AlumiFuel Power Corp - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended SEPTEMBER 30, 2014

¨ 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

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.

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 November 1, 2014: 3,840,199,334

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Shareholders’ Deficit

Nine months ended September 30, 2014

(Unaudited)

See accompanying notes to condensed consolidated financial statements

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED 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 nine month periods ended September 30, 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 changed is state of Domicile from Nevada to Wyoming. On September 18, 2014, the Company received notice that the Wyoming Secretary of State had accepted an amendment to its articles of incorporation through which the number of shares of authorized common and preferred stock of the Company went from 3,500,000,000 shares of $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.

In February 2014, the Company announced plans to change its strategic direction. In addition, the Company announced that it has formed a new subsidiary, Bitcoin Capital Corporation, to pursue early stage opportunities in Bitcoin and other cryptocurrency. As of the filing of this report, Bitcoin Capital Corporation has not begun operating and the Company has put this plan on hold indefinitely given changes in the market for Bitcoins subsequent to that announcement. The Company also announced that its board of directors had approved a name change to AFPW Holdings, Inc. although 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, 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 nine months ended September 30, 2014, and has an accumulated deficit of $24,301,793 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, 2013 and September 30, 2014 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 September 30, 2014 as intercompany accounts. At September 30, 2014 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. A non-controlling interest in AFPI that totaled $3,996,230 is included in the Company’s condensed consolidated balance sheet at September 30, 2014. In addition, $49,304 of the net loss of AFPI of $117,782 for the nine months ended September 30, 2014 has been attributed to the non-controlling interest of those stockholders.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED 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 September 30, 2014 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 Stock Issued to Employees" (APB 25). The Company has elected the modified-prospective method, under which prior periods are not revised for comparative purposes. 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.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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. Common stock underlying stock options, warrants, and convertible promissory notes are not considered in the calculations for the periods ended September 30, 2014 and 2013, as the impact of the potential common shares, which totaled approximately 11,360,684,000 (September 30, 2014) and 1,108,963,000 (September 30, 2013), would be anti-dilutive. Therefore, diluted loss per share presented for nine month periods ended September 30, 2014 and 2013 is equal to basic loss per share.

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

Revenue Recognition

Revenues on product sales are recognized upon shipment of the product to the customer. Payment terms are typically 30 to 60 days net due following order delivery, depending on the customer. Fee revenues for research and development contracts are typically recognized on milestone dates outlined in the contracts. In instances where definable dates are not outlined, fee revenue is recognized when received.

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".

Recently issued accounting pronouncements

Management reviewed accounting pronouncements issued during the nine months ended September 30, 2014, and no pronouncements were adopted.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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 $90,000 for each of the nine months ended September 30, 2014 and 2013. 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 $99,000 for each of the nine months ended September 30, 2014 and 2013. As of September 30, 2014 and 2013, the Company owed $372,262 and $326,392, 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 nine month periods ended September 30, 2014 and 2013, the Company recorded $2,757 and $3,280, respectively to a corporation owned by Messrs. Fong and Olson under this bonus program. At September 30, 2014 and 2013, respectively, there was $250 and $2,264 payable under the bonus plan.

In the nine month periods ended September 30, 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 nine month periods ended September 30, 2014 and 2013, these management fees totaled $58,500. As of September 30, 2014 and 2013, the Company owed $18,485 and $4,185, 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. 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 $13,500 the nine months ended September 30, 2014 and $10,800 for the same period in 2013. A total of $500 and $2,400 in rent expense was accrued but unpaid at September 30, 2014 and 2013, respectively.

Accounts payable to related parties consisted of the following at September 30, 2014:

Related Party Notes Payable

AlumiFuel Power Corporation

At September 30, 2014 and 2013, the Company owed $500 and $0, respectively, to its president for loans made to it from time-to-time in demand notes with 8% interest. There was $10 and $18 in accrued interest payable at September 30, 2014 and 2013, respectively.

At both September 30, 2014 and 2013, the Company owed the president of APTI $1,511 in loans in demand notes with 8% interest. As of September 30, 2014 and 2013 there was accrued interest payable of $456 and $335, respectively.

At September 30, 2014 and 2013, the Company owed $0 and $17,725, respectively, to a company owned by its president in demand notes with 8% interest. There were payments totaling $13,317 in principal and $451 in accrued interest during the 2014 period and $18,365 in principal and $185 in interest during the 2013 period to amounts owed. There was $0 and $242 in accrued interest payable at September 30, 2014 and 2013, respectively.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

At both September 30, 2014 and 2013, the Company owed $5,435 to a company affiliated with its Secretary in demand notes with 8% interest. There was $1,389 and $953 in accrued interest payable at September 30, 2014 and 2013, respectively.

