Home Bistro, Inc. /NV/ - Quarter Report: 2014 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 333-170715

FAL EXPLORATION CORP.

(Name of Registrant as specified in its charter)

431 Fairway Drive – Suite 260

Deerfield Beach, FL 33441

(Address of principal executive office)

(732) 530-1267

(Registrant’s telephone number)

(Former Name, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There are 32,346,758 shares of common stock, par value $0.001 per share, issued and outstanding as of August 14, 2014.

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

FORM 10-Q

June 30, 2014

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

BALANCE SHEETS

See notes to unaudited financial statements

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

STATEMENTS OF OPERATIONS

See notes to unaudited financial statements

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Six Months Ended June 30, 2014

(Unaudited)

See notes to unaudited financial statements

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

STATEMENTS OF CASH FLOWS

See notes to unaudited financial statements

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

FAL Exploration Corp. (the “Company”), formerly Apps Genius Corp., was incorporated in the State of Nevada on December 17, 2009.  On July 9, 2013, the Company changed its name to FAL Exploration Corp. The Company’s business was in the field of creating innovative social games and mobile applications and operated a crowdfunding platform. In September 2013, the Company decided to discontinue its social games and mobile applications and crowdfunding business. Prior periods have been restated in the Company’s financial statements and related footnotes to conform to this presentation.

On July 22, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate a reverse split of 1000 to 1 (the “Reverse Split”) in which each shareholder will be issued 1 share of common stock in exchange for 1000 shares of their currently issued common stock, which became effective as of July 22, 2013.  The Reverse Split had been previously approved and authorized by the board of directors and majority holders of the Company. All share and per share values for all periods presented in the accompanying financial statements are retroactively restated for the effect of the Reverse Split.

Effective October 7, 2013, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with FAL Minerals LLC (“FAL Minerals”). Pursuant to the Agreement the Company agreed to purchase from FAL Minerals newly issued membership interests of FAL Minerals representing 20% of the issued and outstanding membership interests of FAL Minerals. The purchase price for the interests is $100,000 payable in common stock at a share price of $0.25 (based on contemporaneous sales of common stock for cash) or a total issuance of 400,000 shares (see Note 6). On October 7, 2013, the Company issued 400,000 shares of common stock to FAL Minerals in connection with this Agreement.  On October 9, 2013 the Company and the other members of FAL Minerals agreed to assign a 2% interest on a pro-rata basis to a third party for legal fees owed by FAL Minerals.  Accordingly, the Company’s interest in FAL Minerals decreased to 19.6%. Pursuant to the Agreement the Company will receive 19.6% percent of the gross proceeds from all royalty payments made to FAL Minerals. Such royalty payments are payable quarterly. Following the purchase of interests, the Company intends to focus its efforts on mineral exploration and has taken a 19.6% ownership in FAL Minerals. The Company’s ownership interest of 19.6% in FAL Minerals is accounted for as a cost method investment. Investments where the Company does not exercise significant influence over the operating and financial policies of the investee and holds less than 20% of the voting stock are generally accounted for using the cost method of accounting in accordance with ASC 325-10,  “Investments—Other”.  (See Note 1, Investment – Cost Method)

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of presentation and going concern

Management acknowledges its responsibility for the preparation of the accompanying interim financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the interim period presented. These financial statements should be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Form 10-K annual report for the year ended December 31, 2013.  The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

As reflected in the accompanying unaudited financial statements, the Company had a net loss and net cash used in operations of $71,296 and $29,198, respectively, for the six months ended June 30, 2014 and had a working capital deficit and accumulated deficit of $219,026 and $2,959,402, respectively, at June 30, 2014 and historically had minimal revenues all of which have been accounted for in discontinued operations. These matters raise substantial doubt about the company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise additional capital, and generate more revenues. Management intends to attempt to raise additional funds by way of a public or private offering.  While the Company believes in the viability of its strategy to raise additional funds, there can be no assurances to that effect.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Use of estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the six months ended June 30, 2014 and 2013 include the useful life of property and equipment, assumptions used in assessing impairment of long-term assets and cost method investments, valuation of deferred tax assets, and the value of stock-based compensation and fees. 

