dates for a total cost to the Company of $256,138 or $0.0009 per share.
ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warrants A summary of the activity of the Company’s outstanding warrants at December 31, Outstanding and exercisable at December 31, 2014 4,520 $ 107.00 $ 17.50 Outstanding and exercisable at March 31, 2015 4,520 $ 107.00 $ 17.50 The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives of the warrants by groups as of 20132014 and June 30, 2014March 31, 2015 is as follows: Warrants Weighted-average exercise price Weighted-average grant date fair value Outstanding and exercisable at December 31, 2013 1,130,000 $ 0.43 $ 0.07 Granted - - - Expired/Cancelled - - - Exercised - - - Outstanding and exercisable at June 30, 2014 1,130,000 $ 0.43 $ 0.07 F-27ALUMIFUEL POWER CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSWarrants Weighted-
average
exercise priceWeighted-
average grant
date fair value June 30, 2014:Exercise price range $0.01 40,000 0.01 1.9 years $0.20 to $0.80 1,050,000 0.39 2.0 years $2.00 40,000 2.00 2.4 years 1,130,000 $ 0.43 2.0 years
Exercise | Number of options outstanding | Weighted-average exercise price | Weighted-average remaining life |
| ||||||||
$2.50 | 160 | $ | 2.50 | 1.2 years |
| |||||||
$75.00 - $200.00 | 4,200 | 96.43 | 1.8 years |
| ||||||||
$500.00 | 160 | 500.00 | 1.7 years |
| ||||||||
4,520 | $ | 107.00 | 1.7 years |
|
Note 10: Subsequent Events
During the period from April 1, 2015 to June 30, 2014,May 5, 2015, the Company has issued 100,000,000717,201,728 shares of common stock upon the conversion of $10,000$34,285 in principal and interest on certain convertible promissory notes issued by the Company.
Management has determined that there are no further events subsequent to the balance sheet date that should be disclosed in these financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General:
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 20132014 and 2012.
The independent auditors’ reports on our financial statements for the years ended December 31, 20132014 and 20122013 include a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 1 to the audited consolidated financial statements for the year ended December 31, 2013.
While we have prepared our financial statements on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern in their audit reports for the years ended December 31, 20132014 and 2012.
We have completed the design and engineering modifications necessary and have begun limited production of our Portable Balloon Inflation Systems. In September 2012, the Company received a purchase order from the U.S. Air Force to make certain modifications to a PBIS-2000 previously delivered in 2012. The unit was returned to the Air Force in the first quarter of 2013 and we booked $13,440 in revenue received for this work.
During 2013, we transferred all of the assets related to our hydrogen generation business to a new wholly owned subsidiary, Novofuel, Inc. ("Novofuel") in exchange for 12,000,000 shares of Novofuel common stock. Novofuel was formed as a separate entity in anticipation of executing a transaction with Genport, SrL of Italy. In November 2013, the Company signed an agreement with Genport, SrL of Italy to combine and integrate their technologies, assets and operations into NovoFuel, contingent upon closing of private financing of up to $4,500,000 for the venture. While the NovoFuel and Genport continue to work together, to date no private financing has been received and no combination or integration of NovoFuel and Genport has taken place.
NovoFuel's principal technology continues to be allocatedhydrogen generation on-site and on demand for such applications as feeding fuel cells to Genport shareholders in exchangeprovide electricity, filling weather balloons for 100%upper atmosphere readings, and providing power for unmanned undersea vehicle propulsion and surveillance operations. Government users typically are the early adopters of Genport shares. Although Genport would then benew technologies, and that is the case with NovoFuel's technology. However, with recent federal budget cuts, the procurement process and new technology R&D funding relating to NovoFuel's systems have come to a wholly-owned subsidiary of NovoFuel, Genport, SrL would retain its status as an Italianvirtual standstill. This has caused the company under Italian law. Following the closing of the transaction, if it occurs, NovoFuel will have operations in the United States and Italy.
Renewable Energy Applications. The Company believes most promising initiative currently being pursued by NovoFuel involves the integration of hybrid Renewable Energy Systems (RES) to support medical cannabis cultivation. NovoFuel's RES Power Station application is currently pursuing potential backup and/intended to include wind turbines, solar panels, large format lithium-ion batteries, hydrogen fuel cells when necessary, and a real-time energy management and control module. The initial thrust into this market focuses on establishing a pilot site in Michigan for proof of concept, which is presently being developed.
At the present time, cannabis growing for medicinal purposes is legalized in 23 U.S. states, and there is pending legislation to follow suit in approximately 10 other states. Cannabis growing is legalized throughout Canada. This has become a major growth industry, with billions of dollars expected to be expended over the next several years. This rapid growth and energy intensive profile have triggered a serious problem regarding the use of local grid power to assure successful cultivation – involving special lights, heat, air conditioning, dehumidifiers, driers and other ancillary equipment for indoor locations. Even a typical one room indoor facility can use up to 10kW of power daily, which can be a tremendous burden on the local power utilities.