At both September 30, 2014 and 2013, the Company owed $2,165 in principal in certain promissory notes issued to a partnership affiliated with the Company’s president with interest rate of 8% and due on demand. As of September 30, 2014 and 2013, the Company owed $759 and $585, respectively, in accrued interest on these notes.

At both September 30, 2014 and 2013, the Company owed a partnership affiliated with its president and secretary $5,000 in a note with an interest rate of 8% per annum and due on demand. As of both September 30, 2014 and 2013, $2,188 and $1,787 in accrued interest was payable at those dates, respectively.

At September 30, 2014 and 2013, the Company owed $0 and $9,590 to a corporation affiliated with the Company's officers in demand notes with interest at 8%. A total of $9,590 in principal and $2,008 in interest was repaid during the 2014 period. There was $0 and $1,430 in accrued interest payable on these notes at September 30, 2014 and 2013, respectively.

At both September 30, 2014 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 $328 and $300 in accrued interest payable on these notes at September 30, 2014 and 2013, respectively.

At December 31, 2013, the Company owed a corporation owned by the Company's secretary $4,000 and in demand notes with interest of 8% per annum. There was $3,000 and $4,500 loaned during the nine month periods ended September 30, 2014 and 2013, respectively, along with payments of $4,000 in principal and $3 in accrued interest during the 2014 period and $2,500 in principal and $2 in interest during the 2013 period. As a result of these transactions, there was $3,000 in principal and $4 in interest payable on these notes at September 30, 2014 with $2,000 in principal and $42 in interest payable at September 30, 2013.

As of September 30, 2014 the Company owed two companies and an individual affiliated with its officers a total of $2,656 in interest on notes paid in periods prior to 2014. At September 30, 2013, the Company owed two companies affiliated with its officers a total of $2,365 in interest on notes paid in periods prior to 2012.

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 September 30, 2014 and 2013.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

Total

Total notes and interest payable to related parties consisted of the following at September 30, 2014 and 2013:

Note 4: Notes Payable

AlumiFuel Power Corporation

At September 30, 2014 and 2013, the Company owed $87,205 and $183,731, respectively, to an unaffiliated trust at an interest rate of 8% and due on demand. During the nine months ended September 30, 2014, the trust loaned the Company $43,900; and sold $111,200 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. Please see convertible notes below and Note 9 “Capital Stock” below for further information on these transactions. During the nine months ended September 30, 2013, the trust loaned the Company $74,200 and sold $28,300 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 nine month period ended September 30, 2014 totaling $5,695 in principal and $2,290 in accrued interest. The Company made payments on these notes during the nine month period ended September 30, 2013 totaling $17,018 in principal and $12,352 in accrued interest. There was $18,308 and $11,335 in accrued interest payable on these notes at September 30, 2014 and 2013, respectively.

At both September 30, 2014 and 2013, the Company owed $32,732 to an unaffiliated third party with interest payable at 8% and due on demand. There was $7,539 and $4,921 in accrued interest payable on these notes at September 30, 2014 and 2013, respectively.

At September 30, 2014 and 2013, the Company owed an unaffiliated third party $43,086 and $99,588, respectively. These notes are due on demand and carry an interest rate of 8%. There was $40,921 loaned during the nine month period ended September 30, 2013. There was $8,895 and $7,749 in accrued interest payable at September 30, 2014 and 2013, respectively.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

At September 30, 2014 and 2013, the Company owed an unaffiliated third party $13,000 and $113,000, respectively. There as $113,000 payable on these notes at December 31, 2013 and during the nine months ended September 30, 2014, $100,000 of these notes was reissued as a convertible note as explained more fully under “Convertible Notes” below. A total of $19,500 was loaned and repaid during the three month period ended September 30, 2013. These notes carry current interest rates of 8% per annum. As of September 30, 2014 and 2013, there was $20,317 and $17,257 in accrued interest payable on these notes.

As of both September 30, 2014 and 2013, we owed an unaffiliated third party $0 and $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 September 30, 2014 and 2013, there was $0 and $826, respectively, in accrued interest payable on this note.

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 September 30, 2014 and 2013.

During 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.

AlumiFuel Power, Inc.

AlumiFuel Power, Inc. owes $1,050 in unpaid interest on notes issued prior to 2013.

AlumiFuel Power International, Inc.

