| | | | | | | |
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES |
| | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | |
THREE MONTHS MARCH 31, 2011 AND 2010 (UNAUDITED) |
| | | | | | | |
| | | | | | | |
| | | 2011 | | 2010 |
| | | | | | | |
Net cash used in operating activities | | $ | (5,982) | | $ | (25,408) |
| | | | | | | |
Cash flows from investing activities: | | | | | | |
| Repayments on notes and interest receivable | | | - | | | - |
| | | | | | | |
Net cash provided by investing activities | | | - | | | - |
| | | | | | | |
Cash flows from financing activities: | | | | | | |
| Increase (decrease in) in checks issued in excess of cash in bank | | | 811 | | | 553 |
| Borrowings on notes and loans payable, related | | | 4,400 | | | 24,703 |
| Repayments on notes payable, related | | | (1,100) | | | |
Net cash provided by financing activities | | | 4,111 | | | 25,256 |
| | | | | | | |
Net increase in cash and cash equivalents | | | (1,871) | | | (152) |
Cash and cash equivalents, beginning | | | 2,045 | | | 421 |
| | | | | | | |
Cash and cash equivalents, ending | | $ | 174 | | $ | 269 |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
| | | | | | | |
| Cash paid for interest | | $ | - | | $ | - |
| | | | | | | |
| Cash paid for income taxes | | $ | - | | $ | - |
| | | | | | | |
Supplemental disclosure of non-cash investing and financing activities: | | | | | | |
6
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
1.
Business and organization, basis of presentation, asset sale and management’s plans:
Business and organization:
FastFunds Financial Corporation (“FFFC” or the “Company”) is a holding company, and through January 31, 2006, operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). As disclosed in the December 31, 2009 Form 10-K, FFFC also has several other non-operating wholly-owned subsidiaries. FFFC and its subsidiaries are referred to as (the “Company”). The Company is an equity investee of Hydrogen Power, Inc. (“HPI”), a public company formerly known as Equitex, Inc.
Chex, a Minnesota corporation, provided financial services prior to the sale of substantially all of Chex’s assets, which primarily consisted of check cashing, automated teller machine (ATM) access, and credit card advances to customers primarily at Native American owned casinos and gaming establishments (the “Asset Sale”).
Basis of presentation:
Unaudited financial statements:
The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for all stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 15, 2011. Interim results of operations for the three months ended March 31, 2011 and 2010 are not necessarily indicative of future results for the full year. Certain amounts from the 2010 periods have been reclassified to conform to the presentation used in the current period.
Asset sale:
On December 22, 2005, FFFC and Chex entered into an Asset Purchase Agreement (the “APA”) with Game Financial Corporation (“Game”), pursuant to which FFFC and Chex agreed to sell all of its cash access contracts and certain related assets, which represented substantially all the assets of Chex. Such assets also represented substantially all of the operating assets of the Company on a consolidated basis. On January 31, 2006, FFFC and Chex completed the Asset Sale for $14 million pursuant to the APA and received net cash proceeds of $12,642,784 and realized a pre-tax book gain of $4,145,835. As a result of the Asset Sale, the Company has no substantial continuing operations.
On March 14, 2006, FFFC loaned HPI $5 million of the total proceeds from the Asset Sale for one year at 10% per annum interest. This note was settled as part of the Redemption Agreement described below.
7
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
1.
Business and organization, basis of presentation, asset sale and management’s plans (continued)
Going concern andmanagement’s plans:
Pursuant to the APA, FFFC and Chex owed Game approximately $300,000. Game, FFFC and Chex agreed to settle the balance due for $275,000 with payment terms. FFFC and Chex have not made any of the payments stipulated in the settlement, and subsequently, Game filed a complaint against Chex, FFFC and HPI seeking approximately $318,000. The Company has agreed to a judgment of $275,000 plus interest and attorney fees for a total of $329,146 (included in accounts payable and accrued expenses in the balance sheet presented herein). FFFC and Chex have agreed to indemnify HPI.
In the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern. The Company’s interim financial statements for the three months ended March 31, 2011 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $211,113 for the three months ended March 31, 2011 and has a working capital deficit of approximately $9,490,000 and accumulated deficit of approximately $22,046,000 as of March 31, 2011. Moreover, the Company presently has no significant ongoing business operations or sources of revenue and has little resources with which to obtain or develop new operations.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not contain any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Currently, the Company does not have a revolving loan agreement with any financial institution, nor can the Company provide any assurance it will be able to enter into any such agreement in the future, or be able to raise funds through further issuance of debt or equity in the Company.
