XOTC:FUEG Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
 
FORM 10-Q
 
x    QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2012

COMMISSION FILE NUMBER: 000-54415

FACE UP ENTERTAINMENT GROUP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)

Florida
 
27-1551007
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S Employer Identification No.)

20 East Sunrise Highway
Valley Stream, New York 11581
(Address of Principal Executive Offices)

(516) 303-8100
(Issuer's Telephone Number, Including Area Code)
_________________
(Former address, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months ( or for such shorter period that the registrant was required to submit and post such files) Yes ¨ No x .
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.
 
Large accelerated filer
o
Accelerated filer
o
Non- accelerated filer
o
Small reporting company
x

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of  May 15, 2012, 57,175,000 shares of common stock, $.001 par value per share, of the issuer were outstanding. 

Transitional Small Business Disclosure Format (check one): Yes ¨    No x
 


 
 

 
 
TABLE OF CONTENTS

   
Page
 
PART I    
       
Item 1.
Financial Statements
  3  
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  15  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
     
Item 4.
Controls and Procedures
  18  
         
PART II      
         
Item 1.
Legal Proceedings
  19  
Item IA.
Risk Factors
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  19  
Item 3.
Defaults Upon Senior Securities
  19  
Item 4.
Mine Safety Disclosures
  19  
Item 5.
Other Information
  19  
Item 6.
Exhibits
  20  
 
 
2

 
 
PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements.
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
 
   
March 31,
   
December 31,
 
ASSETS
 
2012
   
2011
 
   
(Unaudited)
   
(Audited)
 
CURRENT ASSETS:
           
 Cash and cash equivalents
  $ 48,204     $ 18,325  
 Prepaid expenses and other current assets
    16,392       1,621  
 TOTAL CURRENT ASSETS
    64,596       19,946  
                 
 PROPERTY AND EQUIPMENT (Net)
    87,334       35,070  
                 
 OTHER ASSETS
               
 Intangible asset
    100,000       100,000  
 TOTAL OTHER ASSETS
    100,000       100,000  
                 
 TOTAL ASSETS
  $ 251,930     $ 155,016  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
                 
 CURRENT LIABILITIES:
               
Accounts payable
    -     $ 10,450  
 Accrued expenses and other current liabilities
    20,058       15,458  
 Derivative liabilities
    529,279       178,070  
 Notes payable-convertible
    961,000       656,000  
 Accrued interest on notes payable--convertible
    24,543       12,396  
                 
 TOTAL CURRENT LIABILITIES
    1,534,880       872,374  
                 
 STOCKHOLDERS' EQUITY (DEFICIT):
               
 Capital stock - authorized:
               
   250,000,000 common shares, $0.0001 par value
               
   57,175,000 and 56,175,000 shares issued and outstanding at
               
  March 31, 2012 and December 31, 2011, respectively
    5,718       5,618  
 Additional paid in capital
    435,112       275,212  
 Deficit accumulated during the development stage
    (1,723,780 )     (998,188 )
 TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
    (1,282,950 )     (717,358 )
                 
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 251,930     $ 155,016  
 
 
3

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
 
   
Three Months Ended
   
Three Months Ended
   
For the Period December 24, 2009 (Inception) to
 
   
March 31,
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
 
REVENUES:
                 
Net revenue
  $ -     $ 105,000     $ 105,000  
                         
EXPENSES:
                       
Depreciation expense
    786       0       3,143  
General & administrative expenses
    201,450       114,747       969,353  
                         
Total expenses
    202,236       114,747       972,496  
                         
Operating Loss
    (202,236 )     (9,747 )     (867,496 )
                         
OTHER INCOME (EXPENSE):
                       
Interest expense
    (172,147 )     (1,167 )     (329,421 )
Derivate liability
    (351,209 )     0       (529,279 )
Other income - cancellation of debt
    -       2,416       2,416  
                         
Total other income (expense)
    (523,356 )     1,249       (856,284 )
                         
Income (Loss) before Provision for Income Taxes     (725,592 )     (8,498 )     (1,723,780 )
                         
Provision for Income Taxes
    -       -       -  
                         
Net Loss
  $ (725,592 )   $ (8,498 )   $ (1,723,780 )
                         
