AlumiFuel Power Corp - Quarter Report: 2015 June (Form 10-Q)

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

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 August 14, 2015: 2,004,306,651

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

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 Six months ended June 30, 2015

(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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of presentation

The interim unaudited condensed consolidated financial statements presented herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and for the three and six month periods ended June 30, 2015 and 2014 include the condensed consolidated 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 its 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.

On November 19, 2014, the Company effected a 1 for 250 reverse split of its common stock following which a total of 3,840,199,334 shares of issued and outstanding pre-split common stock became 15,360,797 shares of post-split common stock. As a result of the reverse split, the number of shares outstanding and per share information for all prior periods presented have been retroactively restated to reflect the new capital structure.

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 condensed consolidated financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2014, notes and accounting policies thereto included in the Company’s Annual Report on Form 10-K.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented have been made. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the year.

Going Concern

The accompanying condensed consolidated 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 condensed consolidated financial statements, the Company had no revenue during the six months ended June 30, 2015, and has an accumulated deficit of $25,318,465 from its inception through that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

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, 2014 and June 30, 2015 was 68,114,864.

The value of all shares of AFPI held by the Company have been eliminated on consolidation of the financial statements at June 30, 2015 as intercompany accounts. At June 30, 2015 there were 28,511,985 shares held by shareholders other than the Company representing 42% of the outstanding common shares of AFPI as of that date. A non-controlling interest in AFPI that totaled $3,975,085 is included in the Company’s condensed consolidated balance sheet at June 30, 2015. In addition, $32,433 of the net loss of AFPI of $77,479 for the six months ended June 30, 2015 has been attributed to the non-controlling interest of those stockholders.

Note 2: Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash equivalents at June 30, 2015 were $-0-.

Stock-based Compensation

The Company has certain stock option plans approved by its stockholders, and also grants options and warrants to consultants outside of its stock option plan pursuant to individual agreements.

The Company accounts for compensation expense for its stock-based employee compensation plans and issuances of options and warrants to consultants in accordance with ASC Topic 718 - Compensation - Stock Compensation. See Note 8. Capital Stock for further information on the Company's stock-based compensation.

Debt Issue Costs

The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method over the lives of the related debt. The straight-line method results in amortization that is not materially different from that calculated under the effective interest method.

Fair value of financial instruments

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

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

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

Loss per Common Share

Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Common stock underlying stock options, warrants, and convertible promissory notes are not considered in the calculations for the periods ended June 30, 2015 and 2014, as the impact of the potential common shares, which totaled approximately 11,786,355,285 (June 30, 2015) and 14,485,537 (June 30, 2014), would be anti-dilutive. Therefore, diluted loss per share presented for the six month periods ended June 30, 2015 and 2014 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 thatare indexed to, and potentially settled in, the Company's stock.Under this pronouncement, contracts are initially classified as equity or as either assets or liabilities, depending on the situation. All contracts are initially measured at fair value and subsequentlyaccounted for based on the then current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified asequity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remainclassified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included inearnings. The classification of a contract is reassessed at each balance sheet date.

Derivative Instruments

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative instruments under the provisions of ASC Topic 815, “Derivatives and Hedging".

Recently issued accounting pronouncements

Management reviewed accounting pronouncements issued during the six months ended June 30, 2015, and no pronouncements were adopted.

Note 3: Related Party

Related Party Accounts Payable

The Board of Directors has estimated the value of management services for the Company at the monthly rate of $8,000 and $2,000 for the president and secretary/treasurer, respectively. The estimates were determined by comparing the level of effort to the cost of similar labor in the local market and this expense totaled $60,000 for each of the six months ended June 30, 2015 and 2014. In addition, beginning October 1, 2010 the Company's president and treasurer were accruing a management fee of $7,500 and $3,500, respectively, for their services as managers of AFPI. This amount totaled $66,000 for each of the six months ended June 30, 2015 and 2014. As of June 30, 2015 and 2014, the Company owed $473,942 and $340,392, respectively to its officers for management services.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 six month periods ended June 30, 2015 and 2014, the Company recorded $1,010 and $2,507, respectively to a corporation owned in part by the Company’s Secretary under this bonus program. At June 30, 2015 and 2014, respectively, there was $1,420 and $5,555 payable under the bonus plan.