The Company evaluates, on an ongoing basis, potential business acquisition/restructuring opportunities that become available from time to time, which management considers in relation to its corporate plans and strategies.
8
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
1.
Business and organization, basis of presentation, asset sale and management’s plans (continued)
Return of Company Common Stock from HPI:
On January 2, 2007, pursuant to the terms of a Redemption, Stock, Sale and Release Agreement (the “Redemption Agreement”) by and between HPI and the Company, the Company (i) redeemed 8,917,344 shares of FFFC’s common stock held by HPI, (ii) acquired from HPI an aggregate of 5,000 shares of common stock of Denaris Corporation, a Delaware corporation (“Denaris”), (iii) acquired from HPI an aggregate of 1,000 shares of common stock of Key Financial Systems, Inc., a Delaware corporation (“Key Financial”), and (iv) acquired from HPI an aggregate of 1,000 shares of common stock of Nova Financial Systems, Inc., a Delaware corporation (“Nova Financial”). Denaris was a majority owned subsidiary of HPI, and Key Financial and Nova Financial were wholly owned subsidiaries of HPI. Denaris, Key Financial and Nova Financial do not have significant operations. The shares of common stock of each entity transferred by HPI pursuant to the Redemption Agreement constituted all of HPI’s holdings in each entity. In consideration of the redemption and acquisition of the shares of Denaris, Key Financial and Nova Financial, FFFC released HPI from all outstanding payment obligations of HPI to the Company which totaled $5,814,617, including obligations under a Secured Promissory Note dated March 14, 2006 in favor of the Company in the principal face amount of $5,000,000 (the “FastFunds Note”). The outstanding balance on the FastFunds Note, including principal and interest accrued, as of the date of the Redemption Agreement was $5,402,398. HPI released the Company from all payment obligations of the Company to HPI, which totaled $2,151,572. The Company allocated the difference between the value of the assets received and the consideration exchanged as an increase to additional paid-in capital.
After the closing of the Redemption Agreement, HPI held 3,500,000 shares of FFFC common stock, constituting approximately 34% of FFFC’s outstanding common stock at March 31, 2011. These shares have been pledged as collateral on certain notes of HPI. During 2008 as a result of the payment of this debt by HPI Partners, LLC.,(“HPIP”) and the subsequent foreclosure by the debt holders upon HPIP, HPIP owns the 3.5 million shares of FFFC common stock. The principal managers of HPIP are Messrs. Fong and Olson. Mr. Fong is the Chairman and CEO of FFFC and Mr. Olson is the secretary of FFFC. As of March 31, 2011, the Company holds 1,546,036 shares of common stock of HPI. Pursuant to the Redemption Agreement, the Company and HPI each provided the other certain registration rights relating to the common stock of such party held by the other party.
On January 18, 2008, the Company filed a complaint in the Superior Court of Washington in King County (the “Superior Court”). The complaint was filed by FastFunds Financial Corporation, Daniel Bishop, Barbara M. Schaper, HP Services LLC, VP Development Corporation, and Gulfstream Financial Partners, LLC (collectively, the “Plaintiffs”) against Dilbagh Singh Gujral, Ricky Gurdish Gujral, Virendra Chaudhary, Gurinder Dilawari, Global Hydrofuels Technology, Inc. (“GHTI”) and Hydrogen Power, Inc. (collectively, the “Defendants”).
.
9
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
1.
Business and organization, basis of presentation, asset sale and management’s plans (continued)
Return of Company Common Stock from HPI:
Messrs. Chaudhary and Dilawari are directors of HPI. GHTI is the majority shareholder of HPI. Ricky Gurdish Gujral is the former chief executive officer of HPI. The complaint alleges fraud, misappropriation of corporate opportunity and breach of fiduciary duty by the Defendants relating to the merger of Equitex, Inc. and Hydrogen Power, Inc., the Sublicense Agreement with GHTI, and payments to Ricky Gurdish Gujral. The complaint seeks the appointment of a receiver to take possession of the property and assets of the Company and to manage and operate the Company pending completion of the action. The complaint also seeks damages in the excess of $3,000,000, exemplary damages, attorney’s fees plus interest and costs and any other relief the court finds just and proper. On January 25, 2008, the Superior Court appointed a receiver of HPI with respect to HPI’s assets. Some assets have been recovered by the Receiver. One of the defendants has filed a counterclaim asserting that the action is frivolous; the Plaintiffs have denied the counterclaim in its entirety. GHTI has sought arbitration regarding ownership of certain patent applications and other intellectual property. GHTI was granted a stay of this case until the arbitration is complete.