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents.

Concentration of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. The Company has not experienced any losses in such accounts through June 30, 2014. There were no balances in excess of FDIC insured levels as of June 30, 2014.

Fair value measurements and fair value of financial instruments

The Company adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

The carrying amounts reported in the balance sheets for cash, prepaid expenses, accounts payable and accrued expenses, interest payable, accounts payable – related party, and accrued salaries – related party approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820. 

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Prepaid expenses

Prepaid expenses consist primarily of prepayments for legal services which were amortized over the terms of their respective agreements. Therefore, at June 30, 2014 and December 31, 2013, prepaid expenses amounted to $0 and $2,000, respectively.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.  When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Software development costs

Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.”  Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market. Amortization of capitalized software development costs begins upon initial product shipment. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months), using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset.  If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.  During the six months ended June 30, 2014 and 2013, the Company did not capitalize any software development costs.  

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment – cost method

The Company owns non-controlling equity interests in FAL Minerals. The Company used the cost method to account for investments in which the Company owns less than 20% and does not have significant influence over the underlying investees. Cost method investments are initially recorded at cost and income is generally recorded when distributions are received. Cost method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared. The Company recorded an impairment loss in connection with its cost method investment of $100,000 during the fourth quarter of 2013 after the related impairment analyses were made. Therefore, the cost method investment amount in FAL Minerals, LLC was $0 at June 30, 2014 and December 31, 2013.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment loss for the six months ended June 30, 2014 and 2013.

Income taxes

The Company is governed by the Income Tax Law of the United States. The Company utilizes ASC Topic 740, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. 

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Under ASC Topic 740, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

Stock-based compensation

The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50.

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of operations. For the six months ended June 30, 2014 and 2013, advertising expense was $0 and $567, respectively which is included in other selling, general and administrative expenses.

Research and development

Research and development costs which consisted primarily of salaries and fees paid to third parties for the development of software and applications were expensed as incurred and have been included in loss from discontinued operation. For the six months ended June 30, 2014 and 2013, research and development costs were $0 and $16,368, respectively.

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net income (loss) per share of common stock

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.  Potentially dilutive common shares consist of common stock warrants and options (using the treasury stock method). These common stock equivalents may be dilutive in the future. In period where the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2014 and 2013:

The Company's aggregate common stock equivalents at June 30, 2014 and 2013 included the following:

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

Recent accounting pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

Reclassification

Certain reclassifications have been made in prior year same period’s unaudited financial statements to conform to the current period’s financial statement presentation.

NOTE 2 - PROPERTY AND EQUIPMENT

At June 30, 2014 and December 31, 2013, property and equipment consisted of the following:

For the six months ended June 30, 2014 and 2013, depreciation expense amounted to $658 and $666, respectively.

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 2 - PROPERTY AND EQUIPMENT (continued)

Land

In November 2013, the Company entered into a Real Estate Purchase and Sale Agreement (the “Real Estate Purchase and Sale Agreement”) with certain sellers (the “Seller”). One of the sellers is a majority stockholder of the Company.  Pursuant to the Agreement, the Seller desires to sell real estate properties they owned located in Clay County, Alabama and the Company desires to purchase the real estate properties. The purchase price of $400,000 was paid as follows:

On February 13, 2014, the Company closed the transaction contemplated by this Real Estate Purchase and Sale Agreement dated in November 2013 and issued a promissory note amounting to $200,000 to the Seller. One of the sellers is a majority stockholder of the Company. The note bears interest at the “applicable federal rate” for demand loans as defined in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended from the date of this note, until paid, with no payments of principal or interest due or payable until the 36 month after closing (the “Maturity Date”). On the Maturity Date, Buyer shall elect to either (i) pay all outstanding principal and interest in cash, or (ii) issue common stock of the Company to Seller in an aggregate amount equal to the principal and interest outstanding on the Maturity Date. The value of the common stock and the determination of the number of shares shall be the then market price on the Maturity Date, discounted by ten percent (10%). The Company may prepay the note in whole or in part at any time prior to the Maturity Date (see Note 5 and Note 7).