Renewable Energy Systems are the fastest growing power source globally (6% per year) -- expected to increase by 40% and comprise 25% of gross power generation by 2018. (See "Renewable Energy Medium-Term Market Report 2013 -- Market Trends and Projections to 2018", International Energy Agency, 2013; and "Solar Energy Use in U.S. Agriculture", USDA, April 2011).
Although we have done the work necessary to locate a pilot site in Oceana County, Michigan to build an operating RES system, there is no assurance we will be able to raise the funds necessary to complete installation of the necessary components or primary power applications forif we do, that the system will function as intended such that a commercially viable product will be produced.
PATENT APPROVAL. NovoFuel was notified by the U.S. Patent and Trademark office (USPTO) that the provisional patent on its hydrogen generation technology related to cannabis growing operations.
LIQUIDITY AND CAPITAL RESOURCES
To address the going concern situation addressed in our financial statements at December 31, 20132014 and 2012,2013, we anticipate we will require over the next twelve months approximately $900,000$800,000 of additional capital to fund the Company’s operations, not including any financing contemplated for the Novofuel/Genport transaction.operations. This amount also does not include any amounts that may be necessary to pay off existing debt or accrued expenses. We presently believe the source of funds will primarily consist of several components that include: debt financing, which may include further loans from our officers or directors as detailed more fully in the accompanying financial statements; the sale of our equity securities in private placements or other equity offerings or instruments; as well as the potential for very minimal cash flows from operations through the production of PBIS reactors and the resultant sales of AlumiFuel cartridges.instruments. As in 2013,2014, during 20142015 and for the foreseeable future we anticipate our primary source of capital resources will come from convertible debt instruments. These instruments typically contain a significant discount to the market value of our common stock of up to 65%60% causing the issuance of shares below market value prices causing substantial and continual dilution to our stockholders.
We can make no assurance that we will be successful in raising the funds necessary for our working capital requirements as suitable financing may not be available and we may not have the ability to sell either equity or debt securities under acceptable terms or in amounts sufficient to fund our needs. Our inability to access various capital markets or acceptable financing could have a material adverse effect on our commercialization efforts, results of operations and deployment of our business strategies and severely threaten our ability to operate as a going concern.
During the remainder of our fiscal year and for the foreseeable future, we will be concentrating on raising the necessary working capital through debt instruments and equity financing to insure the operation of our business. To the extent that additional capital is raised through the sale of equity or equity related securities such as convertible notes, which is expected to be our primary source of capital, the issuance of such securities has resulted, and will continue to result, in significant continued dilution to our current shareholders.
(b) Results of Operations
Three Month Period ended June 30,March 31, 2015 vs March 31, 2014 vs June 30, 2013
For both the sixthree month periods ended June 30,March 31, 2015 and 2014, and 2013, our total revenue was $0 and $13,440, respectively. The revenue in the June 30, 2013 period was received from the US Air Force for modifications to the PBIS-2000 unit delivered to them in 2012.$0. The loss from operations for the sixthree month period ended June 30, 2014March 31, 2015 was $394,622$164,260 versus $405,318$202,937 in the sixthree month period ended June 30, 2013.March 31, 2014. This decrease in 20142015 was primarily the result of losses associated with the PBIS-2000 modificationsa decrease in the 2013 period.“other” expense as described more fully below. The losses included $167,507$83,510 and $167,069$84,407 in 20142015 and 2013,2014, respectively, comprised of related party expense that included officer and key employee management feescompensation as well as rent paid to related parties.
A total of $226,947$80,750 and $226,282$118,446 for “Other” operating expenses in the sixthree month periods ended June 30,March 31, 2015 and 2014, and 2013, respectively, was comprised of the following:
Six months ended June 30, 2014 | Six months ended June 30, 2013 | |||||||
General and administrative | $ | 45,354 | $ | 58,097 | ||||
Salaries and employee benefits | 113,767 | 112,248 | ||||||
Legal and accounting | 34,015 | 21,655 | ||||||
Bad debt expense | - | 1,400 | ||||||
Recovery of allowed for debt | (38,500 | ) | (66,250 | ) | ||||
Professional services | 72,311 | 99,132 | ||||||
$ | 226,947 | $ | 226,282 |
Three months ended March 31, 2015 | Three months ended March 31, 2014 |
| ||||||
General and administrative |
| $ | 31,249 |
|
| $ | 31,504 |
|
Salaries and employee benefits | 53,846 | 53,846 |
| |||||
Legal and accounting | 3,655 | 17,050 |
| |||||
Bad debt expense | - | - |
| |||||
Recovery of allowed for debt | (28,100 | ) | (13,500 | ) | ||||
Professional services | 20,100 | 29,546 |
| |||||
| $ | 80,750 |
|
| $ | 118,446 |
|
The “other” operating expense during the three months ended March 31, 2015 included virtually no change in other operating expense totals from 2014 to 2013. The Company experienced a change in the mix of expenses with lower general and administrative expenses as well as professional services expenses in the 2014 period versus the 2013 period.and salaries and employee benefits expenses. The Company recovered $38,500$14,600 in increased bad debt expense from payments received on notes receivable from affiliate FastFunds Financial Corporation in 2015 which also contributed to the lower expense. Legal and accounting expense was significantly lower in 2015 versus 2014 as comparedresulting primarily from lower legal costs. Professional services was also slightly lower due in part to $66,250approximately $16,000 in services paid for with shares of the 2013 period.