On March 25, 2010 the Defendants and Plaintiffs entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, which was approved by the receiver and the Court on September 23, 2010, the Defendants and Plaintiffs have agreed to release each other from the claims and to have no further suits against each other. Additionally, the Defendants have agreed to assign to the Receiver for the benefits of the Plaintiffs any and all rights, including but not limited to insurance payments and settlements for any and all officers and directors liability insurance policies.
2.
Summary of significant accounting policies:
A summary of our significant accounting policies is included in our 2010 Annual Report on Form 10-K.
Net loss per share:
Net loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Stock options, warrants and common stock underlying convertible promissory notes at March 31, 2011 and 2010 were 1,777,618 and 2,213,824, respectively, and are not considered in the calculation for the three months ended March 31, 2011 and 2010, as the impact of the potential common shares would be to decrease loss per share. Therefore, diluted loss per share for the three months ended March 31, 2011 and 2010 is equivalent to basic loss per share.
Recent Accounting Pronouncements Not Yet Adopted:
As of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that we believe would have a material impact on our financial statements.
10
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
3.
Notes and interest receivable:
Notes and interest receivable at March 31, 2011 and December 31, 2010, consist of the following:
| | | | | |
| March 31, | | December 31, |
| 2011 | | 2010 |
| | | | | |
Note receivable, ISI; interest at 6%; matured April 2007; currently in default | $ | 50,000 | | $ | 50,000 |
| | | | | |
Note receivable (Denaris) from Paymaster Jamaica (see Redemption Agreement) (Note 1); interest at 10%, collateralized by a pledge of Paymaster Jamaica common shares by Paymaster Jamaica's president; note matured August 15, 2008; payments of interest only due semi-annually beginning August 15, 2003 through maturity; a valuation allowance of $250,000 has been recorded against this receivable at March 31, 2011 and December 31, 2010[A,B] | | 339,575 | | | 339,575 |
| | | | | |
Note receivable from Coast ATM, LLC; interest at 10%; matured November 2005; currently in default; a valuation allowance of $50,000 has been recorded against this receivable at September 30, 2010 and December 31, 2009; is in default and non-performing [B] | | 50,000 | | | 50,000 |
| | | | | |
| | 439,575 | | | 439,575 |
Less current maturities | | (139,575) | | | (139,575) |
| | | | | |
| | | | | |
Notes and advances receivable, net of current portion, before valuation allowance | | 300,000 | | | 300,000 |
Less valuation allowance | | (300,000) | | | (300,000) |
| | | | | |
Notes receivable, long-term | $ | - | | $ | - |
[A] On March 30, 2011, the Company and Paymaster agreed to restructure the Note receivable (“Term Sheet”). Pursuant to the Term Sheet, the parties agreed to convert the remaining balance of the Note receivable into Cumulative Convertible Redeemable Preference Shares with a value of $400,000, with an annual dividend of 7.5% over thirty-six (36) months. Additionally, the company has certain conversion rights and upon redemption rights. The Term Sheet is binding on the parties.
[B]
The Company is no longer accruing interest on these non-performing loans due to uncertainty as to collection.
11
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
4.
Accrued liabilities:
Accrued liabilities at March 31, 2011 and December 31, 2010 were $2,944,276 and $2,765,062, respectively, and were comprised of:
| | | | | |
| 2011 | | 2010 |
| | | | | |
Legal fees | $ | 429,576 | | $ | 415,607 |
Interest | | 1,697,434 | | | 1,579,101 |
Accounting fees | | 7,458 | | | 7,458 |
Consultants and advisors | | 426,450 | | | 388,050 |
Director’s fees | | 185,409 | | | 179,159 |
Registration rights | | 98,013 | | | 98,013 |
Other | | 99,936 | | | 97,674 |
| | | | | |
| $ | 2,944,276 | | $ | 2,765,062 |
5.