In the six month periods ended June 30, 2015 and 2014, 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 six month periods ended June 30, 2015 and 2014, these management fees totaled $39,000. As of June 30, 2015 and 2014, the Company owed $18,370 and $12,985, 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. This fee is month-to-month and is based on the amount of space occupied by the Company and includes the use of certain office equipment and services. Rent expense totaled $9,000 for the six months ended June 30, 2015 and 2014. A total of $0 and $9,000 in rent expense was accrued but unpaid at June 30, 2015 and 2014, respectively.

Accounts payable to related parties consisted of the following at June 30, 2015:

Related Party Notes Payable

AlumiFuel Power Corporation

The Company issues promissory notes to its officers, and entities affiliated with its officers, from time-to-time. These notes all bear interest at 8% per annum and are due on demand. The following table outlines activity related to issuances and payment on these notes for the six months ended June 30, 2015 and 2014:

Notes Payable - Related Parties and Affiliates:

HPI Partners, LLC

In 2009, various notes issued by HPI were converted to equity by its officers. Following those conversions, $235 in interest remained due and payable, which was outstanding at both June 30, 2015 and 2014.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Total notes and interest payable to related parties consisted of the following at June 30, 2015 and December 31 2014:

Note 4: Notes Payable

AlumiFuel Power Corporation

At June 30, 2015 and 2014, the Company owed $103,005 and $123,405, respectively, to the Gulfstream 1998 Irrevocable Trust, at an interest rate of 8% and due on demand. During the six months ended June 30, 2015, the trust loaned the Company $52,000; and sold $36,000 in principal on these notes to third parties that became convertible debentures. Please see convertible notes below and Note 9 “Capital Stock” below for further information on these transactions. There was $14,593 and $20,091 in accrued interest payable on these notes at June 30, 2015 and December 31, 2014, respectively.

At both June 30, 2015 and 2014, the Company owed $32,732 with interest payable at 8% and due on demand. There was $9,498 and $6,227 in accrued interest payable on these notes at June 30, 2015 and December 31, 2014, respectively.

At June 30, 2015 and 2014, the Company owed $43,086 on a note payable. These notes are due on demand and carry an interest rate of 8%. There was $11,472 and $8,199 in accrued interest payable at June 30, 2015 and December 31, 2014, respectively.

At June 30, 2015 and 2014, the Company owed $13,000 on a note payable. There was $13,000 payable on these notes at December 31, 2014. These notes carry current interest rates of 8% per annum. As of June 30, 2015 and December 31, 2014, there was $21,099 and $20,583 in accrued interest payable on these notes, respectively.

During the year ended December 31, 2010 a note payable in the amount of $30,000 was issued and repaid leaving an interest balance due of $57. This amount remained unpaid as of both June 30, 2015 and December 31, 2014.

AlumiFuel Power, Inc.

AlumiFuel Power, Inc. owes $1,050 in unpaid interest on notes issued prior to 2015.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AlumiFuel Power International, Inc.

At June 30, 2015 and December 31, 2014, the company owed $217,130 that was paid in Euros totaling $164,250. These notes are due one year from issuance with an interest rate of 10% and may be converted to AFPI common stock after six months outstanding and if AFPI's common stock begins trading again. A majority of these notes are beyond their maturity date and are therefore in default. As of June 30, 2015 and December 31, 2014, there was a total of $40,801 and $29,329, respectively, in interest payable on these notes.

HPI Partners, LLC

In 2009, various notes issued by HPI were converted to equity. Following those conversions, $647 in interest remained due and payable, which was outstanding at both June 30, 2015 and December 31, 2014.

Notes and interest payable to others consisted of the following at June 30, 2015 and December 31, 2014:

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, the Company issues convertible promissory notes and debentures with conversion features that we have determined represent an embedded derivative as they are convertible into a variable number of shares upon conversion. Accordingly, these notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The Company believes that the aforementioned embedded derivatives meet the criteria of ASC 815 (formerly SFAS 133 and EITF 00-19), and should be accounted for separately as derivatives with a corresponding value recorded as a liability. Accordingly, the fair value of these derivative instruments are recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the notes in the period in which they are issued. Such discount is capitalized and amortized over the life of the notes. The change in the fair value of the liability for derivative contracts is credited to other income (expense) in the consolidated statements of operations at the end of each quarter. The face amount of the corresponding notes are stripped of their conversion feature due to the accounting for the conversion feature as a derivative, which is recorded using the residual proceeds to the conversion option attributed to the debt.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2009/2010 Convertible Debentures

In September 2009 through January 2010 we issued $435,000 of 6% unsecured convertible debentures in transactions with private investors (the “Debentures”). Of that amount, $10,000 of these debentures remained unpaid as of June 30, 2015.

