UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | March 31, 2015 |
| or |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | to |
| Commission File No. | 000-52297 |
| FBEC Worldwide, Inc. |
| (Exact name of registrant as specified in its charter) |
| Wyoming | 06-1678089 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1621 Central Ave Cheyenne, WY | 82001 | |
| (Address of principal executive offices) | (Zip Code) | |
| 714-330-3798 | ||
| (Registrant’s telephone number, including area code) | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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
The number of shares outstanding of the Registrant’s Common Stock as of June 26, 2015 was 222,490,167.
| FBEC WORLDWIDE, INC. | ||||
| INDEX | ||||
| Page | ||||
| PART I - FINANCIAL INFORMATION | ||||
| Item. 1 | Financial Statements | |||
Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited) | 3 | |||
Consolidated Statements of Operations for the three months ended March 31, 2015 and the period from January 13, 2014 (date of inception) through March 31, 2014 (Unaudited) | 4 | |||
Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and the period from January 13, 2014 (date of inception) through March 31, 2014 (Unaudited) | 5 | |||
| Notes to the Unaudited Consolidated Financial Statements | 6 | |||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risks | 14 | ||
| Item 4. | Controls and Procedures | 14 | ||
| Part II - OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 16 | ||
| Item 1A. | Risk Factors | 16 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 | ||
| Item 3. | Defaults Upon Senior Securities | 16 | ||
| Item 4. | Mine Safety Disclosures | 16 | ||
| Item 5. | Other Information | 16 | ||
| Item 6. | Exhibits | 17 | ||
2
| FBEC WORLDWIDE, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (UNAUDITED) | ||||||||
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | - | $ | - | ||||
| Total assets | $ | - | $ | - | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 17,327 | $ | 15,281 | ||||
| Accrued compensation | 61,000 | 23,500 | ||||||
| Advances | 22,675 | 22,675 | ||||||
| Notes payable to related parties | 26,625 | 26,625 | ||||||
| Convertible notes payable | 131,439 | 131,439 | ||||||
| Derivative liabilities | 262,879 | 902,551 | ||||||
| Total current liabilities | 521,945 | 1,122,071 | ||||||
| Stockholders' Deficit: | ||||||||
| Preferred stock - par value $0.001; 20,000,000 shares authorized; | ||||||||
| 10,000 shares issued and outstanding | 10 | 10 | ||||||
Common stock - par value $0.001; 5,000,000,000 shares authorized; | ||||||||
| 2,244,413 shares issued and outstanding | 2,244 | 2,244 | ||||||
| Additional paid-in capital | 132,568 | 132,567 | ||||||
| Accumulated deficit | (656,767 | ) | (1,256,892 | ) | ||||
| Total stockholders' deficit | (521,945 | ) | (1,122,071 | ) | ||||
| Total liabilities and stockholders' deficit | $ | - | $ | - | ||||
The accompanying footnotes are an integral part of these condensed unaudited financial statements.
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| FBEC WORLDWIDE, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (UNAUDITED) | ||||||||
Three Months Ended March 31, 2015 | January 13, 2014 (inception) through March 31, 2014 | |||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | $ | 39,546 | $ | 48,149 | ||||
| Total operating expenses | 39,546 | 48,149 | ||||||
| Loss from operations | (39,546 | ) | (48,149 | ) | ||||
| Gain (loss) on derivative liabilities | 639,672 | (94,978 | ) | |||||
| Loss on extinguishment of liabilities | - | (14,600 | ) | |||||
| Interest expense | - | (10,067 | ) | |||||
| Total other income (expense) | 639,672 | (119,645 | ) | |||||
| Income (loss) before taxes | 600,126 | (167,794 | ) | |||||
| Provision for income taxes | - | - | ||||||
| Net income (loss) | $ | 600,126 | $ | (167,794 | ) | |||
| Earnings (loss) per share, basic | $ | 0.27 | $ | (1.14 | ) | |||
| Loss per share, diluted | $ | (0.00 | ) | $ | (1.14 | ) | ||
| Weighted average number of shares outstanding, | ||||||||
| basic | 2,244,413 | 147,398 | ||||||
| Weighted average number of shares outstanding, | ||||||||
| diluted | 89,870,720 | 147,398 | ||||||
The accompanying footnotes are an integral part of these condensed unaudited financial statements.