Promissory notes, including related and current portions of long-term debt:
Promissory notes, including related parties and current portions of long-term debt at March 31, 2011 and December 31, 2010, consist of the following:
| | | | | |
| March 31, | | December 31, |
| 2011 | | 2010 |
| | | | | |
Promissory notes payable: | | | | | |
| | | | | |
Various, including related parties of $502,263 (2011) and $498,463 (2010), interest rate ranging from 8% to 10% | $ | 677,088 | | $ | 673,788 |
| | | | | |
Notes payable; interest rates ranging from 9% to 15%; interest payable quarterly; the notes are unsecured, matured on February 28, 2008; currently in default and past due [A] | | 2,090,719 | | | 2,090,719 |
| | | | | |
| $ | 2,767,807 | | $ | 2,764,507 |
[A]
These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. The Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). The Company has accrued an expense of $36,500 to compensate the financial advisor 2% of the Restructured Notes as well as having issued 150,000 shares of common stock to the financial advisor. The Restructured Notes carry a stated interest rate of 15% (a default rate of 20%) and matured on February 28, 2008. The Company has not paid the interest due since June 2007, and no principal payments on the Promissory Notes have been made since 2008 and accordingly, they are in default.
The chairman of the board of the Company has personally guaranteed up to $1 million of the Restructured Notes and two other non-related individuals each guaranteed $500,000 of the Restructured Notes. In consideration of their guarantees the Company granted warrants to purchase a total of 1,600,000 shares of common stock of the Company at an exercise price of $0.50 per share, expiring in March 2010. The warrants were valued at $715,200 using the Black-Scholes option pricing model and are being amortized over the one-year term of the Restructured Notes.
12
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
5.
Promissory notes, including related and current portions of long-term debt (continued):
In January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the holders of the Restructured Notes) and the holders of the Restructured Notes. The claim is seeking $1,946,250 plus per diem interest beginning January 22, 2008 at the rate of twenty percent (20%) per annum plus $37,000 due the financial advisor for unpaid fees. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs have had a judgment entered in the total amount of $2,487,250 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The judgment was entered on August 18, 2009.
6.
Commitments and contingencies:
Litigation:
The Forest County Potawatomi Community (“FCPC”) has initiated an action against Chex, an inactive subsidiary of the Company, in the FCPC tribal court asserting that Chex breached a contract with FCPC during the 2002 to 2006 time period. Chex is inactive and did not defend this action. On October 1, 2009 a judgment was entered against Chex in the FCPC Tribal Court in the amount of $2,484,922, included in the balance sheet presented herein.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse impact either individually or in the aggregate on consolidated results of operations, financial position or cash flows of the Company.
Operating lease:
Beginning February 2007, the Company began leasing office space in West Palm Beach, Florida, its corporate headquarters for approximately $2,900 per month. The lease increased by approximately 5% from February 1, 2008 and 2009 and expired in February 2010. Pursuant to this lease, the Company is also required to pay its pro-rata share of taxes, operating expenses and improvement costs. Effective February 1, 2010 the company entered into a one year amendment to the lease with either party having the right to terminate the lease with a sixty (60) day notice to the other party. The base rent is $1,800 per month during the one year amendment.
13
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
6.
Commitments and contingencies (continued):
Consulting agreements:
In conjunction with the Asset Sale, a former FFFC director and Chex officer signed a five-year non-compete agreement with the buyer and also signed a release, waiving his right to any future commissions that he was previously entitled to. The Company agreed to compensate the officer $100,800 annually, over the five-year term of the non-compete agreement. Such compensation is to be applied to reduce the loan and interest receivable due from the officer (Note 7). If the officer breaches his non-compete agreement, the officer is no longer entitled to compensation and will be liable for any amount remaining on the loan. During the three months ended March 31, 2011 and 2010, the Company recorded consulting expenses of $25,200 and the note receivable from an officer has been reduced by $25,200, for the three months ended March 31, 2011.
In March 2004, HPI closed on $5 million of debt financing and issued convertible promissory notes to two financial institutions (the “Lenders”). The proceeds from the promissory notes were immediately thereafter loaned to Chex. The promissory notes are collateralized, among other things, by all of the assets of Chex and HPI, including the 3.5 million shares of FFFC common stock owned by HPI. In conjunction with the Asset Sale, the Lenders consented to the sale of assets that secured their notes. In contemplation of the Redemption Agreement described above, on December 29, 2006, HPI and the Company obtained the consent of the Lenders to complete the transactions contemplated by the Redemption Agreement. Contemporaneously with receipt of the consent, FFFC (as successor in interest to Chex) reconfirmed its obligations under the guaranty and security agreements previously provided by Chex. The guaranty and security agreements do not expire until the notes are paid in full. On August 6, 2007, HPI received a notice of default from the Lenders. On August 16, 2007, the Lenders and HPI entered into a Forbearance Agreement in consideration of HPI paying $300,000 (paid on August 14, 2007) and making a final payment (the “Final Payment”) of $646,981 by October 15, 2007. During the fourth quarter of 2007 $100,000 of the Final Payment was paid, and there remained an unpaid balance of principal and interest of approximately $561,000. On March 11, 2008, the Lenders notified the court appointed receiver of HPI that that they were foreclosing on the assets of HPI that were collateralizing the loan. During 2008 HPIP paid the balance and accordingly purchased FFFC’s guaranty and asset pledge.