                         
PER SHARE DATA:
                       
Basic and diluted loss per common share
  $ (0.01 )   $ (0.00 )        
Weighted Average Common shares outstanding
    56,548,626       84,022,222          

 
4

 

Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
 
                           
Deficit
       
                           
Accumulated
       
               
Additional
   
Stock
   
During the
       
   
Common Stock
   
Paid-in
   
Subscriptions
   
Development
       
 
 
Shares
   
Amount
   
Capital
   
Receivable
   
Stage
   
Total
 
                                     
Inception - December 24, 2009
    -     $ -     $ -     $ -     $ -     $ -  
                                                 
Common shares issued to Founder
                                               
     for cash  at $0.001 per share
                                               
     (par value $0.00001) on December 24, 2009
    117,000,000       11,700       (2,700 )     (3,000 )     -       6,000  
                                                 
Loss for the period from inception on
                                               
     December 24, 2009 to December 31, 2009
    -       -       -       -       (3,579 )     (3,579 )
                                                 
Balance - December 31, 2009
    117,000,000       11,700       (2,700 )     (3,000 )     (3,579 )     2,421  
                                                 
Payment of Subscription Receivable
                            3,000               3,000  
                                                 
Common shares issued to Investors
                                               
     for cash  at $0.01 per share
                                               
     (par value $0.00001) on May 26, 2010
    15,600,000       1,560       10,440                       12,000  
                                                 
Loss for the year ended December 31, 2010
                                    (22,837 )     (22,837 )
                                                 
Balance - December 31, 2010
    132,600,000       13,260       7,740       -       (26,416 )     (5,416 )
                                                 
Common shares cancelled by
                                               
  the Corporation on February 10, 2011
    (104,666,667 )     (10,467 )     10,467                       -  
                                                 
Common shares issued  at $0.0044 per share
                                               
 (par value $0.0001) for the contribution of
                                               
 intangible assets on February 22, 2011
    22,666,667       2,267       97,733                       100,000  
                                                 
Common shares issued to Consultants for services at
                                               
$0.0044 per share (par value $0.0001) on June 23, 2011
    5,075,000       508       21,822                       22,330  
                                                 
Common shares issued for finance costs at
                                               
 $0.25 per share (par value $0.0001) on August 17, 2011
    250,000       25       62,475                       62,500  
                                                 
Common shares issued for finance costs
                                               
$0.30 per share (par value $0.0001)  on October 31, 2011
    250,000       25       74,975                       75,000  
                                                 
Loss for the year ended December 31, 2011
                                    (971,772 )     (971,772 )
                                                 
Balance - December 31, 2011
    56,175,000       5,618       275,212       -       (998,188 )     (717,358 )
                                                 
Common shares issued for finance costs
                                               
$0.16 per share (par value $0.0001) on February 27, 2012
    1,000,000       100       159,900                       160,000  
                                                 
Loss for the three months ended March 31, 2012
                                    (725,592 )     (725,592 )
                                                 
Balance - March 31, 2012
    57,175,000     $ 5,718     $ 435,112     $ -     $ (1,723,780 )   $ (1,282,950 )
 
 
5

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
 
   
Three Months Ended
   
Three Months Ended
   
For the Period December 24, 2009 (Inception) to
 
   
March 31,
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
 
OPERATING ACTIVITIES:
                 
Net loss
  $ (725,592 )   $ (8,498 )   $ (1,723,780 )
                         
Depreciation
    786               3,143  
   Common stock issued for services
    -               22,330  
   Common stock issued for financing costs
    160,000               297,500  
                         
Changes in Assets and Liabilities:
                       
(Increase) decrease in current assets:
                       
     Prepaid Expenses and other current assets
    (14,771 )             (16,392 )
Increase (decrease) in current liabilities:
                       
     Accounts payable
    (10,450 )     1,161       -  
     Derivative liabilities
    351,209               529,279  
  Accrued interest on convertible debt
    12,147               24,543  
    Accrued expenses and other current liabilities
    4,600       -       20,058  
                         
Net cash used in operating activities
    (222,071 )     (7,337 )     (843,319 )
                         