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 2 - PROPERTY AND EQUIPMENT (continued)

In addition, on February 13, 2014, the Company executed a Mortgage and Security Agreement with the Seller (see Note 5 and Note 7) whereby the Company hereby grants and conveys to Seller a present, absolute, unconditional and continuing security interest in, all of the land, real estate, leasehold, buildings, improvements, fixtures, furniture and personal property situated in the purchased real estate properties as defined in such Mortgage and Security Agreement. The indebtedness under the Mortgage and Security Agreement is evidenced by the $200,000 promissory note discussed above. The title deed to the real estate properties were recorded in the State of Alabama, Clay County on March 13, 2014.

Further, the Company issued 800,000 shares of common stock which were valued at $0.25 per share (based on contemporaneous sales of common stock for cash) with an aggregate amount of $200,000 to pay off a portion of the purchase price in the first quarter of 2014 pursuant to the Real Estate Purchase and Sale Agreement.

The $400,000 purchase price is the original cost basis of the sellers and therefore an asset was recorded for the $400,000, since one of the sellers is a related party which is included in property and equipment on the accompanying balance sheets at June 30, 2014.

The Company acquired this land as it is in close proximity to FAL Mineral's Brown Mine.  The Company plans to explore the property and either may utilize it as the main production plant should the Brown Mine prove to be commercially viable or seek to monetize the graphite, should that prove to be commercially viable.

NOTE 3 – DISCONTINUED OPERATIONS

In September 2013, the Company decided to discontinue its social games and mobile applications and crowdfunding business. The Company intends to focus its efforts on mineral exploration following the purchase of 19.6% ownership in FAL Minerals in October 2013. Certain amounts in the prior periods have been retrospectively reclassified in the Company’s financial statements and related footnotes to conform to this discontinued operations presentation.

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 3 – DISCONTINUED OPERATIONS (continued)

The following table reflects results of operations of the Company’s discontinued operations of its social games and mobile applications and crowdfunding business.

The Company did not have any assets or liabilities of discontinued operations at June 30, 2014 and December 31, 2013.

NOTE 4 – RELATED PARTY TRANSACTIONS

As of June 30, 2014 and December 31, 2013, the Company owed $62,550 and $48,550, respectively, to a company owned by its chief financial officer for services rendered.

On February 13, 2014, the Company closed the transaction contemplated by a Real Estate Purchase and Sale Agreement dated in November 2013 and issued a promissory note amounting to $200,000 to the Seller. Additionally, the Company issued 800,000 shares of common stock which were valued at $0.25 per share with an aggregate amount of $200,000 (based on contemporaneous sales of common stock for cash) to pay off a portion of the purchase price in the first quarter of 2014 pursuant to the Real Estate Purchase and Sale Agreement. One of the sellers is a majority stockholder of the Company (see Note 2 and Note 5).

NOTE 5 – NOTES PAYABLE

Between January 27, 2014 and April 30, 2014, the Company issued promissory notes to an unrelated party in the principal amount of $30,000. The notes bear interest at 5.0% per annum, compounded monthly, and is due on the earlier of 1) six months from the date of the notes or 2) within three business days of the closing date of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company. At the sole option of the Company, the Company may elect to extend the maturity date up to 12 months (the “Extended Maturity Date”). The interest shall be increased to 5.5% per annum during the Extended Maturity Date period. For the six months ended June 30, 2014, interest amount due under the note payable amounted to $442 and the principal due under the note payable amounted to $30,000. 