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| FBEC WORLDWIDE, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (UNAUDITED) | ||||||||
Three Months Ended March 31, 2015 | January 13, 2014 (inception) through March 31, 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 600,126 | $ | (167,794 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in | ||||||||
| operating activities: | ||||||||
| (Gain) loss on change in fair value of derivative liabilities | (639,672 | ) | 94,978 | |||||
| Amortization of debt discounts | - | 10,000 | ||||||
| Stock issued for services | - | 24,000 | ||||||
| Loss on extinguishment of liabilities | - | 14,600 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | 2,046 | (1,784 | ) | |||||
| Accrued expenses and other current liabilities | 37,500 | 16,000 | ||||||
| Net cash flows used in operating activities | - | (10,000 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from convertible notes payable | - | 10,000 | ||||||
| Net cash flows provided by financing activities | - | 10,000 | ||||||
| Increase in cash | - | - | ||||||
| Cash, beginning of period | - | - | ||||||
| Cash, end of period | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | - | - | ||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued in reverse merger | $ | - | $ | 1,093,332 | ||||
| Resolution of derivative liabilities | - | 92,800 | ||||||
| Debt discount due to derivative liabilities | - | 10,000 | ||||||
| Founders shares | - | 10 | ||||||
| Common shares issued and held in escrow | - | 15 | ||||||
| Common stock issued for conversion of debt | - | 40,000 | ||||||
| Common stock issued for settlement of liabilities | - | 1,500 | ||||||
| Common stock issued for settlement of liabilities to related parties | - | 93,500 | ||||||
The accompanying footnotes are an integral part of these condensed unaudited financial statements.
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FBEC WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION, GOING CONCERN AND CORRECTION OF PRIOR YEAR INFORMATION
Interim Financial Reporting
While the information presented in the accompanying interim financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"). All adjustments are of a normal, recurring nature. Interim financial statements and the notes thereto do not contain all of the disclosures normally found in year-end audited financial statements and these Notes to Financial Statements are abbreviated and contain only certain disclosures related to the three month period ended March 31, 2015. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2014 as reported in the Form 10-K have been omitted. It is suggested that these interim financial statements be read in conjunction with our audited financial statements and related notes for the year ended December 31, 2014 included in our Form 10-K filed with the Securities Exchange Commission on June 23, 2015. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that can be expected for the period from January 1, 2015 through December 31, 2015.
Earnings Per Share
We present both basic and diluted earnings per share (“EPS”) amounts in our financial reporting. Basic EPS excludes dilution and is computed by dividing income available to Common Stock holders by the weighted-average number of Common Stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our convertible debt. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period. During the three months ended March 31, 2015, the dilutive effect of the shares underlying the outstanding convertible debt of the Company was 87,626,307 and a reduction to net income of $639,672. During the three months ended March 31, 2014, the shares underlying the outstanding convertible debt were excluded as their effect would have been anti-dilutive.
Going Concern
The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business. At March 31, 2015, the Company has an accumulated deficit of $656,767 and has a working capital deficit of $521,945. These matters raise substantial doubt about the Company's ability to continue as a going concern. These unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties, nor do they include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation. The Company’s ability to continue in business is dependent upon obtaining sufficient financing or attaining profitable operations. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.
Correction of Prior Year Information
During the audit of the year ended December 31, 2014, we identified errors in previously reported financial statements for the interim quarters of 2014. These errors were in the valuation and accounting for stock issued for services and the the valuation and accounting for derivative liabilities. This resulted in adjustments to the previously reported amounts in the consolidated financial statements for the quarter ended March 31, 2014.
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In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated these errors and, based upon an analysis of quantitative and qualitative factors, determined that the error was immaterial to each of the prior reporting periods affected. However, if the adjustments to correct the cumulative effect of the above error had been recorded in the quarter ended March 31, 2014, the Company believes that the impact would have been significant and would impact comparisons to prior periods. Therefore, as permitted by SAB 108, the Company corrected, in the current filing, previously reported results as of and for the quarter ended March 31, 2014.