INVESTMENT ACTIVITIES:
                       
  Computer hardware purchased
    -       (9,427 )     (9,427 )
  Source code purchased
    (53,050 )     -       (81,050 )
Net cash provided by investment activities
    (53,050 )     (9,427 )     (90,477 )
                         
FINANCING ACTIVITIES:
                       
   Common stock issued
                    21,000  
   Proceeds of notes payable
    305,000       175,000       1,156,000  
   Repayments of notes payable
    -               (195,000 )
Loan from officer
    -       (3,000 )     -  
Net cash provided by financing activities
    305,000       172,000       982,000  
                         
                         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    29,879       155,236       48,204  
                         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    18,325       584       -  
                         
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 48,204     $ 155,820     $ 48,204  
                         
Supplemental Cash Flow Disclosures:
                       
Cash paid for:
                       
Interest expense
  $ 172,147     $ -     $ 329,421  
Income taxes
  $ -     $ -     $ -  
Non-cash transactions:
                       
Stock Issued for intangible asset
  $ -     $ 100,000     $ 100,000  
 
 
6

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 - GENERAL ORGANIZATION AND BUSINESS

Face Up Entertainment Group, Inc. (f/k/a Game Face Gaming, Inc.) (the "Company") is a development stage company, incorporated in the State of Florida on December 24, 2009 to provide software to companies to help them market and sell their music and entertainment content to consumers. On April 24, 2012 the Company changed its name from Game Face Gaming, Inc. (F/K/A Intake Communications, Inc.) to Face Up Entertainment Group, Inc.
 
Thereafter, the Company engaged in developing the internet’s first Reality Gaming Social Network. The Company seeks to penetrate the market in the business of operating a non-wagering Internet gaming company. The Internet Gaming platform incorporates proprietary technologies that will provide users with streaming video, audio and messaging capabilities enhancing both the users experience and the gaming experience. 

Face Up Entertainment Group, Inc. proprietary platform will be used in creating a vast global gaming network consisting of games from every region of the globe, supporting native languages as well as cross language functionality. Once these games make their way onto our platform they will be accessible on almost all devices currently used to access the internet. In addition to popular and well known games that are already being played on line by tens of millions of people around the world, Face Up will be launching its own in- house developed games.

NOTE 2 - SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
The Company is currently a development stage enterprise reporting under the provisions of FASB ASC 915, Development Stage Entity. The financial statements have been prepared on the accrual basis of accounting in conformity accounting principles generally accepted in the United States of America.

Principles of Consolidation
The consolidated financial statements include the accounts of Face Up Entertainment Group, Inc. (f/k/a Game Face Gaming, Inc.) and its wholly owned subsidiary Socii Management, LLC. All material intercompany balances and transactions have been eliminated from in consolidation.

Cash and Cash Equivalents
For purposes of the cash flow statements, the company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At March 31, 2012 the company did not have any balances that exceeded FDIC insurance limits.

Property and Equipment
Property and equipment is stated at cost.  Depreciation and amortization expense is computed using principally accelerated methods over the estimated useful life of the related assets ranging from 3 to 7 years. When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the statement of operations.
 
The Company recognizes an impairment loss on property and equipment when evidence, such as the sum of expected future cash flows (undiscounted and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation, and when the carrying amount of the asset cannot be realized through sale. Measurement of the impairment loss is based on the fair value of the assets.
 
 
7

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
Long-Lived Assets
Long-lived assets such as intangible assets other than goodwill, furniture, equipment and leasehold improvements are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group.  If the carrying amount exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds the fair value of the asset group. The Company evaluated its long-lived assets and no impairment charges were recorded for any of the periods presented.

Earnings (Loss) per Share
The Company adopted FASB ASC 260, Earnings per Share. Basic earnings (loss) per share is calculated by dividing the Company's net income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share is calculated by dividing the Company's net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There were no diluted or potentially diluted shares outstanding for all periods presented.

Software Development Costs
The Company accounts for costs incurred to develop computer software for internal use in accordance with FASB ASC 350-40 “Internal-Use Software”. As required by ASC 350-40, the Company capitalizes the costs incurred during the application development stage, which include costs to design the software configuration and interfaces, coding, installation, and testing. Costs incurred during the preliminary project along with post-implementation stages of internal use computer software are expensed as incurred. Capitalized development costs are amortized over a period of one to three years. Costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.