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 5 – NOTES PAYABLE (continued) 

On February 13, 2014, the Company closed the transaction contemplated by the Real Estate Purchase and Sale Agreement dated in November 2013 and issued a promissory note amounting to $200,000 to certain sellers (see Note 2). One of the sellers is a majority stockholder of the Company. The note bears interest at the “applicable federal rate” for demand loans as defined in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended from the date of this note, until paid, with no payments of principal or interest due or payable until the 36 month after closing (the “Maturity Date”). On the Maturity Date, Buyer shall elect to either (i) pay all outstanding principal and interest in cash, or (ii) issue common stock of the Company to Seller in an aggregate amount equal to the principal and interest outstanding on the Maturity Date. The value of the common stock and the determination of the number of shares shall be the then market price on the Maturity Date, discounted by ten percent (10%). The Company may prepay the note in whole or in part at any time prior to the Maturity Date. The principal amount of $62,500 under the loan was from a majority stockholder of the Company and the rest of $137,500 under the loan was from other unrelated parties. For the six months ended June 30, 2014, interest amount due under the note payable – unrelated parties amounted to $129 and interest amount due under the note payable – related party amounted to $59. The principal due under the note payable – unrelated parties amounted to $137,500 and principal due under the note payable – related party amounted to $62,500 at June 30, 2014.

At June 30, 2014, the aggregate unrelated parties’ principal due under the above notes amounted to $167,500 and the aggregate related party’ principal due under the above notes amounted to $62,500, respectively, and unrelated parties’ interest amounts due under the loans amounted to $129 and related party’s interest amount due under the loans amounted to $59, respectively. The weighted average interest rate on the Company’s above notes payable was approximately 5%.

Notes payable – short and long term portion consisted of the following:

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 6 – STOCKHOLDERS’ EQUITY (DIFICIT)

Preferred stock

The Company authorized 20,000,000 preferred shares. Preferred shares may be designated by the Company’s board of directors.  There were no shares designated as of June 30, 2014.

Common stock

On July 22, 2013, the Company received approval from FINRA to effectuate a reverse split of 1000 to 1 in which each shareholder was issued 1 share of common stock in exchange for 1000 shares of their currently issued common stock, which became effective as of July 22, 2013.  The Reverse Split had been previously approved and authorized by the board of directors and majority holders of the Company. All share and per share values for all periods presented in the accompanying financial statements are retroactively restated for the effect of the Reverse Split.

On February 13, 2014, the Company closed the transaction contemplated by the Real Estate Purchase and Sale Agreement executed in November 2013 (see Note 2). In the first quarter of 2014, the Company issued 800,000 shares of its common stock to these sellers and the shares were valued at $0.25 per share with an aggregate amount of $200,000 (based upon contemporaneous sales of common stock for cash) to pay off a portion of the purchase of land pursuant to the Real Estate Purchase and Sale Agreement.

Warrants

Stock warrant activities for the six months ended June 30, 2014 are summarized as follows:

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 6 – STOCKHOLDERS’ EQUITY (DIFICIT) (continued)

Options

On March 1, 2012, the Company entered into a financial service agreement with a third party for a seven month term.  In connection with the financial service agreement, the Company issued an aggregate of 500 stock options to purchase 500 shares of the Company’s common stock at an exercise price of $140 per common share. The stock options expire on March 1, 2017. The Company calculated the $66,749 fair value of the 500 stock options granted using the Black-Scholes option pricing model and using actual historical volatility of 177.3%.

In connection with services rendered related to the purchase of a game for a period of 12 months, on March 21, 2012, the Company issued options exercisable for the purchase of 25 shares of the Company’s common stock at an exercise price equal to $120 per share exercisable for a two year period. The stock options expired on March 21, 2014.   The Company calculated the $2,342 fair value of the 25 stock options granted using the Black-Scholes option pricing model and using actual historical volatility of 173.4% were amortized over the one year service period.

Stock option activities for the six months ended June 30, 2014 are summarized as follows:

The weighted-average grant-date fair value of options granted to employees/consultants during the six months ended June 30, 2014 was none. As of June 30, 2014, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $0. 

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 7 – COMMITMENT AND CONTINGENCIES

In November 2013, the Company entered into a Real Estate Purchase and Sale Agreement (the “Agreement”) with certain sellers (the “Seller”). One of the sellers is a majority stockholder of the Company.  Pursuant to the Agreement, the Seller desires to sell real estate properties they owned located in Clay County, Alabama and the Company desires to purchase the real estate properties.