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 issuance and carries 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 September 30, 2014 and 2013 of $25,000 with interest payable of $11,030 (2014) and $8,030 (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 September 30, 2014 and 2013.

At September 30, 2014 the company owed $217,130 from unaffiliated third parties paid in Euros totaling 164,250. This principal amount due was $133,980 as of September 30, 2013. 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. Certain of these notes are beyond their maturity date and are therefore in default. As of September 30, 2014 and 2013, there was a total of $24,014 and $5,367, respectively, in interest payable on these notes.

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 September 30, 2014 and 2013.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

Total

Notes and interest payable to others consisted of the following at September 30, 2014 and 2013:

Certain of our demand promissory notes 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, we issue 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.

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 September 30, 2014.

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 issuance.

Among other terms of the offering, the Debentures were originally due in January 2013, but were 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.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

At September 30, 2014, the Company revalued the derivative liability balance of the remaining outstanding Debentures. Therefore, for the period from their issuance to that date, the Company has recorded an expense and decreased the previously recorded liabilities by $506,190 resulting in a derivative liability balance of $4,903 at September 30, 2014.

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 are 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 it 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 Note

In January 2012, we converted 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 is 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 September 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 September 30, 2014.

2013 Asher Convertible Notes

During 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"):

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 September 30, 2014, $5,000 of these costs had been expensed as debt issuance costs.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

The 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 balance 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.

2014 Asher Convertible Notes

During the nine months ended September 30, 2014, the Company entered into a note agreement with an institutional investor for the issuance of convertible promissory notes in the aggregate amount of $22,500 on the following dates and in the following amounts (the "2014 Asher Convertible Notes"):

The 2014 Asher Convertible Notes are 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 carry an interest rate of 8% per annum.

We received net proceeds from the 2014 Asher Convertible Notes of $20,000 after debt issuance costs of $2,500 paid for lender legal fees. These debt issuance costs will be amortized over the terms of the 2014 Asher Convertible Notes or such shorter period as the Notes may be outstanding. As of September 30, 2014, $1,389 of these costs had been expensed as debt issuance costs.

The beneficial conversion feature (an embedded derivative) included in the 2014 Asher Convertible Notes resulted in total initial debt discounts of $22,500 and a total initial loss on the valuation of derivative liabilities of $17,500 for a derivative liability balance of $45,000 total at issuance.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

During the three months ended September 30, 2014, the holders converted a total of $21,000 in face value of the note to 210,000,000 shares of our common stock, or $0.0001 per share. As a result of this transaction, the Company recorded a decrease to the derivative liability of $43,556 and the balance due on the notes was $1,500.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding 2014 Asher Notes. Therefore, for the period from its issuance to September 30, 2014, the Company has recorded an expense and increased the previously recorded liabilities by $1,667 resulting in a derivative liability balance of $2,420 at September 30, 2014.

October 2012 Convertible Notes

In October 2012 we issued $10,000 of 8% unsecured convertible debenture with a private investor that were convertible at 50% 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 of December 31, 2013, the balance remaining on these notes was $2,980.

The beneficial conversion feature (an embedded derivative) included in the October Notes resulted in an initial debt discount of $10,000 and an initial loss on the valuation of derivative liabilities of $10,000 for a derivative liability balance of $20,000 at issuance.

During the three months ended March 31, 2013, the holders converted the remaining $2,980 in face value plus $920 in interest to 77,998,200 shares of our common stock, or $0.00005 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $10,000 and the balance due on the notes was 0.

May 2013 Notes

In May 2013 we issued $2,500 of 8% unsecured convertible note with the same private investor (the “May 2013 Notes”).

In May 2013 we issued $2,500 of 8% unsecured convertible note with the same private investor (the “May 2013 Notes”). The May 2013 Notes are due in February 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.

The beneficial conversion feature (an embedded derivative) included in the May 2013 Notes resulted in an initial debt discount of $2,500 and an initial loss on the valuation of derivative liabilities of $2,232 for a derivative liability balance of $4,732 at issuance.

During the three months ended March 31, 2014, the holders converted the remaining $2,500 in face value plus $222 in interest to 16,009,824 shares of our common stock, or $0.00006 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $4,732 and the balance due on the notes was 0.

November Convertible Notes

In November 2012 a private investor purchased a total of $111,600 in existing notes from one of our third party note holders (together the “November Notes”). The notes were amended to include a maturity date that is nine months from the amendment date or August 2013 and have an 8% interest rate. At December 31, 2013, there was $77,519 in principal on these notes outstanding.