Dividends
The Company has not adopted a policy regarding payments of dividends. No dividends have been paid during the period presented and no payments are foreseen in the near future.
 
Income Taxes
The Company adopted FASB ASC 740, Income Taxes, at its inception. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. No deferred tax assets or liabilities were recognized as of March 31, 2012.

Uncertain Tax Positions
The Company adopted the provisions of Accounting for Uncertainty in Income Taxes (“Uncertain Tax Positions”) of the ASC. Uncertain Tax Positions prescribes recognition thresholds that must be met before a tax position is recognized in the financial statements and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under “Uncertain Tax Positions”, an entity may only recognize or continue to recognize tax positions that meet a ““more-than-likely-than-not” threshold. All related interest and penalties would be expensed as incurred. The Company has evaluated its tax position for the period ended March 31, 2012 and such evaluation did not require a material adjustment to the financial statements.
 
 
8

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
Advertising
The Company expenses advertising as incurred. For the three months ended March 31, 2012 and 2011, advertising expense totaled $89,629 and $0, respectively.

Stock Based Compensation
The Company accounts for all stock based payments in accordance with ASC Topic 718, which requires the Company to measure all employee stock-based compensation awards using a fair value method and record the related expense in the financial statements. The Company utilizes the Black-Scholes model to estimate the value of options granted.

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

Fair Value of Financial Instruments
The carrying amounts of the Company’s accounts payable, accrued expenses and notes payable approximate fair value due to the relatively short period to maturity for these instruments.

Concentration of Credit Risk
The Company’s financial instruments that are exposed to the concentrations of credit risk consist primarily of cash and cash equivalents. The Company’s places its cash with high quality institutions.  At times, such investments may be in excess of the FDIC insurance limit.  Cash and cash equivalents held in a bank may exceed federally insured limits at year end and at various points during the year.

The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited.

Revenue Recognition
The company has adopted the following revenue recognition guidelines.

Sale of subscriptions
Revenue from sale of subscriptions is recognized when the following conditions are satisfied:
* The user properly registered with the website of the Company, and provided the Company with a valid proof of identity and address. Furthermore the Company had set up a valid user account for the user;
* The amount of revenue can be measured reliably;
* The costs incurred or to be incurred in respect of the transaction can be measured reliably.

Whitepaper Solution income
Revenue from sale of Whitepaper Solutions is recognized when the following conditions are met:
* The contract for the solutions clearly specifies the price and payment options with the transfer of ownership;
* The Company is reasonably expected to complete the project in the time frame that the contract sets forth;
* As the milestones set forth in the contract are met, the Company will recognize revenue as set forth in the contract;
* As set forth in the contract the amount of revenue can be measured reliably;
* There is a reasonable belief that buyer is expected to pay the whole amount as the milestones are met.
 
 
9

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
Effect of recently issued accounting standards
The company has adopted all recently issued accounting pronouncements.  The Adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.

NOTE 3 - INCOME TAXES

Deferred tax attributes resulting from differences between financial accounting methods and tax basis of assets and liabilities at March 31, 2012 are as follows (rounded to the nearest hundred):

   
March 31, 2012
 
Noncurrent Assets:
     
 Net operating loss carry-forwards
  $ 360,000  
Valuation Allowance
  $ (360,000 )
Net Deferred Tax Asset
  $ $0  

At March 31, 2012, the Company had estimated net loss carry forwards of approximately $1,200,000 which expire between 2030 through 2031. Utilization of these net operating loss card forwards may be limited in accordance with IRC Section 382 in the event of certain shifts in ownership.