The purchase price of $400,000 was paid as follows:

On February 13, 2014, the Company closed the transaction contemplated by this Agreement and issued a promissory note amounting to $200,000 to the Seller. Additionally, on February 13, 2014, the Company executed a Mortgage and Security Agreement with the Seller (see Note 24) whereby the Company hereby grants and conveys to Seller a present, absolute, unconditional and continuing security interest in, all of the land, real estate, leasehold, buildings, improvements, fixtures, furniture and personal property situated in the purchased real estate properties as defined in such Mortgage and Security Agreement. The indebtedness under the Mortgage and Security Agreement is evidenced by the $200,000 promissory note discussed above. The title deed to the real estate properties were recorded in the State of Alabama, Clay County on March 13, 2014. 

FAL EXPLORATION CORP.

(FORMERLY APPS GENIUS CORP.)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2014

NOTE 8 – SUBSEQUENT EVENTS

On July 30, 2014, the Company issued a promissory note to an unrelated party in the principal amount of $15,000. The note bears interest at 5.0% per annum, compounded monthly, and is due on the earlier of 1) 6 months from the date of the note or 2) within three business days of the closing date of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company. At the sole option of the Company, the Company may elect to extend the maturity date up to 12 months (the “Extended Maturity Date”). The interest shall be increased to 5.5% per annum during the Extended Maturity Date period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Overview

We were incorporated in the State of Nevada on December 17, 2009 as Apps Genius Corp.  On July 9, 2013, we changed our name to FAL Exploration Corp.

Initially, we had developed, marketed, published and distributed social games and software applications that consumers could use on a variety of platforms. Included were such platforms as social networks, wireless devices such as cellular phones and smart phones including the Apple iPhone™ and standalone websites. We released several applications including ‘Bruisers’, a game application for Facebook, ‘My Mad Millions’, a game application for Facebook™, Drama Llama, an application for Facebook™, ‘Slap a Friend’, a game application for the Apple Iphone™, Bed Bug Alert, a utility application for Apple Iphone™ and Crazy Dream Application for Facebook™, Snookify Me! application for Iphone and Android, and Snooki’s Match Game Application for Facebook amongst other games and apps. Beginning in January 2013, we had changed the focus of our Business Plan to develop and operate a crowdfunding platform.  In September 2013, we decided to discontinue its social games and mobile applications and crowdfunding business. We intend to focus our efforts on mineral exploration following the purchase of 19.6% ownership in FAL Minerals LLC in October 2013.

We intend to acquire minority and majority interest in natural resource properties located throughout the United States. Our initial project is our interest in an open pit mine located in Clay County Alabama also known as the Brown Mine. Initial test results have shown gold bearing materials. We intend to explore the property to determine the commercial viability of the project. Historically, graphite and gold have been mined in the area. The property which is over two hundred and twenty acres contains graphite and some surface gold. We plan to explore the property and either may utilize it as the main production plant should the Brown Mine prove to be commercially viable or seek to monetize the graphite, should it prove to be commercially viable. 

Limited Operating History

We have generated a limited financial history and have not previously demonstrated that we will be able to expand our business. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.

Critical Accounting Policies and Estimates

While our significant accounting policies are more fully described in Note 1 to our financial statements for the six months ended June 30, 2014, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

Impairment of long-lived assets

In accordance with ASC Topic 360, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Revenue recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured.

Stock-based compensation

We account for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. We account for non-employee share-based awards in accordance with ASC Topic 505-50.

Recent accounting pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2014 and 2013

Revenues

We have not generated revenues to date in connection with our current mineral exploration business.

Operating Expenses

For the three months ended June 30, 2014 and 2013, operating expenses amounted to $43,825 and $62,778, respectively, a decrease of $18,953 or 30.1%. For the six months ended June 30, 2014 and 2013, operating expenses amounted to $83,788 and $144,324, respectively, a decrease of $60,536 or 41.9%. Changes in operating expenses consisted of the following:

Other Income

For the three months ended June 30, 2014 and 2013, we recognized other expense of $473 and $4, respectively. For the three months ended June 30, 2014, we recognized interest expense of $423 and interest expense – related party of $50, respectively. For the three months ended June 30, 2013, we recognized interest expense of $4.