The following table presents the comparative effect of the correction to the prior quarter information and the impact on the Company’s consolidated financial statements as of and for the quarter ended March 31, 2014:
| March 31, 2014 | ||||||||||||
| As Reported | Adjustments | As Ameded | ||||||||||
| Consolidated Balance Sheet | ||||||||||||
| Liabilities and Stockholders’ Deficit | ||||||||||||
| Current Liabilities: | ||||||||||||
| Derivative liabilities | $ | 456,519 | $ | 156,386 | $ | 612,905 | ||||||
| Convertible notes payable | 241,037 | 9,302 | 250,339 | |||||||||
| Stockholders’ Deficit | ||||||||||||
| Additional paid-in capital | 390,395 | (1,217,554 | ) | (827,159 | ) | |||||||
| Accumulated deficit | (1,219,660 | ) | 1,051,866 | (167,794 | ) | |||||||
| Consolidated Statement of Operations | ||||||||||||
| Operating Expenses: | ||||||||||||
| Selling, general and administrative | $ | 87,667 | $ | (39,518 | ) | $ | 48,149 | |||||
| Other Income (Expenses): | ||||||||||||
| Interest expense | (7,935 | ) | (2,132 | ) | (10,067 | ) | ||||||
| Derivative gain (loss) | 236,899 | (331,877 | ) | (94,978 | ) | |||||||
| Debt settlement loss | (79,230 | ) | 64,630 | (14,600 | ) | |||||||
| Net income (loss) | 62,067 | (229,861 | ) | (167,794 | ) | |||||||
| Income (loss) per share, basic | $ | 0.42 | $ | (1.56 | ) | $ | (1.14 | ) | ||||
| Income (loss) share, diluted | $ | (0.51 | ) | $ | (0.63 | ) | $ | (1.14 | ) | |||
| Consolidated Statement of Cash Flows | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | 62,067 | $ | (229,861 | ) | $ | (167,794 | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||
(Gain) loss on change in fair value of derivative liabilities | (236,899 | ) | 331,877 | 94,978 | ||||||||
| Amortization of debt discounts | - | 10,000 | 10,000 | |||||||||
| Stock issued for services | 50,600 | (26,600 | ) | 24,000 | ||||||||
| Loss on settlement of debt | 79,230 | (64,630 | ) | 14,600 | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts payable | (1,198 | ) | (586 | ) | (1,784 | ) | ||||||
| Accrued expenses and current liabilities | 28,415 | (12,415 | ) | 16,000 | ||||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Common stock issued in reverse merger | $ | 1,281,727 | $ | (188,395 | ) | $ | 1,093,332 | |||||
| Resolution of derivative liabilities | - | 92,800 | 92,800 | |||||||||
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| Debt discount due to derivative liabilities | - | 10,000 | 10,000 | |||||||||
| Founders shares | - | 10 | 10 | |||||||||
| Common shares issued and held in escrow | 15,000 | (14,885 | ) | 15 | ||||||||
| Common stock issued for conversion of debt | - | 40,000 | 40,000 | |||||||||
| Common stock issued for settlement of liabilities | 129,001 | (127,501 | ) | 1,500 | ||||||||
Common stock issued for settlement of liabilities to related parties | - | 93,500 | 93,500 |
NOTE 2 – STOCKHOLDERS’ DEFICIT
The Company is authorized to issue up to 5,000,000,000 shares of common stock at $0.001 par value per share and 20,000,000 shares of preferred stock at $0.001 par value per share. As of March 31, 2015 and December 31, 2014, the Company had 2,244,413 shares of common stock and 10,000 shares of Series A preferred stock issued and outstanding.
NOTE 3 – RELATED PARTIES
During 2014, liabilities owed to Mr. Birmingham, an affiliate of the Company, of $9,767 and to Sweet Challenge, Inc., an entity controlled by Mr. Birmingham, of $16,858 were converted to notes payable totaling $26,625. The notes are unsecured, due on demand and bear no interest. The outstanding balance under the notes was $26,625 as of March 31, 2015 and December 31, 2014.