The reconciliation of federal statutory income tax rate to our effective income tax rate is as follows:

March 31, 2012
 
Amount
   
Percent
 
             
Book income at Federal Statutory Rate
  $ (94,000 )     25 %
State Taxes, net of Federal Benefit
  $ (18,000 )     5 %
Change in Valuation Allowances
  $ 112,000       (30 %)
    $ 0        0 %

NOTE 4 - STOCKHOLDERS' EQUITY

Common Stock
On December 24, 2009, the Company issued 117,000,000 of its $0.0001 par value common stock at $0.001 per share for $6,000 cash and $3,000 in a subscription receivable to the founder of the Company. The issuance of the shares was made to the sole officer and director of the Company and an individual who is a sophisticated and accredited investor, therefore, the issuance was exempt from registration of the Securities Act of 1933 by reason of Section 4 (2) of that Act.

 
10

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
On May 26, 2010 the Company issued 15,600,000 common shares to investors in accordance with Form S-1 for cash in the amount of $12,000.

On February 22, 2011 the Company issued 22,666,667 common shares at $0.0001 par value and $0.0044 face value to Lemberg Consulting for their intellectual property and pending patents in the amount of $100,000.

On June 23, 2011 the Company issued 5,075,000 common shares at $0.0001 par value and $0.0044 face value to various “founding fathers” of the company for services rendered to the company in lieu of cash.

On August 17, 2011 the Company issued 250,000 common shares at $0.0001 par value and $0.25 face value as an inducement for the $100,000 note payable issued on that date. The value of the 250,000 common shares issued totaled $62,500.

On October 31, 2011 the Company issued 250,000 common shares at $0.0001 par value and $0.30 face value as an inducement for the $100,000 note payable issued on that date. The value of the 250,000 common shares issued totaled $75,000.

On February 29, 2012 the Company issued 1,000,000 common shares at $0.0001 par value and $0.16 face value as an inducement for the $500,000 line of credit entered by the Company on that date. The value of the 1,000,000 common shares issued totaled $160,000.

On January 6, 2011, the Board of Directors and majority shareholder of the Company approved an amendment to the Company’s Articles of Incorporation (the “Amendment”) to (i) affect a 13 for 1 forward stock split of the Company’s issued and outstanding common stock in the form of a dividend.  Accordingly there were 10,200,000 pre-split common shares and following the forward split there were 132,600,000 common shares issued and outstanding.  All share amounts, including those stated above, have been adjusted to reflect the forward split. On February 10, 2011, Ron Warren, the principal shareholder and sole officer and director of the Company cancelled 104,666,667 of his own shares and on February 22, 2011 the Company issued an additional 22,666,667 shares in an intangible asset purchase.

There are 250,000,000 Common Shares at $0.0001 par value authorized with 57,175,000 shares issued and outstanding at March 31, 2012.

NOTE 5 – RELATED PARTY TRANSACTIONS

The officers and directors of the Company are involved in business activities outside of the company and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts.

The Company has demand notes payable outstanding totaling $461,000 to related parties, these outstanding notes bear interest between 5% to 6% per annum (See Note 9).

NOTE 6 - GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period December 24, 2009 (date of inception) through March 31, 2012 the Company has had a net loss of $1,723,780. As of March 31, 2012, the Company has not emerged from the development stage. In view of these matters, recoverability of any asset amounts shown in the accompanying financial statements is dependent upon the Company's ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed its activities from the sale of equity securities, and obtaining loans. The Company intends on financing its future development activities and its working capital needs largely from notes, loans and the sale of public equity securities, until such time that funds provided by operations, if ever, are sufficient to fund working capital requirements.
 
 
11

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 7 – PROPERTY AND EQUIPMENT

   
March 31, 2012
 
       
Computer hardware
  $ 9,427  
Source code
    81,049  
      90,476  
Less accumulated depreciation and amortization
    (3,142 )
Property and Equipment (net)
    87,334  
         
Depreciation and amortization expense
  $ 786  

During the three months ended March 31, 2012 the company acquired $53,049 of source code for cash.
 
NOTE 8 - INTANGIBLE ASSETS
 
On February 22, 2011, the Company acquired from Lemberg Consulting an intangible asset worth $100,000 in a non-cash transaction for 22,666,667 shares of the Company. The company purchased future contracts and pending patents for a gaming system that incorporates voice and video into the gaming experience.