The November Notes are convertible at 50% of the lowest closing bid 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 November Notes resulted in an initial debt discount of $111,600 and an initial loss on the valuation of derivative liabilities of $111,500 for a derivative liability balance of $222,600 at issuance.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

During the six months ended June 30, 2014, the debenture holders converted the remaining balance of $77,519 in face value and $10,443 in interest of the debentures to 353,413,617 shares of our common stock, or $0.00025 per share, fully converting these debentures. As a result of these transactions, the Company recorded a decrease to the derivative liability taking it to $0 and as of June 30, 2014, the total face value of the Debentures outstanding was $0.

2013 CareBourn Notes

In 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.

The 2013 Convertible Notes are convertible at a conversion price for each share of common stock equal to 50% of the lowest closing bid 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 2013 CareBourn Notes resulted in an initial debt discount of $151,351 and an initial loss on the valuation of derivative liabilities of $91,683 for a derivative liability balance of $242,034 at issuance.

As of December 31, 2013, the total face value of the 2013 Convertible Notes outstanding was $133,211.

During the nine months ended September 30, 2014, the note holders converted a total of $133,211 in face value and $7,071 in interest of the 2013 CareBourn Notes to 795,502,370 shares of our common stock, or $0.00018 per share. As a result of the total conversion of these notes, the Company recorded a decrease to the derivative liability of $242,034 and as of September 30, 2014, the total face value of the 2013 Convertible Notes outstanding was $0.

2014 CareBourn Notes

During the nine months ended September 30, 2014, an institutional investor converted $100,000 in promissory notes due from the Company to a convertible note due September 30, 2014. In addition, our president, converted $85,000 in fees due him from our subsidiary AFPI into convertible notes due February 1, 2014 ($50,000) and October 2, 2014 ($35,000). This investor also loaned the Company an additional $45,000 that is due August 2014 through May 2015. These notes total $230,000 (together the “2014 CareBourn Notes) and all bear interest at 8% per annum and are convertible at a conversion price for each share of common stock equal to 50% of the lowest closing bid 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 2014 CareBourn Notes resulted in an initial debt discount of $180,000 and an initial loss on the valuation of derivative liabilities of $239,344 for a derivative liability balance of $419,344 at issuance.

During the nine months ended September 30, 2014, the note holders converted a total of $2,500 in face value the 2014 CareBourn Notes to 50,000,000 shares of our common stock, or $0.00005 per share. As a result of the total conversion of these notes, the Company recorded a decrease to the derivative liability of $3,333 and as of September 30, 2014, the total face value of the 2013 Convertible Notes outstanding was $227,500.

At September 30, 2014, the Company revalued the derivative liability balance of the remaining outstanding 2014 CareBourn Notes. For the period from their issuance to that date there was an decrease of $172,609 to the previously recorded liabilities resulting in a derivative liability balance of $246,734 at September 30, 2014.

JMJ Convertible Note

In June 2013 we issued $16,500 of 12% unsecured convertible note with a private investor (the “JMJ Convertible Note”).

Among other terms of the offering, the JMJ Convertible Note is due in May 2014 (the “Maturity Date”), unless prepayment is required in certain events, as called for in the agreements. The JMJ Convertible Note is convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 60% of the lowest trading price per share of the Company’s common stock for the twenty-five (25) trading days immediately preceding the date of conversion. In addition, the JMJ Convertible Note provides for adjustments in the case of certain corporate actions.

The JMJ Convertible Note bears interest at twelve percent (12%) per annum, unless paid within the first three months in which case no interest is due, payable (i) upon conversion, or (ii) on the Maturity Date, in cash or shares of our common stock at the Conversion Price. In the event of a default, the company would owe 150% of the outstanding principal balance plus accrued interest.

The beneficial conversion feature (an embedded derivative) included in the JMJ Convertible Note resulted in an initial debt discount of $16,500 and an initial loss on the valuation of derivative liabilities of $15,180 for a derivative liability balance of $31,680 at issuance.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

The total face value of the 2013 Convertible Notes outstanding was $14,300 at December 31, 2013.

During the three months ended March 31, 2014, the note holders converted a total of $14,300 in face value and $2,167 in interest of the JMJ Notes to 131,866,680 shares of our common stock, or $0.00012 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $23,833 and as of March 31, 2014, the total face value of the 2013 Convertible Notes outstanding was $0.

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.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding Bohn Convertible Note. Therefore, for the period from their issuance to September 30, 2014, the Company has recorded decreased the previously recorded liabilities by $9,215 resulting in a derivative liability balance of $22,214 at September 30, 2014.