HPI Stock Price Guaranty:
In May 2006, HPI and the Company negotiated a settlement regarding convertible notes with a face value of $200,000 issued by the Company, whereby HPI issued 180,000 shares of its common stock. In connection with the Settlement Agreement, a Stock Sale and Lock-up Agreement, Registration Agreement and an Escrow Agreement were also entered into (the “Agreements”). Terms of the Agreements stipulate a price protection clause whereby the Company under certain circumstances must reimburse the former debt holders if the market price of the HPI common stock issued to them in the settlement is below $4.00 per share at the time they sell the stock. As a result, the Company has recorded a derivative liability due to the debt holders at September 30, 2010 and December 31, 2009 of $648,000.
7. Stockholders’ equity deficiency:
Notes, advances and interest receivable from related parties:
Chex has notes receivable due from related parties under various loan agreements. In addition, the Company has made advances to HPI to fund its operations. In accordance with the Securities Exchange Commission’s Staff Accounting Bulletin No. 79,Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lessor Business Components of Another Entity, certain expenses paid by the Company on behalf of HPI have been charged to the receivables.
14
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
7. Stockholders’ equity deficiency (continued):
Notes, advances and interest receivable from related parties (continued):
The following table summarizes the activity for the year ended December 31, 2010 and for the three months ended March 31, 2011:
| | | | | |
| March 31, | | December 31, |
| 2010 | | 2010 |
| | | | | |
Beginning principal balances | $ | 51,766 | | $ | 152,566 |
Consulting fees applied to officer receivable | | (25,200) | | | (100,800) |
| | | | | |
Ending principal balances[A] | $ | 26,566 | | $ | 51,766 |
[A]
The principal balance at March 31, 2011 and December 31, 2010 are all due from a former Chex officer.
Warrants and options:
The Company did not issue any warrants or options for the nine months ended March 31, 2011. A summary of outstanding warrant balances at January 1, and March 31, 2011 is as follows:
| | | | | |
|
Warrants | | Weighted-Average exercise price | | Weighted- Average grant date fair value |
| | | | | |
Outstanding at January 1, 2011 | 1,883,824 | | $ 0.14 | | $ 0.48 |
Expired | (436,206) | | 1.00 | | 0.81 |
| | | | | |
Outstanding at March 31, 2011 | 1,447,618 | | $ 0.03 | | $ 0.03 |
15
FASTFUNDS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)
7. Stockholders’ equity deficiency (continued):
Warrants and options (continued):
Options are generally granted with an exercise price equal to the Company’s market price of its common stock on the date of the grant and vest immediately upon issuance. All options outstanding at March 31, 2011 are fully-vested and exercisable. A summary of outstanding balances at January 1, and March 31, 2011 is as follows:
| | | | | | | |
| Options | | Weighted-Average exercise price | | Weighted-Average remaining contractual life | | Aggregate intrinsic value |
| | | | | | | |
Outstanding at January 1 and March 31, 2011 | 330,000 | | $ 1.03 | | 4.73 | | $ - |
16
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS REPORT MAY CONTAIN CERTAIN "FORWARD-LOOKING" STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AND FUTURE OPERATIONAL PLANS, FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE", "INTENT", "COULD", "ESTIMATE", "MIGHT", OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON THE VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY RELATED TO THE COMPANY'S OPERATIONS, MERGERS OR ACQUISITIONS, GOVERNMENTAL REGULATION, THE VALUE OF THE COMPANY'S ASSETS AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
GENERAL
FastFunds Financial Corporation (“FFFC”) is a holding company and through January 31, 2006 operated primarily through its wholly-owned subsidiary Chex Services, Inc. (“Chex”). As disclosed in the December 31, 2010 10-K, FFFC also has several other non-operating wholly-owned subsidiaries. FFFC and its subsidiaries are referred to as (the “Company”).