NOTE 9 - CONVERTIBLE DEBT

As of March 31, 2012 the bridge notes payable totaled $961,000. The bridge notes payable were offered by the company during 2011 and 2012. The bridge notes payable consist of $325,000 of convertible debt and $636,000 of demand notes bearing interest at rates varying from 5.00% to 6.50% per annum. A total of $416,000 of the demand notes were issued to related parties (See Note 5)

The convertible debt payable was issued by the Company as follows:

On February 22, 2011 the Company issued convertible debt totaling $175,000, bearing a rate of 8% simple interest per annum. On December 14, 2011, $100,000 was repaid plus accrued interest of $6,466.The remaining Convertible debt of $75,000 in addition to accrued unpaid interest shall be due and payable on April 15, 2012. The principal amount and all unpaid interest accrued on this debt maybe converted by the greater of $0.25 per share or 50% of the average closing bid price of the Common stock on the OTC Bulletin Board, for the 10 trading days ending 5 days before the conversion date. On April 14, 2012, the maturity date was extended to June 15, 2012 and the conversion factor was adjusted to $0.05 per share

On June 22, 2011 the Company issued a convertible debt totaling $20,000, bearing a rate of 8.0% simple interest per annum. During December 2011, the principle was repaid in the amount of $20,000 plus $758 of accrued interest.

 
12

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
On August 17, 2011, the Company issued a convertible debt in amount of $100,000. The convertible debt bears a rate of 6.5% simple interest per annum. The principal and accrued unpaid interest shall be due and payable on April 15, 2012. As further inducement for the lender to advance the loan, the company granted the convertible debt holder the amount of 250,000 shares Common Stock.  The principal amount and all unpaid interest accrued on this debt maybe converted by the greater of $0.05 per share or 50% of the average closing bid price of the Common stock on the OTC Bulletin Board, for the 10 trading days ending 5 days before the conversion date. On April 14, 2012, the maturity date was extended to June 15, 2012 and the conversion factor was adjusted to $0.05 per share.

On October 31, 2011, the Company issued a convertible debt in amount of $100,000. The convertible debt bears a rate of 6.5% simple interest per annum. The principal and accrued unpaid interest shall be due and payable on April 15, 2012. As further inducement for the lender to advance the loan, the company granted the convertible debt holder the amount of 250,000 shares Common Stock.  The principal amount and all unpaid interest accrued on this debt maybe converted by the greater of $0.05 per share or 50% of the average closing bid price of the Common stock on the OTC Bulletin Board, for the 10 trading days ending 5 days before the conversion date. On April 14, 2012, the maturity date was extended to June 15, 2012 and the conversion factor was adjusted to $0.05 per share.
 
The following table illustrates the carrying value of the demand notes payable and convertible debt:
 
   
March 31, 2012
 
       
Convertible Notes
  $ 275,000  
Notes with a six month maturity     220,000  
Demand Notes      466,000  
Discount on Convertible Note
    (0)  
Convertible Note, Net
    961,000  
Less:  Current portion of convertible debt
    (961,000 )
Long term portion of convertible debt
  $ -  

The following tables illustrate the fair value adjustments that were recorded related to the derivative financial instruments associated with the convertible debenture financings:
 
   
Three months ended March 31, 2012
 
Derivative income (expense):
 
Inception
   
Fair Value Adjustments
   
Redemptions
   
Total
 
                         
Convertible debt
  $ (178,070 )   $ (351,209 )   $ -     $ (529,279 )
    $ (178,070 )   $ (351,209 )   $ -     $ (529,729 )

The following table illustrates the components of derivative liabilities:
 
Balance at December 31, 2011
  $ 178,070  
Change in fair value of derivative liability due to beneficial conversion feature
    351,209  
Debt redemption
    -  
Balance at March 31, 2012
  $ 529,279  
 
 
13

 
 
Face Up Entertainment Group, Inc.
(F/K/A Game Face Gaming, Inc.)
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
 
NOTE 10 – SUBSEQUENT EVENTS

The Company has evaluated all subsequent events from the balance sheet through May , 2012, which represents the date these financial statements are available to be issued.