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 year ended December 31, 2013, an unaffiliated institutional investor purchased three notes totaling $19,900 from one of our third party note holders and issued a new notes in the amount of $10,000 for a total of $29,900 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.

The beneficial conversion feature (an embedded derivative) included in the WHC Notes resulted in an initial debt discount of $29,900 and an initial loss on the valuation of derivative liabilities of $25,178 for a derivative liability balance of $55,078 at issuance.

As of December 31, 2013, the total face value of the WHC Notes outstanding was $16,212.

During the six months ended June 30, 2014, the note holders converted the remaining balance of $16,212 in face value and $492 in interest of the WHC Notes to 109,130,609 shares of our common stock, or $0.00008 per share. As a result of these transactions, the Company decreased the derivative liability to $0 and as of June 30, 2014, the total face value of the WHC Notes outstanding was $0.

During the nine months ended September 31, 2014, WHC purchased additional notes totaling $101,300 from one of our third party note holders and issued new notes in the amount of $45,000 for a total of $146,300 in amounts due (the "WHC 2104 Notes"). The WHC 2014 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 March through July 2015.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

The beneficial conversion feature (an embedded derivative) included in the WHC 2014 Notes resulted in an initial debt discount of $146,300 and an initial loss on the valuation of derivative liabilities of $66,901 for a derivative liability balance of $213,201 at issuance.

During the nine months ended September 30, 2014, the note holders converted a total of $56,248 in face value and $234 in interest due on the WHC 2014 Notes to 253,291,400 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 totaling $44,798 and as of September 30, 2014, the total face value of the WHC 2014 Notes outstanding was $90,052.

At Sepotember 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding WHC 2014 Notes. Therefore, for the period from their issuance to September 30, 2014, the Company has recorded an expense and increased the previously recorded liabilities by $121,061 resulting in a derivative liability balance of $98,788 at September 30, 2014.

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.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding Schaper Notes. Therefore, for the period from its issuance to September 30, 2014, the Company has decreased the previously recorded liabilities by $13,500 resulting in a derivative liability balance of $26,500 at September 30, 2014.

JSJ Notes

In February 2014 we issued a $25,000 12% unsecured convertible note with a private investor (the “JSJ Convertible Note”). This note is 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.

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 for a derivative liability balance of $33,333 at issuance.

During the three months ended September 30, 2014, the note holders converted a total of $16,500 in face value of the JSJ Notes to 330,000,000 shares of our common stock, or $0.00005 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $17,600 and as of September 33, 2014, the total face value of the 2013 Convertible Notes outstanding was $8,500.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding JSJ Convertible Note. Therefore, for the period from their issuance to September 30, 2014, the Company decreased the previously recorded liabilities by $23,356 resulting in a derivative liability balance of $9,977 at September 30, 2014.

LG Funding Notes

In February 2014 we issued a $40,000 8% unsecured convertible note with a private investor (the “LG Convertible Note”). This note is 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 Jun 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 after debt issuance costs of $2,000. 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 September 30, 2014, $729 of these costs had been expensed as debt issuance costs.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

The beneficial conversion feature (an embedded derivative) included in the LG Convertible Note resulted in an initial debt discount of $40,000 and an initial loss on the valuation of derivative liabilities of $5,000 for a derivative liability balance of $45,000 at issuance.

During the three months ended September 30, 2014, the note holders converted a total of $10,600 in face value and $452 in accrued interest of the LG Funding Notes to 22,1035,317 shares of our common stock, or $0.00005 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $14,133 and as of September 33, 2014, the total face value of the 2013 Convertible Notes outstanding was $54,400.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding LG Convertible Notes. Therefore, for the period from their issuance to September 30, 2014, the Company has decreased the previously recorded liabilities by $35,852 resulting in a derivative liability balance of $59,148 at September 30, 2014.

Iconic Notes

In February 2014 we 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.

We 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 September 30, 2014, $1,458 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 for a derivative liability balance of $55,000 at issuance.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding Iconic Convertible Note. Therefore, for the period from their issuance to September 30, 2014, the Company decreased the previously recorded liabilities by $26,125 resulting in a derivative liability balance of $28,875 at September 30, 2014.

ADAR Convertible Note

On June 30, 2013 we 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.

We 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 September 30, 2014, $750 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 for a derivative liability balance of $80,000 at issuance.