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.

At June 30, 2015, the Company revalued the derivative liability balance of the remaining outstanding Debentures resulting in a derivative liability balance of $5,053 at June 30, 2015.

January 2012 Convertible Notes

In January 2012 we issued two convertible notes of $25,000 each for a total of $50,000 to J&J Potatoes. These notes were 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 to 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 leaving a balance due at June 30, 2015 of $48,300.

2014 Asher Convertible Notes

In January 2014, the Company entered into a note agreement with an institutional investor for the issuance of a convertible promissory note in the aggregate amount of $22,500.

The 2014 Asher Convertible Note is convertible at 50% of the average of the lowest three closing bid prices per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion and carries an interest rate of 8% per annum.

We received net proceeds from the 2014 Asher Convertible Note of $20,000 after debt issuance costs of $2,500 paid for lender legal fees. These debt issuance costs were amortized over the nine month term of the 2014 Asher Convertible Note and of December 31, 2014, all of these costs had been expensed as debt issuance costs.

The beneficial conversion feature (an embedded derivative) included in the 2014 Asher Convertible Note resulted in total initial debt discounts of $22,500 and a total initial loss on the valuation of derivative liabilities of $1,800 for a derivative liability balance of $24,300 total at issuance.

During the year ended December 31, 2014, the holder converted a total of $21,000 in face value of the note to 840,000 shares of our common stock, or $0.025 per share. As a result of this transaction, the Company recorded a decrease to the derivative liability of $22,680 and the balance due on the notes was $1,500.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding 2014 Asher Note resulting in a derivative liability balance of $2,508 at June 30, 2015.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2014 CareBourn Notes

During the year ended December 31, 2014, an institutional investor, CareBourn Capital, converted $100,000 in promissory notes due from the Company into 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), which were acquired by this investor. This investor also loaned the Company an additional $70,000 that is due August 2014 through July 2015. These notes total $255,000 (together the “2014 CareBourn Notes) bear interest at 8%-12% per annum and are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three closing 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 2014 CareBourn Notes resulted in an initial debt discount of $205,000 and an initial loss on the valuation of derivative liabilities of $72,950 for a derivative liability balance of $277,950 at issuance.

During the year ended December 31, 2014, the note holders converted a total of $4,711 in face value of the 2014 CareBourn Notes to 2,021,000 shares of our common stock, or $0.002 per share. As a result of the conversion of these notes, the Company recorded a decrease to the derivative liability and as of December 31, 2014, the total face value of the 2014 CareBourn Notes outstanding was $250,289.

During the six months ended June 30, 2015, the note holders converted a total of $57,426 in principal and $3,712 in interest of the 2014 CareBourn Notes to 640,784,415 shares of our common stock, or $0.00008 per share. As a result of the conversion of these notes, the Company recorded a decrease to the derivative liability and as of June 30, 2015, the total face value of the 2014 CareBourn Notes outstanding was $192,863.

At June 30, 2015, the Company revalued the derivative liability balance of the remaining outstanding 2014 CareBourn Notes resulting in a derivative liability balance of $217,114 at June 30, 2015.

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 June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding Bohn Convertible Note resulting in a derivative liability balance of $23,410 at June 30, 2015.

Wexford Convertible Note

In May 2013, we issued a $75,000 convertible note that remains outstanding to the former landlord of API as part of a settlement agreement with respect to a Judgment by Confession entered against API. 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.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

WHC Capital Notes

During the nine months ended September 30, 2014, WHC purchased 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 2014 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.

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 year ended December 31, 2014, the note holders converted a total of $57,565 in face value and $234 in interest due on the WHC 2014 Notes to 1,891,356 shares of our common stock, or $0.03 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability totaling $51,645 and as of December 31, 2014, the total face value of the WHC 2014 Notes outstanding was $88,736.

During the six months ended June 30, 2015, the note holders converted a total of $15,614 in face value on the WHC 2014 Notes to 149,045,228 shares of our common stock, or $0.0001 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability and as of June 30, 2015, the total face value of the WHC 2014 Notes outstanding was $73,112.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding WHC 2014 Notes resulting in a derivative liability balance of $81,897 at June 30, 2015.