On February 27, 2012 the Company secured additional financing through the issuance of a Note Purchase Agreement, the total not to exceed $500,000. Each note will bear interest at 5% per annum and is payable within six months from the date of issuance or earlier from proceeds of a private offering or through a registration statement. As part of the agreement the Company granted the lender 1,000,000 shares of the Company’s common stock. On April 18, 2012, the Company borrowed $50,000 and on April 30, 2012 the Company borrowed $70,000. The Company has $160,000 available on this financing agreement.

On April 14, 2012 the Company entered into an agreement with certain note holders extending the due date of the respective notes payable from April 15, 2012 to June 15, 2012. As further inducement for the lender to extend the due date of their note the Company adjusted the conversion rate clause to $0.05 per share on the convertible notes. One of the demand notes were changed to a convertible note due June 15, 2012 with a conversion rate of $0.05 per share at the option of the note holder.
 
 
14

 
 
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report and reports included herein by reference. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, and (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.
 
Plan of Operation

We are in the business of operating a non-wagering, non-games of chance (such as poker, chess and backgammon), multi-platform, multiplayer and social software company. The Company seeks to develop, market and operate a non wagering internet gaming website by incorporating proprietary technologies that will provide players with streaming video, audio and messaging capabilities. We believe that these enhancements will dramatically enhance the players’ online gaming experiences. Management is not aware of any online games sites which offer players the ability to see one another and speak live during game play.
 
 
15

 
 
Results of Operations

Comparison of Three  Months Ended March 31, 2012 and 2011:

Revenues

During the three months ended March 31, 2012, we did not generate any revenues as compared to $105,000 of revenues for the three months ended March 31, 2011.

Selling, general and administrative expenses
 
Our selling, general and administrative expenses for the three months ended March 31, 2012 increased by $87,703, or 76%, to $201,450, as compared to selling, general and administrative expenses for the three months ended March 31, 2011 of $114,747. These expenses are comprised mainly of marketing expenditures ($89,629), payroll and related taxes ($36,863), and consulting expenditures ($43,100).
 
Net loss
 
As a result of the foregoing, for the three months ended March 31, 2012, net loss was  $725,592 Net loss for the period ended March 31, 2011 was $8,498. The increase was primarily due to derivative liability expense and an increase in selling, general and administrative expenses.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Our balance sheet as of March 31, 2012 reflects that we had $48,204 cash on hand. On March 31, 2012, our total current liabilities was $1,534,880 and a working capital deficiency was $1,470,284, compared to a working capital deficiency of $23,340 on March 31, 2011. We had a stockholders’ deficiency of  $1,282,950 at March 31, 2012. The increase in working capital deficiency and stockholders' deficiency was due to derivative liability and selling, general and administrative expenditures during the quarter ended March 31, 2012.

We currently have a total of $1,081,000 owed to eight entities and individuals, of which $416,000 are due upon demand and $665,000 have specific due dates as described below. Of those, two loans aggregating $75,000 of such principal indebtedness accrues interest at the rate of 8% from February 2011, are due and payable on the earlier of June 15, 2012 or when the Company raises $600,000 in gross proceeds from the sale of securities or any offering; $200,000 of principal accrue interest at the rate of 6.5%,  are due and payable on the earlier of June 15, 2012 or when the Company raises $500,000 in gross proceeds from the sale of securities; $50,000 is due on the earlier of June 15, 2012 or when the Company raises $1,000,000. All of these 5 loans were also modified to provide that principal and interest can be converted in whole or in part to shares of common stock of the Company at a conversion rate of $0.05 per share.  The Company received loans of $85, 000  on  February 27, 2012, $135,000 on March 14, 2012, $50,000 on April 18, 2012 and $70,000 on April 30, 2012  from Corporate Debt Consultants LLC.  Each Note matures on the six month anniversary of its issuance. The notes issued to Corporate Debt are not convertible into shares, but Corporate Debt has piggyback registration rights on the 1,000,000 shares it was issued.
 
 Subsequent Event:

The balance of the indebtedness is due to Corporate Debt Consultants LLC - $120,000 of principal indebtedness and accrued interest at the annual rate of 5% is due upon the earlier of October 30, 2012 or when the Company sells any class of securities, and $120,000 is due on August 27, 2012
 
 
16

 

Going Concern Consideration

The Company is a development stage company. For the period December 24, 2009 (date of inception) through March 31, 2012, the Company has had a net loss of $1,723,780. Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to begin operations and to achieve profitability.
 