At September 30, 2014 the Company revalued the derivative liability balance of the remaining outstanding ADAR Convertible Note. Therefore, for the period from their issuance to September 30, 2014, the Company decreased the previously recorded liabilities by $54,000 resulting in a derivative liability balance of $26,000 at September 30, 2014.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

Debentures and convertible notes and interest payable consisted of the following at September 30, 2014:

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

Note 5: Notes Receivable

At September 30, 2014 there was $69,853 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 nine months ended September 30, 2014, FFFC was able to repay $82,500 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 receivable during the nine month period ended September 30, 2014. As of September 30, 2013, FFFC owed the Company $185,403 and paid $62,200 against these notes. Given the uncertainty of payments on these 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 September 30, 2014, 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 September 30, 2014 and 2013 consisted of the following:

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, 2013 of $134,083. During the nine months ended September 30, 2014 an additional expense of $12,762 was recorded for a total accrued balance of $146,002 as of that date. This amount is included on the balance sheets at September 30, 2014 as “payroll liabilities”.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

Office Lease Agreement

Effective on July 1, 2009, API entered into a lease for office and laboratory space in the University City Science Center in Philadelphia, Pennsylvania. Totaling approximately 2,511 square feet, the term of the agreement was for five years and six months expiring on December 31, 2014. In addition, the Company was obligated to pay certain common area maintenance fees of $1,886 per month during 2011.

In November 2011, the Company determined it could no longer sustain the significant payments under the lease and vacated the premises. On November 30, 2011, API was notified that a Judgment by Confession had been entered against it in the Court of Common Pleas Philadelphia County in Philadelphia, Pennsylvania by Wexford-UCSC II, L.P., its former landlord. The Judgment by Confession assesses total damages of $428,232, which is comprised of the following: $73,995 for unpaid monthly rent, maintenance fees, interest and late charges for the period through November 30, 2011; attorney's fees of $5,000; rent and maintenance charges of $10,020 for December 2011; and the value of future rent payments for the period from January 1, 2012 to December 31, 2014 of $339,217. The complaint alleged a breach of contract and event of default for API related to this lease. As of March 31, 2013, the Company had recorded $67,429 in rent expense that was included in "accounts payable, other" as of that date. The additional judgment amount totaling $360,803 was expensed as "litigation contingency" on our statements of operations and was recorded under the same name as a liability on balance sheets at March 31, 2013.

We reached a Settlement Agreement with Wexford-UCSC II, L.P. in May 2013. Pursuant to the terms of the Settlement Agreement, the Company paid a cash payment of $2,000 and issued a Convertible Promissory Note in the amount of $75,000, as described more fully as "Wexford Convertible Note" in Note 3 - Notes Payable above. Also pursuant to the terms of the Settlement Agreement, AlumiFuel Power, Inc., AlumiFuel Power Corporation and all affiliated entities and persons have been fully released. As a result of this settlement, we recorded a gain of $351,232 listed as litigation contingency under "other income (expense" on our statements of operations for the difference between the total assessed damages of $428,232 and the settlement amount valued at $77,000.

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 nine month period ended September 30, 2014, we issued a total of 2,811,651,426 shares of our common stock on the conversion of $479,656 in principal and interest on our various convertible promissory notes. In addition to the converted principal and interest on the notes, the Company recorded $736,286 in additional expense for the derivative liability for a total cost to the Company of $1,212,942 or $0.00043 per share.

During the nine month period ended September 30, 2014, we issued 247,145,713 shares of our common stock to noteholders upon the conversion of $26,332 in promissory notes and accrued interest. In addition to the face value of the notes, the Company recorded $229,806 in additional 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 UNAUDITED FINANCIAL STATEMENTS

Warrants

A summary of the activity of the Company’s outstanding warrants at December 31, 2013 and September 30, 2014 is as follows:

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 September 30, 2014:

Note 10: Subsequent Events

Subsequent to September 30, 2014 and up to the filing of this report, the Company issued 150,000,000 shares of common stock upon the conversion of $7,500 in principal on a convertible promissory note issued by the Company.

On November 19, 2014 the Company effected a 1 for 250 reverse split of its common stock following which a total of 3,806,173,270 shares of issued and outstanding pre-split common stock became 15,224,802 shares of post-split common stock.

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, 2013 and 2012.

The independent auditors’ reports on our financial statements for the years ended December 31, 2013 and 2012 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, 2013 and 2012.

The Company is a an early production stage alternative energy company that generates hydrogen gas and steam for multiple niche applications requiring on-site, on-demand fuel sources. Our hydrogen drives fuel cells for back-up, remote, and portable power, fills inflatable devices such as weather balloons, and can replace costly, hard-to-handle and high pressure K-Cylinders. Our steam/hydrogen output is also being designed to drive turbine-based underwater propulsion systems and auxiliary power systems. We have significant differentiators in performance, adaptability, safety and cost-effectiveness in its target market applications, with no external power required and no toxic chemicals or by-products.