As of March 31, 2015 and December 31, 2014, the Company has outstanding advances to former officers and directors aggregating $22,675. The advances are unsecured, due on demand and bear no interest.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
At March 31, 2015 and December 31, 2014, convertible notes payable consisted of the following:
March 31, 2015 and December 31, 2014 | ||||
| Convertible notes payable | $ | 131,439 | ||
| Unamortized debt discounts | - | |||
| Total | $ | 131,439 | ||
Certain of the Company’s outstanding convertible notes are secured by 15,000 common shares of the Company which were issued and held in escrow as of March 31, 2015 and December 31, 2014.
The outstanding convertible notes bear no interest, are due on demand and are convertible into common stock at variable rates based upon discounts to the market price of the common stock. The Company identified embedded derivatives related to the outstanding convertible notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the convertible notes and to adjust the fair value as of each subsequent balance sheet date. At December 31, 2014, the aggregate fair value of the outstanding derivative liabilities was determined to be $902,551. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions:
| Dividend yield: | -0- | % | ||
| Market price of common stock: | $0.0103 | |||
| Expected volatility: | Maximum | |||
| Risk free rate: | 0.05 | % |
8
The fair value of the outstanding embedded derivatives of $262,879 at March 31, 2015 was determined using the Black Scholes Option Pricing Model with the following assumptions:
| Dividend yield: | -0- | % | ||
| Market price of common stock: | $0.0090 | |||
| Expected volatility: | Maximum | |||
| Risk free rate: | 0.05 | % |
At March 31, 2015, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $639,672 for the three monthes ended March 31, 2015.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of March 31, 2015 and December 31, 2014:
9
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| March 31, 2015 | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | 262,879 | $ | - | $ | - | $ | 286,879 | ||||||||
| December 31, 2014 | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | 902,551 | $ | - | $ | - | $ | 902,551 | ||||||||
The derivative liabilities are measured at fair value using the Black Scholes Option Pricing Model including quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2015:
Derivative Liabilities | ||||
| Balance, December 31, 2014 | $ | 902,551 | ||
| Additions at fair value | - | |||
| Change in fair value | (639,672 | ) | ||
| Balance, March 31, 2015 | $ | 262,879 | ||
NOTE 6– SUBSEQUENT EVENTS
In April 2015, the Company agreed to settle the $9,767 owed to Birmingham and $16,858 owed to Sweet Challenge, Inc. by issuing convertible stock at a 50% discount to market on the closing price from the day prior to conversion.
On April 28, 2015 Vinyl Groove Productions sold controlling interest of the Company to S & L Capital LLC.
In April 2015, the Company entered into a convertible debt agreement for $50,250, with an original issue discount of $5,000 with 8% interest per annum. The notes are convertible at a 40% discount to the lowest market price in the 20 days prior to conversion. The note is due October 30, 2015.
In May 2015, the Company appointed Daran Hamans to the Board of Directors.
In April 2015, the Company entered into a consulting agreement with Yorkshire Capital LLC. A retainer of $225,000 plus a management fee of $30,000 and 10% of any acquisition closed with the assistance of Yorkshire Capital LLC will be paid.
In May 2015, the Company entered into two convertible debt agreements with total principal amount of $65,000 with an original issue discount of $12,500 and 10% interest per annum. The notes are convertible at a 38% discount to the lowest market price of the 20 days preceding the conversion request. The notes are due November 14, 2015. A third note was issued for $25,000 with a 10% interest rate per annum. The shares are convertible at the $.01 or 50% discount the lowest trading price in the prior 20 days to the conversion notice. The note is due November 29, 2015.
In May 2015, the Company issued 15,500,000 common shares for the conversion of $16,500 of debt.
In May 2015, the Company entered into an employment contract with Robert Sand to become the CEO and President of the Company. 150,000,000 restricted common shares were issued as an inducement for signing and will be vested at the one year anniversary of the contract. The contract is available as referenced in an Form 8-K filed with the Securities and Exchange Commission on May 8, 2015.
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In May 2015, the Company converted 8,999 outstanding Series A Preferred shares into 53,406,528 restricted common shares.