RETURN OF COMPANY COMMON STOCK FROM PARENT:
On January 2, 2007, pursuant to the terms of a Redemption, Stock, Sale and Release Agreement (the “Redemption Agreement”) by and between HPI and the Company, the Company (i) redeemed 8,917,344 shares of FFFC’s common stock held by HPI, (ii) acquired from HPI an aggregate of 5,000 shares of common stock of Denaris Corporation, a Delaware corporation (“Denaris”), (iii) acquired from HPI an aggregate of 1,000 shares of common stock of Key Financial Systems, Inc., a Delaware corporation (“Key Financial”), and (iv) acquired from HPI an aggregate of 1,000 shares of common stock of Nova Financial Systems, Inc., a Delaware corporation (“Nova Financial”). Denaris was a majority owned subsidiary of HPI, and Key Financial and Nova Financial were wholly owned subsidiaries of HPI. Denaris, Key Financial and Nova Financial do not have significant operations. The shares of common stock of each entity transferred by HPI pursuant to the Redemption Agreement constituted all of HPI’s holdings in each entity. In consideration of the redemption and acquisition of the shares of Denaris, Key Financial and Nova Financial, FFFC released HPI from all outstanding payment obligations of HPI to the Company, which totaled $5,814,617 and HPI released the Company from all payment obligations of the Company to HPI, which totaled $2,151,572. Due to the related party nature of the transaction, the Company accounted for the difference between the consideration received and the consideration given up as a capital transaction, which increased additional paid-in capital by $1,227,019.
17
OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2010 and 2009. The financial statements presented for the three months ended March 31, 2011 and 2010 include FFFC and its wholly-owned subsidiaries, which primarily reflect the operations of Chex through the date of the Asset Sale.
In light of the foregoing, and the Company’s sale of substantially all of its assets in January 2006, the historical data presented below is not indicative of future results. You should read this information in conjunction with the audited consolidated financial statements of the Company, including the notes to those statements (Item 8), and the following “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.
The Company’s financial statements for the three months ended March 31, 2011 and 2010 have been prepared on a going concern basis, which contemplates the realization of its remaining assets and the settlement of liabilities and commitments in the normal course of business. The Company has incurred significant losses since its inception and has a working capital deficit of approximately $9,490,000 and an accumulated deficit of approximately $22,046,000 as of March 31, 2011. Moreover, it presently has minimal ongoing business operations or sources of revenue, and little available resources with which to obtain or develop new operations.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that the Company will have adequate resources to fund future operations or that funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2011, net cash used in operating activities was $5,982 compared to $25,408 for the three months ended March 31, 2010. Net loss was $211,113 for the three ended March 31, 2011 compared to $222,073 for the three months ended March 31, 2010. The net loss in each of the three month periods includes non-cash expenses of approximately $25,200 related to amortization.
There was no cash provided by or used in investing activities for the three months ended March 31, 2011, and 2010.
Net cash provided by financing activities for the three months ended March 31, 2011 was $4,111 compared to $25,256 for the three months ended March 31, 2010. The activity for the three months ended March 31, 2011 is the Company received net proceeds of $4,400 on the issuance of notes payable, and repaid $1,100 of notes payable. For the three months ended March 31, 2010, the Company received proceeds of $24,703 on the issuance of notes payable.
For the three months ended March 31, 2011, cash and cash equivalents decreased by $1,871 compared to an decrease of $152 for the three months ended March 31, 2010. Ending cash and cash equivalents at March 31, 2011 was $174 compared to $269 at March 31, 2010.
We have limited cash and cash equivalents on hand and need to raise funds to continue to be able to support our operating expenses and to meet our other obligations as they become due. Sources available to us that we may utilize include the sale of our or HPI’s equity securities, as well as the exercise of outstanding options and warrants, which may cause dilution to our stockholders.
REVENUES
Total revenues for the three months ended March 31, 2011 were $11,538 compared to $15,954 for the three months ended March 31, 2010. Revenues in all periods consist of credit card income on Nova’s remaining portfolio.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2011 were $10,645 compared to $12,409 for the three months ended March 31, 2010. Expenses were primarily comprised of costs related to third party servicing fees of Nova’s remaining credit card portfolio.