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 June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding Schaper Notes resulting in a derivative liability balance of $28,027 at June 30, 2015.

JSJ Notes

In February 2014 the Company issued a $25,000 12% unsecured convertible note with a private investor (the “JSJ Convertible Note”). This note was 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 $1,500 for a derivative liability balance of $26,500 at issuance.

During the year ended December 31, 2014, the note holders converted a total of $18,377 in face value of the JSJ Notes to 2,066,015 shares of our common stock, or $0.009 per share. As a result of these transactions the total face value of the JSJ Notes outstanding was $6,623.

During the six months ended June 30, 2015, the note holders converted a total of $6,623 in principal and $2,102 in interest of the JSJ Notes to 108,708,299 shares of our common stock, or $0.0008 per share. As a result of these transactions the amounts payable on the JSJ Notes outstanding was $0 at June 30, 2015.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LG Funding Notes 2014

In February 2014 we issued a $40,000 8% unsecured convertible note with a private investor. This note was 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 June 2014 we issued an additional $25,000 note to this same investor with the same terms and conditions (the “LG Convertible Notes”)

We received net proceeds from the LG Convertible Note of $61,500 after debt issuance costs of $3,500. These debt issuance costs will be amortized over the terms of the LG Convertible Notes or such shorter period as the Notes may be outstanding. As of December 31, 2014, $2,567 of these costs had been expensed as debt issuance costs.

The beneficial conversion feature (an embedded derivative) included in the LG Convertible Notes resulted in an initial debt discount of $65,000 and an initial loss on the valuation of derivative liabilities of $5,200 for a derivative liability balance of $70,200 at issuance.

During the year ended December 31, 2014, the note holders converted a total of $10,600 in face value and $452 in accrued interest of the LG Funding Notes to 884,141 shares of our common stock, or $0.0125 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $11,448 and as of December 31, 2014, the total face value of the LG Funding Notes outstanding was $54,400.

During the six months ended June 30, 2015, the note holders converted a total of $33,135 in face value and $2,666 in accrued interest of the LG Funding Notes to 327,367,979 shares of our common stock, or $0.0001 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability and as of June 30, 2015, the total face value of the LG Funding Notes outstanding was $21,265.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding LG Convertible Notes resulting in a derivative liability balance of $22,966 at June 30, 2015.

Iconic Notes

In February 2014 the Company issued a $27,500 5% unsecured convertible note with a private investor (the “Iconic Convertible Note”). This note is due on February 26, 2015 and is convertible into common stock at 50% of the lowest trading price for the twenty-five (25) days immediate preceding the date of conversion.

The Company received net proceeds from the Iconic Convertible Note of $25,000 after debt issuance costs of $2,500. These debt issuance costs will be amortized over the terms of the Iconic Convertible Notes or such shorter period as the Notes may be outstanding. As of December 31, 2014, $2,135 of these costs had been expensed as debt issuance costs.

The beneficial conversion feature (an embedded derivative) included in the Iconic Convertible Note resulted in an initial debt discount of $27,500 and an initial loss on the valuation of derivative liabilities of $1,375 for a derivative liability balance of $28,875 at issuance.

In November 2014 the lender declared an event of default on the note for failure to maintain sufficient shares of the Company’s common stock in reserve for issuance under the note. As a result, the Company incurred $9,664 in default fees that are added to the principal balance of the note. In addition, the interest rate for the remaining balance of the note increased to 20%.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended December 31, 2014, the note holder converted a total of $1,350 in face value of the Iconic Notes to 1,928,571 shares of our common stock, or $0.0007 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $1,418 and as of December 31, 2014, the total face value of the Iconic Notes outstanding was $35,814.

During the six months June 30, 2015, the note holder converted a total of $35,814 in face value and $1,503 in accrued interest of the Iconic Notes to 130,147,427 shares of our common stock, or $0.0003 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $55,000 and as of June 30, 2015, the total face value of the Iconic Notes outstanding was $0.

ADAR Convertible Note

On June 30, 2013 the Company issued a $25,000 8% unsecured convertible note with a private investor (the “ADAR Convertible Note”). This note is due on February 20, 2015 and is convertible into common stock at 50% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion.