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. We have not sold any units since 2012.

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.

On closing of a capital investment, if it occurs, NovoFuel common shares are to be allocated to Genport shareholders in exchange for 100% of Genport shares. Although Genport would then be a wholly-owned subsidiary of NovoFuel, Genport, SrL would retain its status as an Italian company under Italian law. Following the closing of the transaction, if it occurs, NovoFuel will have operations in the United States and Italy.

The focus of the combined Novofuel would be to pursue and capture backup and portable power applications and business opportunities in the United States and Europe. The new entity would pursue the engineering development of an integrated 5kW backup power system for telecom facilities. Meantime, the Company is currently pursuing potential backup and/or primary power applications for its hydrogen generation technology related to cannabis growing operations. To date, we have had no revenue from any of the Novofuel operations.

NovoFuel's principal technology continues to be hydrogen generation on-site and on demand for such applications as feeding fuel cells to provide electricity, filling weather balloons for upper atmosphere readings, and providing power for unmanned undersea vehicle propulsion and surveillance operations. Government users typically are the early adopters of new 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 virtual standstill. This has caused the company to focus on backup power applications for selected commercial applications, where there is a real demand and funding available for renewable energy solutions. Two notable examples are 5kW backup power hydrogen fuel cells for telecom rooftop cell towers, and a hybrid array of renewable energy components for medical cannabis cultivation -- now the fastest growing market in North America, surpassing mobile phones.

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 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. The most scholarly treatment of this issue is a report written by Evan Mills, PhD, of the University of California and the DOE: “Energy up in Smoke: The Carbon Footprint of Indoor Cannabis Production.” (http://evan-mills.com/energy-associates/Indoor.html).

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).

In implementing its RES initiatives, NovoFuel has entered into formalized partnership agreements with the following companies which each contribute specialized expertise towards the design, fielding and integration of renewable energy systems to complement and supplement grid power, aimed at enhancing the production and optimizing the efficiency of medical cannabis cultivation:

Under NovoFuel's direction and oversight, all required steps for completing the installation of the Michigan-based RES pilot site are underway. NovoFuel is also currently engaged in a dialogue with other local Michigan entities which would enhance the scope and visibility of NovoFuel’s RES pilot site project. It should be noted that NovoFuel's RES Power Station is also ideally suited to serve hydroponic crop cultivation -- which is the larger family of agricultural applications that includes cannabis growing.

The average cost of utility grid power in the U.S. is $0.13 kWh; however, cannabis cultivators rely on diesel/gasoline generators to provide fail-safe backup power at a cost of $0.81 kWh. The NovoFuel Power Station off-grid RES solution has a cost ranging from $0.18-0.30 kWh depending on the particular site. In addition, the environmentally friendly RES wind and solar components qualify for tax incentives which further reduce the cultivators' costs.

PATENT APPROVAL. NovoFuel has been notified by the U.S. Patent and Trademark office (USPTO) that the provisional patent on its hydrogen generation technology has been allowed, and will be issued as a U.S. patent within several months following receipt of the necessary fees. At that time, the USPTO will assign a number to the new patent.

The omnibus provisional patent application, "METHODS AND APPARATUS FOR CONTROLLED PRODUCTION OF HYDROGEN USING ALUMINUM-BASED WATER-SPLIT REACTIONS", was filed in 2009, and went through a comprehensive review by the USPTO. The approved patent embodies 48 specific claims which are applications-oriented, focusing on the practical aspects of controlling the aluminum powder-water reaction in NovoFuel's cartridge-based hydrogen generation system used in such applications as feeding fuel cells for backup power and filling weather balloons.

LIQUIDITY AND CAPITAL RESOURCES

To address the going concern situation addressed in our financial statements at December 31, 2013 and 2012, we anticipate we will require over the next twelve months approximately $1,050,000 of additional capital to fund the Company’s operations, not including any financing contemplated for the Novofuel/Genport transaction. 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. As in 2013, during 2014 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 55% causing the issuance of shares below market value prices causing substantial and continual dilution to our stockholders.

During the nine months ended September 30, 2014, we received a net of $341,983 from our financing activities, primarily from the issuance of notes payable from various sources totaling $388,800 including $315,000 in convertible notes. This was offset by payments on notes payable totaling $35,817 and note fees of $11,000. This compared to cash provided by financing activities of $382,674 in the nine months ended September 30, 2013 derived from proceeds from the issuance of notes payable totaling $424,200. This was offset by payments on notes payable of $54,637.