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CORPORATE OPERATING EXPENSES
Corporate operating expenses for the three months ended March 31, 2011 were $93,628 compared to $108,558 for the three months ended March 31, 2010. The expenses were comprised of the following:
| | | | |
| Three months ended March 31, | |
| 2011 | | 2010 | |
| | | | |
Accounting, legal and consulting | $ 85,450 | | $ 100,802 | |
Other | 8,178 | | 7,756 | |
| | | | |
| $ 93,628 | | $ 108,558 | |
For the three months ended March 31, 2011 and 2010 corporate operating expenses are primarily related to FFFC.
Accounting, legal and consulting expenses decreased for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The decrease in the current period was primarily a result of decreases in accounting and legal fees. FFFC has consulting agreements with two officers who provide various consulting services to the Company. These continuing agreements require the Company to pay approximately $13,000 per month.
OTHER INCOME (EXPENSE)
Other expenses, net for the three months ended March 31, 2011 were $118,378 compared to $117,060 for the three months ended March 31, 2010.
INCOME TAX EXPENSE
There was no income tax expense for the three months ended March 31, 2011 and 2010.
CONTRACTUAL OBLIGATIONS
No material changes outside the ordinary course of business during the quarter ended March 31, 2011..
CRITICAL ACCOUNTING POLICIES
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in our 2010 Annual Report on Form 10-K.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that we believe would have a material impact on our financial statements.
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ITEM THREE
QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company has limited exposure to market risk related to changes in interest rates. The Company does not currently invest in equity instruments of public or private companies for business or strategic purposes.
The principal risks of loss arising from adverse changes in market rates and prices to which the Company and its subsidiary are exposed relate to the market prices of common stock of HPI and the Company. The Company has only fixed rate debt at March 31, 2011 and December 31, 2010.
| | | | |
| | March 31, | | December 31, |
| | 2011 | | 2010 |
| | | | |
Derivative liabilities(1) | | $ 648,000 | | $ 648,000 |
| | | | |
| | $ 648,000 | | $ 648,000 |
(1)
The Company has given a price guaranty under certain circumstances to former noteholders on the value of 180,000 shares of HPI common stock they received in a settlement of $4.00 per share. At December 31, 2010 and September 31, 2011, the common stock had a market value of $0. Accordingly, as of March 31, 2011 the Company has recorded a liability of $648,000.
ITEM FOUR
DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as such term is defined in Rules 13a-15(f)) are designed to ensure that information relating to us required to be disclosed with the Securities and Exchange Commission (“SEC”) reports is (i) recorded, processed, summarized and reported within the time period specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our acting chief executive officer, as appropriate to allow timely decisions requiring timely disclosure. Under the supervision and with the participation of our Acting Chief Executive Officer, we conducted an evaluation and effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our acting chief executive officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
Management of the Company is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherit limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth in “Internal Control-Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded, as of December 31, 2009, our internal control over financial reporting was not effective based on those criteria. The following material weaknesses were identified from our evaluation:
Due to the small size and limited financial resources, the Company’s Secretary and the acting chief executive officer are the only individuals involved in accounting and financial reporting. As a result, there is no segregation of duties in the accounting function, leaving all aspects of financial reporting in the hands of our Acting Chief Financial Officer and physical control of cash in the hands of the same individual as well as our Secretary. This lack of segregation of duties represents a material weakness. We will continue periodically review our disclosure controls and procedures and internal control over financial reporting and make modifications from time to time considered necessary or desirable.
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Although this material weakness over preparation of the financial statements and related disclosures existed at the end of the quarter described in this report, the consolidated financial statements in this quarterly report on Form 10-Q fairly present in all material respects, our financial condition as of March 31, 2011 in conformity with GAAP.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this report.
Changes in Internal Control over Financial Reporting
There has not been any change in the Company’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The material weakness in our internal control over financial reporting described above for the year ended December 31, 2010 (absence of adequate segregation of duties) continues unremediated, due to our limited resources and employees.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Refer to Note 6 of the Condensed Consolidated Financial Statements
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3.
Defaults upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
Item 5.
Other Information
None.
Item 6.
Exhibits
| |
Exhibit Number | Description |
| |
31.1 | CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(Filed herewith) |
| |
32.1 | CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(Filed herewith) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| FastFunds Financial Corporation |
| (Registrant) |
| |
Date: May 23, 2011 | By:/s/ Barry Hollander |
| Barry Hollander |
| Acting Chief Executive Officer |
| Principal Executive Officer and |
| Principal Accounting Officer |
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