The Company received net proceeds from the ADAR Convertible Note of $23,500 after debt issuance costs of $1,500. These debt issuance costs will be amortized over the terms of the ADAR Convertible Notes or such shorter period as the Notes may be outstanding. As of December 31, 2014, $1,238 of these costs had been expensed as debt issuance costs.

The beneficial conversion feature (an embedded derivative) included in the ADAR Convertible Note resulted in an initial debt discount of $25,000 and an initial loss on the valuation of derivative liabilities of $2,000 for a derivative liability balance of $27,000 at issuance.

During the year ended December 31, 2014, the note holder converted a total of $7,500 in face value of the Adar Convertible Notes to 600,000 shares of our common stock, or $0.0125 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $8,100 and as of December 31, 2014, the total face value of the Adar Notes outstanding was $17,500.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding ADAR Convertible Note resulting in a derivative liability balance of $18,900 at June 30, 2015.

Beaufort Notes

In November 2014 the Company issued a $16,000 unsecured convertible note with a private investor (the “Beaufort Note”). This note is due in May 2015 and is convertible into common stock at 50% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion. In addition, this investor also purchased $15,100 in promissory notes from the Gulfstream Trust for a total amount of notes outstanding of $31,100, which is convertible into common stock at 60% of the lowest closing bid price for the ten (10) days immediate preceding the date of conversion.. The Beaufort Note accrues 5% interest only if it remains unpaid at maturity and only for the amount then owing at maturity through the payment date.

The Company received net proceeds from the Beaufort Note of $12,500 after debt issuance costs of $3,500. These debt issuance costs will be amortized over the terms of the Beaufort Note or such shorter period as the Note may be outstanding. As of December 31, 2014, $583 of these costs had been expensed as debt issuance costs.

The beneficial conversion feature (an embedded derivative) included in the Beaufort Notes resulted in an initial debt discount of $31,100 and an initial loss on the valuation of derivative liabilities of $1,244 for a derivative liability balance of $32,344 at issuance.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2014, the note holders converted a total of $1,739 in face value of the LG Funding Notes to 2,728,000 shares of our common stock, or $0.0006 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability of $1,656 and as of December 31, 2014, the total face value of the Beaufort Notes outstanding was $29,361.

During the six months ended June 30, 2015, the note holders converted a total of $13,361 in face value of the Beaufort Notes to 62,295,857 shares of our common stock, or $0.0002 per share. As a result of these transactions, the Company recorded a decrease to the derivative liability and as of June 30, 2015, the total face value of the Beaufort Notes outstanding was $16,000.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding Beaufort Notes resulting in a derivative liability balance of $16,640 at June 30, 2015.

Pure Energy 714 2015 Notes

During the quarter ended June 30, 2015, Pure Energy 714 purchased a note totaling $21,000 in principal and $3,360 in accrued interest from one of our third party note holders and issued a new note in the amount of $24,360 (the "Pure Energy 2015 Note"). The Pure Energy 2015 Note may be converted at any time at a discount to market of 60% of the lowest closing price per share of the Company’s common stock for the thirty (30) trading days immediately preceding the date of conversion as adjusted for splits and other events. This notes have an interest rate of 8% per annum and are due in July 2015.

The beneficial conversion feature (an embedded derivative) included in the Pure Energy 2015 Note resulted in an initial debt discount of $24,360 and an initial loss on the valuation of derivative liabilities of $974 for a derivative liability balance of $25,334 at issuance.

During the six months ended June 30, 2015, the note holders converted a total of $18,450 in face value of the Pure Energy 2015 Note to 270,907,736 shares of our common stock, or $0.00007 per share. As a result of these transactions, the Company decreased the derivative liability and as of June 30, 2015, the total face value of the Pure Energy 2015 Note outstanding was $5,910.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding Pure Energy 2015 Notes resulting in a derivative liability balance of $6,146 at June 30, 2015.

Black Forest Capital 2015 Notes

During the quarter ended March 31, 2015, an institutional investor purchased notes totaling $15,000 in principal from one of our third party note holders and issued a new note in the amount of $15,000. In addition, this investor loaned the Company an additional $5,000 through a convertible note. These two notes together comprise a principal balance of $20,000 (together the “Black Forest Capital 2015 Notes”). The Pure Energy 2015 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 twenty (20) trading days immediately preceding the date of conversion as adjusted for splits and other events. This notes have an interest rate of 10% per annum and are due in March 2016.