In the nine month period ended September 30, 2014, net cash used in operating activities was $350,923. This compared to net cash used in operating activities of $382,027 for nine month period ended September 30, 2013. The 2014 amount included a $1,362,460 net loss that included approximately $571,746 in non-cash charges and credits to operating assets and liabilities primarily from non-cash interest expense of $369,123 and amortization of discount on debentures payable of $465,250 related to our convertible notes. This compares to a net loss of $775,945 in the nine months ended September 30, 2013 that included a non-cash loss of approximately $330,849 primarily from non-cash interest expense related to convertible notes of $254,885 along with amortization of discount on debentures payable of $266,934 both related to our convertible debt.

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

Nine Month Period ended September 30, 2014 vs September 30, 2013

For the nine month periods ended September 30, 2014 and 2013, our total revenue was $0 and $13,440, respectively. The revenue in the September 30, 2013 period was received from the US Air Force for modifications to the PBIS-2000 unit delivered to them in 2012. The loss from operations for the nine month period ended September 30, 2014 was $520,072 versus $594,493 in the nine month period ended September 30, 2013. This decrease in 2014 was primarily the result of losses associated with the PBIS-2000 modifications in the 2013 period as well as significantly lower professional services costs in the 2014 period as the Company relied less on outside consultants. The losses included $250,257 and $250,780 in 2014 and 2013, respectively, comprised of related party expense that included officer and key employee management fees as well as rent paid to related parties.

A total of $269,619 and $331,662 for “Other” operating expenses in the nine month periods ended September 30, 2014 and 2013, respectively, was comprised of the following:

The Company experienced lower general and administrative expenses as well as a significant decrease in professional services expenses in the 2014 period versus the 2013 period as the Company worked to lower its costs. All other expense categories remained relatively stable year-to-year. This is a trend the Company believes will continue through year-end.

The company recorded $842,388 in “other expense” during the nine months ended September 30, 2014 as compared to $181,451 in the nine months ended September 30, 2013. This significant increase 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, adjustments to derivative liabilities related to the Company's various convertible notes including a significant increase in interest expense and amortization of discounts related to conversions during the nine months ended September 30, 2014 resulted in an increase of over $300,000 in derivative liability related expense. The Company currently has approximately $613,000 in face value of convertible debt so it is anticipated similar losses related to derivative liabilities will continue for the foreseeable future.

Three Month Period ended September 30, 2014 vs September 30, 2013

For both the three month periods ended September 30, 2014 and 2013, our total revenue was $0. The loss from operations for the three month period ended September 30, 2014 was $125,450 versus $189,175 in the three month period ended September 30, 2013. This decrease in 2014 was primarily the result of a decrease in “other” expense as described more fully below. The losses included $82,750 and $83,711 in 2014 and 2013, respectively, comprised of related party expense that included officer and key employee management fees as well as rent paid to related parties.

A total of $42,672 and $105,380 for “Other” operating expenses in the three month periods ended September 30, 2014 and 2013, respectively, was comprised of the following:

The “other” operating expense during the three months ended September 30, 2013 included a significant decrease in general and administrative and professional services expenses. The Company recovered approximately $23,000 in increased bad debt expense from payments received on notes receivable from affiliate FastFunds Financial Corporation in 2014 which also contributed to the lower expense. While it is difficult to predict quarter-to-quarter, the Company is trying to lower general and administrative and professional services costs.

The company recorded $22,561 in “other expense” during the three months ended September 30, 2014 as compared to $147,680 in “other expense” for the three months ended September 30, 2013. This significant decrease is the direct result of recording lower overall costs related to derivative liabilities related to the Company’s convertible notes. In addition, the Company issued fewer notes in the third quarter ended September 30, 2014 resulting in lower derivative liability expense. The Company does not necessarily believe this will be a trend moving forward given its need to issue convertible debt to cover its operating costs while working to exploit its unique hydrogen technology in the form of meaningful revenues.

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 $1,048,867 of debt outstanding as of September 30, 2014 including convertible debentures and notes with a face value totaling $612,752, 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 September 30, 2014 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.

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:

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.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities

During the three month period ended September 30, 2014, we issued a total of 1,258,587,917 shares of our common stock on the conversion of $81,429 in principal and interest on our various convertible promissory notes. In addition to the converted principal and interest on the notes, the Company recorded $110,372 in additional expense for the derivative liability for a total cost to the Company of $407,869 or $0.00015 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

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.

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