In May 2015, the Company entered into agreement with Lamnia Advisory wherein Lamnia Advisory will perform an investor relations program for twelve months. Lamnia will receive $4,000 per month in cash and was issued 1,339,226 restricted common shares on June 1, 2015.
In May 2015, the Company entered into an 8% Convertible Promissory Note due November 29, 2015. The total principle is $25,000. The note may be converted at the lower of $.01 or 50% discount to the lowest trading price during the previous twenty trading days at the time of conversion.
In June 2015, the Company repurchased the remaining debt owed IBC Funds LLC of $11,849 with a cash payment of $30,000.
In June 2015, The Company received demands for the payment of accrued wages from Messrs. Crom and Hobday. The Company has accrued the base salary for each of these former officers and does not believe additional expenses will be incurred. Mr. Hobday has requested that a clarification be made that he was not dismissed but resigned. Mr. Hobday was the only officer and director at the time (at or about March 31, 2015) and submitted a statement of resignation on April 6, 2015 effective March 31, 2015. Company management was not made aware of this until June 2015 leading to the confusion.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We urge you to read the following discussion in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2014, as well as with our unaudited financial statements and the notes thereto included elsewhere herein.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-Q, we make forward-looking statements in this Item 2 and elsewhere that also involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business and our industry, and reflect our beliefs and assumptions based upon information available to us at the date of this report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements include, among other things, projections of our future financial performance and our anticipated growth, descriptions of our strategies, our product and market development plans, and other objectives, expectations and intentions, the trends we anticipate in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.
We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including but not limited to the risks and uncertainties discussed in our other filings with the SEC or our sales results or changes in costs associated with ingredients for our products, manufacture of our products, distribution and sales. We undertake no obligation to revise or update any forward-looking statement for any reason.
Overview
FBEC Worldwide, Inc. operates a retail marketing segment of an oil emulsification product, KruudKleen™ and retains the formulation of the beverage products.
In June 2014, the Company entered into a Marketing Agreement which has allowed the company to obtain the exclusive retail marketing rights to a chemical solution that increases the speed of separation of oil and solids from water in existing tanks. The name of the separation product is Kruud Kleen™. The Company will purchase the separation product for 83.33% of the suggested retail price at which the product is customarily sold. The Company plans to sell such separation product to oil production and storage facilities in the United States. The Company will be required to issue 5,000 shares of Series C preferred stock as payment for the exclusive marketing rightswhen available, after filing a designation which will be earned upon issuance. The Company’s gross profit margin is expected to be approximately $200 per barrel at manufacturers suggested reatail price. The material requires temperatures above 40 degrees Fahrenheit to work properly leaving the market during this current season fairly small through March. The Company is actively seeking more customers and retailers for the coming season.
FBEC Worldwide, Inc. retains its formulas for its New Age/Alternative Beverages. “New Age/Alternative Beverages” is an industry categorization for a group of products that include energy drinks/infused water, fruit juices and drinks, dairy and dairy substitutes, and bottled/canned teas. Our mission is to supply the highest quality New Age/Alternative Beverages and snack products at the most economical cost to distributors servicing the retail industry and directly to consumers through our website. We believe our service-oriented business model integrates the elements of research, development, product quality assurance, packaging/distribution efficiency, and advanced management systems to generate higher profit margins for our retailers.
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The Company's Common Stock is quoted on the OTC Market Groups, Inc. OTCQB (the “OTCQB”) under the symbol "FBEC."
Basis of presentation and going concern uncertainty
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplates continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business. At March 31, 2015, the Company has an accumulated deficit of $656,767 and has a working capital deficit of $521,945. The Company’s ability to continue in business is dependent upon obtaining sufficient financing or attaining profitable operations; however, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations, therefore these matters raise substantial doubt about the Company's ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties, nor do they include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
There have been no changes from the Critical Accounting Policies described in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 23, 2015.
Liquidity and Capital Resources
We began current operations in February 2014 and have yet to attain a level of operations which allows us to meet our current overhead requirements. We do not contemplate attaining profitable operations prior to 2015 and there is no assurance that such an operating level will ever be achieved. We will be dependent upon obtaining additional financing in order to adequately fund working capital, infrastructure, production expenses and significant marketing related expenditures to gain market recognition, so that we can achieve a level of revenue adequate to support our cost structure, none of which can be assured. These factors raise substantial doubt about our ability to continue as a going concern and the accompanying financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.