The company recorded $819,827$212,651 in “other expense” during the sixthree months ended June 30, 2014March 31, 2015 as compared to $33,772$617,060 in “other expense” for the sixthree months ended June 30, 2013.March 31, 2014. This significant decrease is the direct result of recording $351,232 for the the settlement of rent payable on the Company’s Philadelphia laboratory in 2013. In addition, adjustmentslower overall costs related to derivative liabilities related to the Company's variousCompany’s convertible notes including a significant increase inprimarily from significantly lower interest expense and amortization of discounts related to conversions during the six months ended June 30, 2014 resulted in an increase of over $500,000 in derivative liability related expense.
Three months ended June 30, 2014 | Three months ended June 30, 2013 | |||||||
General and administrative | $ | 20,346 | $ | 28,869 | ||||
Salaries and employee benefits | 53,425 | 53,698 | ||||||
Legal and accounting | 16,965 | 13,155 | ||||||
Bad debt expense | - | 1,400 | ||||||
Recovery of allowed for debt | (25,000 | ) | (50,800 | ) | ||||
Professional services | 42,765 | 56,984 | ||||||
$ | 108,501 | $ | 103,306 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have limited exposure to market risks related to changes in interest rates. We do not currently invest in equity instruments of public or private companies for business or strategic purposes.
The principal risks of loss arising from adverse changes in market rates and prices to which we are exposed relate to interest rates on debt. We have only fixed rate debt. We had $1,014,591approximately $1,055,000 of debt outstanding as of June 30, 2014March 31, 2015 including convertible debentures and notes with a face value totaling $612,126,$667,756, which has been borrowed at fixed rates ranging from 8% to 12%. All of this fixed rate debt is due on demand or is due during the current fiscal year.
Item 4T. Controls and Procedures Evaluation of Disclosure Controls and Procedures A review and evaluation was performed by the Company's management, including the Company's Chief Executive Officer (the "CEO") who is also the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that review and evaluation, the CEO concluded that as of Management’s Report on Internal Controls over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: · Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; · Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and · Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our CEO/CFO has evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to the extent possible given the limited personnel resources and technological infrastructure in place to perform the evaluation. Based upon our management’s discussions with our auditors and other advisors, our CEO/CFO believe that, during the period covered by this report, such internal controls and procedures were not effective as described below. Due to the small size and limited financial resources, our administrative assistant, corporate secretary and chief executive officer are the only individuals involved in the accounting and financial reporting. As a result, there is limited segregation of duties in the accounting function, leaving all aspects of financial reporting and physical control of cash primarily in the hands of two individuals. This limited segregation of duties represents a material weakness. We will continue to periodically review our disclosure controls and procedures and internal control over financial reporting and make modifications from time to time considered necessary or desirable. This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report. Changes in Internal Control over Financial Reporting There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.June 30, 2014March 31, 2015 disclosure controls and procedures, were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.6• • • 7
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities
During the three month period ended June 30, 2014,March 31, 2015, we issued a total of 582,292,590685,772,412 shares of our common stock on the conversion of $161,676$141,806 in principal and interest on our various convertible promissory notes. In addition to the converted principal and interest on the notes, the Company recorded $246,193 in additional expense for the derivative liability for a total cost to the Company of $407,869 or $0.0007$0.0002 per share.
During the three month period ended June 30, 2014,March 31, 2015, we issued 42,965,4814,000,000 shares of our common stock to a noteholder upon conversion of $7,132 in promissory notes and accrued interest. In addition tostock for services valued at $16,000 based on the face value of the notes, the Company recorded $10,054 in additional expense for the difference between the conversion price and the$0.004 market price for our common stock on the issuance dates for a total cost to the Companydate of $17,186 or $0.0004 per share.
We offered and sold the securities in reliance on an exemption from federal registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We relied on this exemption and rule based on the fact that there were a limited number of investors, all of whom were accredited investors and (i) either alone or through a purchaser representative, had knowledge and experience in financial and business matters such that each was capable of evaluating the risks of the investment, and (ii) we had obtained subscription agreements from such investors indicating that they were purchasing for investment purposes only. The securities were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The disclosure contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities of the Company, and is made only as permitted by Rule 135c under the Securities Act.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits: | ||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
101 | XBRL Interactive Data File. Filed herewith. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALUMIFUEL POWER CORPORATION | |||
(Registrant) | |||
Date: | By: | /s/ Henry Fong | |
Henry Fong | |||
Principal Executive Officer and | |||
Principal Financial Officer |