The beneficial conversion feature (an embedded derivative) included in the Black Forest Capital 2015 Notes resulted in an initial debt discount of $20,000 and an initial loss on the valuation of derivative liabilities of $1,100 for a derivative liability balance of $21,100 at issuance.

The Company received net proceeds from the Black Forest Capital 2015 Notes of $19,000 after debt issuance costs of $1,000. These debt issuance costs will be amortized over the terms of the Black Forest Capital 2015 Notes or such shorter period as the Notes may be outstanding. As of June 30, 2015, $333 of these costs had been expensed as debt issuance costs.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the six months ended June 30, 2015, the note holders converted a total of $6,894 in face value of the Black Forest Capital 2015 Notes to 137,880,000 shares of our common stock, or $0.00005 per share. As a result of these transactions, the Company decreased the derivative liability and as of June 30, 2015, the total face value of the Black Forest Capital 2015 Note outstanding was $13,106.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding Black Forest Capital Notes resulting in a derivative liability balance of $13,930 at June 30, 2015.

CareBourn Capital 2015 Notes

During the quarter ended March 30, 2015 we issued a total of $64,500 in two 12% unsecured convertible notes with a private investor (together the “CareBourn 2015 Notes”). The CareBourn 2015 Notes are due in December 2015 and have a conversion price of 50% of the lowest trading price per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion.

The beneficial conversion feature (an embedded derivative) included in the CareBourn 2015 Notes resulted in an initial debt discount of $64,500 and an initial loss on the valuation of derivative liabilities of $4,354 for a derivative liability balance of $68,854 at issuance.

The Company received net proceeds from the CareBourn 2015 Notes of $58,500 after debt issuance costs of $6,000. These debt issuance costs will be amortized over the terms of the CareBourn 2015 Notes or such shorter period as the Notes may be outstanding. As of June 30, 2015, $1,667 of these costs had been expensed as debt issuance costs.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding CareBourn 2015 Notes resulting in a derivative liability balance of $70,305 at June 30, 2015.

LG Capital 2015 Notes

During the quarter ended March 31, 2015 we issued a $31,500 8% unsecured convertible note with a private investor (the “LG 2015 Note”). The LG 2015 Note are due in February 2016 and have a conversion price of 50% of the lowest trading price per share of the Company’s common stock for the twenty (20) trading days immediately preceding the date of conversion.

The beneficial conversion feature (an embedded derivative) included in the LG 2015 Note resulted in an initial debt discount of $31,500 and an initial loss on the valuation of derivative liabilities of $3,780 for a derivative liability balance of $35,280 at issuance.

The Company received net proceeds from the LG 2015 Note of $30,000 after debt issuance costs of $1,500. These debt issuance costs will be amortized over the terms of the LG 2015 Note or such shorter period as the Notes may be outstanding. As of June 30, 2015, $625 of these costs had been expensed as debt issuance costs.

At June 30, 2015 the Company revalued the derivative liability balance of the remaining outstanding LG 2015 Note resulting in a derivative liability balance of $35,280 at June 30, 2015.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Convertible notes payable, net of discounts; and interest payable consisted of the following at June 30, 2015:

Note 5: Notes Receivable

At June 30, 2015 there was $10,023 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. This amount included $22,000 in new loans made during the quarter ended March 31, 2015 and $34,753 made in periods several years prior. As of December 31, 2014, FFFC owed the Company $62,853. Given the uncertainty of payments on the older notes, if payments are received they are considered recovery of the reserved balances and is recorded in "other income (expense)" in our statements of operations while interest income is offset against interest expense. During the six months ended June 30, 2015, FFFC was able to repay $52,830 in principal on these loans. Management of the Company evaluated the likelihood of payment on the older notes and has determined that an allowance of the entire balance due is appropriate. The Company has reserved for all interest due on these notes and did not record any interest receivable during the six month period ended June 30, 2015.

As of June 30, 2015, the Company had $8,000 due from China Nuvo Solar, a former affiliate of a Company officer. 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.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6: 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, 2014 of $150,059. During the six months ended June 30, 2015 an additional expense of $8,222 was recorded for a total accrued balance of $158,281 as of that date. This amount is included on the balance sheets at June 30, 2015 as “payroll liabilities”.

We accrue a salary of $200,000 per year for the president and chief executive officer of our subsidiaries API and Novofuel, David Cade. This expense totaled $100,000 for the six month period ended June 30, 2015. There was $800,000 and $700,000 payable to Mr. Cade as of June 30, 2015 and December 31, 2014, respectively.