As of March 31, 2015, the Company’s cash balance was $0. Outstanding debt as of March 31, 2015 totaled $521,945, which is attributable accounts payable and accruals of $78,327, derivative liability $262,879 and loans and advances of $180,739. The Company’s working capital deficit as of March 31, 2015 was $521,945.
The Company will need to raise additional capital to expand operations to the point at which the Company can achieve profitability. The terms of financing that may be raised may not be on terms acceptable by the Company. If adequate funds cannot be raised outside of the Company, the Company’s current stockholders may need to contribute funds to sustain operations. The Company does not have any agreements with any of its stockholders to provide any capital and there can be no assurance that any stockholder would be able or willing to fund the Company's continued operations.
Results of Operations
For the period from January 13, 2014 (date of inception) through March 31, 2014 and January 1, 2015 through March 31, 2015, the Company’s revenue totaled $0, for which its respective cost of revenues totaled $0.
During the from January 13, 2014 (date of inception) through March 31, 2015, the Company reported no sales of its beverage products or from KruudKleen™.
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For the period from January 13, 2014 (date of inception) through March 31, 2014 and January 1, 2015 through March 31, 2015, the Company had operating expenses totaling $48,149 and $39,546, respectively. These costs were primarily from wages and consulting fees.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
Inflation
The Company believes that inflation has not had, and is not expected to have, a material effect on our operations.
Climate Change
We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Recently Issued Accounting Pronouncements
There are no recently issued accounting pronouncements that are expected to have a material impact on the unaudited condensed consolidated financial statements or notes thereto.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), Robert Sand, the Company's President and Principal Executive Officer and Treasurer and Principal Accounting Officer ("CFO") (the Company’s principal financial and accounting officer), initially evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.
Based upon that initial evaluation, Mr. Sand concluded, upon consultation with prior management, that the Company’s disclosure controls and procedures were not effective as of March 31, 2015 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s President/CFO, as appropriate, to allow timely decisions regarding required disclosure, due to the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
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The Company believes its weaknesses in internal controls and procedures is due to the Company's lack of sufficient personnel with expertise in the area of SEC, GAAP and tax accounting procedures. In addition, the Company lacks the personnel structure, size and complexity to segregate duties sufficiently for proper controls. The Company has not implemented a formal system of internal control that provides for multiple levels of supervision and review.
The Company is currently without sufficient funds to hire additional personnel with expertise in these areas and to segregate duties for proper controls and until such time as additional personnel are hired, the Company believes that it will continue to recognize a weakness in its internal controls and procedures. The Company currently engages outside consultants to assist in the areas of tax and accounting procedures.
The Company plans to hire additional personnel to properly implement a control structure when and if the appropriate funds become available. In the meantime, the Chief Executive Officer/Financial Officer will continue to perform or supervise the performance of additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures, to ensure that the Company's Annual Report and the financial statements forming part thereof are in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
During the three months ended March 31, 2015, there were no changes in our internal control over financial reporting that occurred during 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures provide our principal executive and financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.
Management is aware that there is a lack of segregation of duties at the Company due to the fact that the Company has only one director and executive officer dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management plans to re-evaluate this situation periodically. In light of the Company’s current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
There are no material pending legal or governmental proceedings relating to our Company or its properties to which we are a party, and to our knowledge, there are no material proceedings to which any of our directors, executive officers, affiliates or shareholders are a party adverse to us or have a material interest adverse to us.
ITEM 1A. RISK FACTORS
Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEEDS
There are no unreported sales of unregistered securities during the nine months ended March 31, 2015.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference as described below.
| Exhibit | Description |
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350* |
| 101.1 | Interactive data files pursuant to Rule 405 of Regulation S-T* |
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| June 26, 2015 | FBEC WORLDWIDE, INC. | |
| By: | /s/ Robert Sand | |
| Robert Sand | ||
President and Treasurer (Principal Executive Officer, Principal Financial and Accounting Officer and Authorized Signatory) | ||
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