For the six months ended June 30, 2014 and 2013, we recognized other expense of $630 and $111, respectively. For the six months ended June 30, 2014, we recognized interest expense of $571 and interest expense – related party of $59, respectively. For the six months ended June 30, 2013, we recognized interest income of $8 and interest expense of $4. Additionally, in the six months ended June 30, 2013, we lost $115 in the disposal of furniture.

Discontinued Operations

The following table indicates selected financial data of the Company’s discontinued operations of its social games and mobile applications and crowdfunding business.

Net Loss

As a result of the factors described above, our net loss for the three months ended June 30, 2014 and 2013 was $44,273 and $62,468,  or a net loss per common share of $0.00 and $1.70 (basic and diluted), respectively. Our net loss for the six months ended June 30, 2014 and 2013 was $71,296 and $159,761,  or a net loss per common share of $0.00 and $4.37 (basic and diluted), respectively.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. To date, we have funded our operations through the sale of our common stock. Our primary uses of cash have been for salaries and fees paid to third parties for professional services. All funds received have been expended in the furtherance of growing the business. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

Our net revenues are not sufficient to fund our operating expenses.  At June 30, 2014 and December 31, 2013, we had a cash balance of $4,562 and $3,760, respectively. The following table sets forth a summary of changes in our working capital from December 31, 2013 to June 30, 2014:

Our working capital deficit increased $70,450 to $219,026 at June 30, 2014 from working capital deficit $148,576 at December 31, 2013. This increase in working capital deficit is primarily attributable to a decrease in prepaid expenses of $2,000, an increase in notes payable of $30,000, an increase in accounts payable and accrued expenses of $22,810 and an increase in accrued salaries – related party of $16,000.

We have been funding our operations through the issuance of notes payable for operating capital purposes. We received net proceeds from notes payable of $30,000 and we acquired land by issuance of notes payable with the principal amount of $200,000 and by issuance of 800,000 shares of our common stock at $0.25 per share with an aggregate amount of $200,000 during the six months ended June 30, 2014.

We currently have no material commitments for capital expenditures. We will need to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations.   We estimate that based on current plans and assumptions, that our available cash will be insufficient to satisfy our cash requirements under our present operating expectations. Other than working capital and funds received pursuant to the Securities Purchase Agreement, we presently have no other alternative source of working capital. We have used these funds to fund our operating expenses, pay our obligations and grow our company. We will need to raise significant additional capital to fund our operations and to provide working capital for our ongoing operations and obligations. We do not anticipate we will be profitable in the rest of 2014.  Therefore our future operation is dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to cease our operations.

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern on their audit opinion for the year ended December 31, 2013.

Our liquidity is negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.

Our use of cash flow forecast within 12 months is estimated below:

Professional fee - Primarily includes professional fees associated with becoming a public company as summarized as follows:

General and administrative – Over the next 12 months, we estimate that we will incur general and administrative expenses as follows:

Our operating funds are not sufficient, therefore we will have to scale back our operating plans and it will be unlikely that we will be able to pursue our overall business plan without raising additional working capital.

Operating activities

For the six months ended June 30, 2014, net cash flows used in operating activities amounted to $29,198 and was primarily attributable to our net losses of $71,296 offset by the add back of non-cash items such as depreciation expense of $658 and changes in operating assets and liabilities of $41,440.

For the six months ended June 30, 2013, net cash flows used in operating activities amounted to $74,444 and was primarily attributable to our net losses of $159,761 offset by the add back of non-cash items such as depreciation expense of $666, loss on disposal of property and equipment of $115, stock based compensation and fees of $4,683 and changes in operating assets and liabilities of $79,853.

Financing activities

For the six months ended June 30, 2014, net cash flows provided by financing activities was $30,000 which is attributable to the proceeds from the issuance of notes payable.  We did not have any financing activity during the six months ended June 30, 2013.

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as of June 30, 2014, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of our management, including the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to, and none of our property is the subject of, any pending legal proceedings. To our knowledge, no governmental authority is contemplating any such proceedings.

Item 1A. Risk Factors.

Not required to be provided by smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None.

Item 6. Exhibits.

* Filed herewith.

** In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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