Note 7: 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 8: Capital Stock

Common Stock

During the six month period ended June 30, 2015, we issued a total of 1,827,137 shares of our common stock on the conversion of $197,299 in principal and interest on our various convertible promissory notes. In addition to the converted principal and interest on the notes, the Company re-classified $201,602 of derivative liabilities to additional paid-in capital upon conversion of the related convertible debt.

During the six month period ended June 30, 2015, we issued 4,000,000 shares of our common stock for services valued at $16,000 based on the $0.004 market price for our common stock on the date of grant.

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Preferred Stock

In August 2011, the Company authorized the issuance of up to 750,000 shares of $0.001 par value Series B Preferred Stock (the "Series B Preferred"). The Series B Preferred has a stated value of $1.00 and pays a dividend of 8% payable quarterly in our common stock. In the event of a liquidation of the Company, the holders of Series B Preferred then outstanding will be entitled to receive a liquidation preference, before any distribution is made to the holders of our common stock, in an aggregate amount equal to the par value of their shares of Series B Preferred. Each share of Series B Preferred is convertible into that number of shares of common stock on terms that are equal to (i) 100% of the Stated Value divided by (ii) 52% of the average of the three lowest day closing bid prices of the Company’s common stock for the 10 trading days immediately preceding the conversion. There is a Mandatory Conversion Date of July 12, 2016. At any time after the date of issuance of the Series B Preferred until the Mandatory Conversion Date, we may redeem, in cash, the Series B Preferred in accordance with the following: (a) if prior to or on the first anniversary of the date of issue at 105% of the Stated Value thereof and (b) if after the first anniversary of the date of issue and prior to the Mandatory Conversion Date at 110% of the Stated Value thereof (the “Redemption Price”).

There were 404,055 shares of our Series B Preferred Stock outstanding at June 30, 2015 and December 31, 2014. There were $126,424 and $110,395 in dividends payable on our Series B Preferred stock at June 30, 2015 and December 31, 2014, respectively, including $16,029 in dividends accrued in the six month period ended June 30, 2015.

The Company previously recorded the value of the preferred stock in equity and has determined that liability classification is required because the Series B Preferred Stock is convertible into a variable number of shares based on a fixed dollar amount. Accordingly, $37,668 in accretion was recorded as interest expense for the six month period ended June 30, 2015.

Warrants

A summary of the activity of the Company’s outstanding warrants at December 31, 2014 and June 30, 2015 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 June 30, 2015:

ALUMIFUEL POWER CORPORATION AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 9: Subsequent Events

During the period from July 1, 2015 to August 14, 2015, the Company issued 149,706.296 shares of common stock upon the conversion of $6,553 in principal on convertible promissory notes issued by the Company.

Also during the period from July 1, 2015 to August 14, 2015 the Company issued convertible notes payable for $49,500.

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, 2014 and 2013.

The independent auditors’ reports on our financial statements for the years ended December 31, 2014 and 2013 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, 2014.

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, there is substantial doubt about our ability to continue as a going concern.

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. There is no assurance this will take place and the Company is moving forward with its plans assuming it will not occur.

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.

Renewable Energy Systems are the fastest growing power source globally (6% per year) -- expected to increase by 40% and comprise 25% of gross power generation by 2018. (See "Renewable Energy Medium-Term Market Report 2013 -- Market Trends and Projections to 2018", International Energy Agency, 2013; and "Solar Energy Use in U.S. Agriculture", USDA, April 2011).

Although we have done the work necessary to locate a pilot site in Oceana County, Michigan to build an operating RES system, there is no assurance we will be able to raise the funds necessary to complete installation of the necessary components or if we do, that the system will function as intended such that a commercially viable product will be produced.

PATENT APPROVAL. NovoFuel was notified by the U.S. Patent and Trademark office (USPTO) that the provisional patent on its hydrogen generation technology has been allowed, and U.S. Patent No. 8,974,765 was issued on March 10, 2015. 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, 2014 and 2013, we anticipate we will require over the next twelve months approximately $500,000 of additional capital to fund the Company’s operations. This amount 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 unaudited condensed consolidated financial statements; the sale of our equity securities in private placements or other equity offerings or instruments. As in 2014, during 2015 and for the foreseeable future we anticipate our primary source of capital resources will come from convertible debt instruments. These instruments contain a significant discount to the market value of our common stock of up to 60% causing the issuance of shares below market value prices causing substantial and continual dilution to our stockholders.