The Company believes that it will need approximately $3,600,000 to fund its expenses over the next twelve months. On a monthly basis, if the Company had these funds it would utilize, among other uses, approximately $125,000 for advertising and marketing, $100,000 for salaries and office expenses and $60,000 for software development. There can be no assurance that additional capital will be available to the Company. The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources, other than the agreement with Corporate to lend the Company up to $500,000, of which $340,000 has been borrowed as of May 15, 2012.

We cannot be certain that the required additional financing will be available or available on terms favorable to us. If additional funds are raised by the issuance of our equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing holders of common stock. If adequate funds are not available or not available on acceptable terms, we may be unable to fund expansion, develop or enhance services or respond to competitive pressures.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities as of the date of the financial statements and during the applicable periods. We base these estimates on historical experience and on other factors that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and could have a material impact on our financial statements.   

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations or liquidity.
 
 
17

 
 
ITEM 4.     CONTROLS AND PROCEDURES

A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:
 
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act are accumulated and communicated to management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") , as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon and as of the date of that evaluation, the CEO and CFO concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act are recorded, processed, summarized and reported as and when required.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Officers in connection with the review of our financial statements as of March 31, 2012.

Management believes any of the matters noted above could result in a material misstatement in our financial statements in future periods.
 
MANAGEMENT'S REMEDIATION INITIATIVES

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And. we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a full functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

We anticipate that these initiatives will be at least partially, if not fully, implemented with the next 12 months. Additionally, we plan to test our updated controls and remediate our deficiencies by November 30, 2012.
 
B. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:

There were no changes in our internal controls over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
  
 
18

 

PART II.  OTHER INFORMATION
 
ITEM 1.       LEGAL PROCEEDINGS
 
None.

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On February 27, 2012, the Company issued 1,000,000 shares of its common stock to Corporate Debt Consultants, LLC, a New York limited liability company concurrent with a loan made by Corporate Debt Consultants to the Company. The issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended. Corporate Debt was granted piggyback registration rights and demand registration rights upon a financing of at least $2,000,000 by the Company with respect to said shares.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.       MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.       OTHER INFORMATION

As previously disclosed in the Company's Current Report on Form 8-K filed with the Securities and Exchange commission on May 2, 2012, on April 27, 2012, the name of Game Face Gaming, Inc. was changed to "Face Up Entertainment Group, Inc." and the symbol for the Company on the Over the Counter Bulletin Board was changed to "FUEG".
 
 
19

 
 
ITEM 6.         EXHIBITS
 
(a) Exhibits:
 
4.11   Promissory Note dated as of April 18, 2012 in the original principal amount of $50,000 issued to Corporate Debt Consultants LLC
     
4.12   Promissory Note dated as of April 30, 2012 in the original principal amount of $70,000 issued to Corporate Debt Consultants LLC
     
4.13   Third Amendment dated as of April 14, 2012 to the Note with Small Cap Consultants, Inc.
     
4.14   Fourth Amendment dated as of April 14, 2012 to the Note with Small Cap Consultants, Inc.
     
10.16   Modification and Extension Agreement dated as of April 14, 2012 with Beth Englard
     
10.17   Modification and Extension Agreement dated as of April 14, 2012 with L Frankel Irrv Children Trust
     
10.18   Modification and Extension Agreement dated as of April 14, 2012 with Small Cap Consultants, Inc.
     
31.1   Rule 13a-14(a)/15d-14(a) Certification (CEO)
     
32.1   Section 1350 Certification (CEO)
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
20

 

SIGNATURES
 
Pursuant to the requrements of the Securities Exchange act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto daly authorized.
 
 
Date:  May 15,  2012
By:
/s/ Felix Elinson
 
 
Name: Felix Elinson
 
 
Title: President and Chief Executive Officer         
    (Principal Executive, Financial and Accounting Officer)
 
 
 
21


 

XOTC:FUEG Quarterly Report 10-Q Filling

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XOTC:FUEG Quarterly Report 10-Q Filing - 3/31/2012
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