We can make no assurance that we will be successful in raising the funds necessary for our working capital requirements as suitable financing may not be available and we may not have the ability to sell either equity or debt securities under acceptable terms or in amounts sufficient to fund our needs. Our inability to access various capital markets or acceptable financing could have a material adverse effect on our commercialization efforts, results of operations and deployment of our business strategies and severely threaten our ability to operate as a going concern.

During the remainder of our fiscal year and for the foreseeable future, we will be concentrating on raising the necessary working capital through debt instruments and equity financing to insure the operation of our business. To the extent that additional capital is raised through the sale of equity or equity related securities such as convertible notes, which is expected to be our primary source of capital, the issuance of such securities has resulted, and will continue to result, in significant sustained dilution to our current shareholders.

RESULTS OF OPERATIONS

Six Month Period ended June 30, 2015 vs June 30, 2014

For both of the six month periods ended June 30, 2015 and 2014, our total revenue was $0. The loss from operations for the six month period ended June 30, 2015 was $312,893 versus $394,622 in the six month period ended June 30, 2014. This decrease in 2015 was primarily the result of a decrease in “general and administrative” expense as described more fully below. The losses included $166,010 and $167,507 in 2015 and 2014, respectively, comprised of related party expense that included officer and key employee compensation as well as rent paid to related parties.

A total of $162,883 and $226,947 for “general and administrative” operating expenses in the six month periods ended June 30, 2015 and 2014, respectively, was comprised of the following:

General and administrative expense during the six months ended June 30, 2015 decreased approximately $64,000 from the same period in 2014. The Company recovered $52,830 in bad debt expense from payments received on notes and interest receivable from affiliate FastFunds Financial Corporation in 2015 which contributed to the lower expense. Legal and accounting expense was significantly lower in 2015 versus 2014 resulting primarily from lower legal costs as was professional services, which decreased by approximately $52,000. Stock based compensation increased by $16,000 for professional services paid with shares of common stock.

The company recorded $326,025 in “other expense” during the six months ended June 30, 2015 as compared to $819,827 in “other expense” for the six months ended June 30, 2014. This significant decrease is the direct result of recording lower overall costs related to derivative liabilities related to the Company’s convertible notes primarily from significantly lower interest expense and fair value adjustment of the derivative liabilities, as well as significantly fewer notes being issued in the 2015 period versus the 2014 period.

Three Month Period ended June 30, 2015 vs June 30, 2014

For both the three month periods ended June 30, 2015 and 2014, our total revenue was $0. The loss from operations for the three month period ended June 30, 2015 was $148,633 versus $191,685 in the three month period ended June 30, 2014. This decrease in 2015 was primarily the result of a decrease in “general and administrative” expense as described more fully below. The losses included $82,500 and $83,100 in 2015 and 2014, respectively, comprised of related party expense that included officer and key employee compensation as well as rent paid to related parties.

A total of $66,133 and $108,501 for “general and administrative” operating expenses in the three month periods ended June 30, 2015 and 2014, respectively, was comprised of the following:

The “general and administrative” operating expense during the three months ended June 30, 2015 decreased by approximately $42,000. The Company recovered $27,730 in bad debt expense from payments received on related party notes receivable from affiliate FastFunds Financial Corporation in 2015 which contributed to the lower expense. Legal and accounting expense was slightly lower in 2015 versus 2014. Professional services were also significantly lower due in the 2015 period with no expense versus $42,765 in 2015. This trend in professional services is not necessarily indicative of future results.

The company recorded $129,374 in “other expense” during the three months ended June 30, 2015 as compared to $202,767 in “other expense” for the three months ended June 30, 2014. This significant decrease is the direct result of recording lower overall costs related to derivative liabilities related to the Company’s convertible notes primarily from significantly decreased amortization of convertible discounts from a number of new notes in the 2014 period versus the 2015 period that was offset by a significantly decrease in the fair value of the derivative liabilities in the 2014 period.

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 June 30, 2015 disclosure controls and procedures, were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

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 June 30, 2015, we issued a total of 1,141,364,528 shares of our common stock on the conversion of $55,493 in principal and interest on our various convertible promissory notes, or $0.00005 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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