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EX-32 - CERTIFICATION - FORCE FUELS INC.ffi_ex32-100131.htm
EX-31 - CERTIFICATION - FORCE FUELS INC.ffi_ex31-100131.htm
EX-10.1 - AMENDMENT TO ASSIGNMENT AND CONTRIBUTION AGREEMENT - FORCE FUELS INC.ffi_ex101-100131.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended January 31, 2010
 
Commission file number: 000-49993
 
 
FORCE FUELS, INC.

(Exact name of small business issuer as specified in its charter)
 
Nevada
 
56-2284320
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 
 
4630 Campus Dr. Ste. 101
Newport Beach, California 92660

(Address of principal executive offices)
 
 
949 783 6723

(Issuer’s telephone number)
 


Check whether the registrant (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  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 filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large Accelerated Filer  o
Accelerated Filer  o
Non-Accelerated Filer  o
Smaller Reporting Company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).  Yes  o    No  x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 6,182,763 shares of Common Stock, as of March 17, 2010.

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

 
 
 

 
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
   
 
Item 1.
Financial Statements
F-1 to F-12
       
 
Item 2.
Management's Discussion and Analysis of Financial Conditions and Results of Operations
1
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
3
       
 
Item 4.
Controls and Procedures
3
       
PART II - OTHER INFORMATION
3
   
 
Item 1.
Legal Proceedings
3
       
 
Item 1A.
Risk Factors
3
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
10
       
 
Item 3.
Defaults Upon Senior Securities
10
       
 
Item 4.
Submission of Matters to a Vote of Security Holders
10
       
 
Item 5.
Other Information
10
       
 
Item 6.
Exhibits
10
       
SIGNATURES
11
   
EXHIBIT INDEX
12
 
 
 
 

 
 
 

 
PART I – FINANCIAL INFORMATION
 
Unaudited Financial Statements
 
FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
January 31, 2010 and 2009
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                                                                                                         

Contents
Page(s)
   
Consolidated Balance Sheets at January 31, 2010 (Unaudited) and July 31, 2009 
F-2
   
Consolidated Statements of Operations for the Six Month Period Ended January 31, 2010 and 2009, the Three Month Period Ended January 31, 2010 and 2009, and since Inception (Unaudited)
F-3
   
Consolidated Statement of Stockholders’ Equity (Deficit) for the period from July 15, 2002 (inception) through January 31, 2010 (Unaudited)
F-4
   
Consolidated Statements of Cash Flows for the Six Month Period Ended January 31, 2010 and 2009, and for the period from July 15, 2002 (inception) through January 31, 2010 (Unaudited)
F-5
   
Notes to the Consolidated Financial Statements (Unaudited)
F-6 to F-12
 


 
 
 
 
 
 
 
 
 
 
 

 
F-1

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
   
January 31, 2010
   
July 31, 2009
 
             
ASSETS
           
CURRENT ASSETS:
           
Cash
  $ 21,107     $ -  
                 
Total Current Assets
    21,107       -  
                 
PROPERTY AND EQUIPMENT, NET
    19,915       21,649  
PURCHASED INTELLECTUAL PROPERTY RIGHT
    347,500       387,000  
                 
    $ 388,522     $ 408,649  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 93,276     $ 45,375  
Notes payable
    178,066       62,408  
Current portion of Intellectual property right payable
    200,000       100,000  
Due to related parties
    464,939       333,189  
                 
Total Current Liabilities
    936,281       540,972  
                 
INTELLECTUAL PROPERTY RIGHT PAYABLE, net of current portion
    200,000       300,000  
                 
Total Liabilities
    1,136,281       840,972  
                 
 STOCKHOLDERS' DEFICIT:
               
Preferred stock at $0.001 par value: 1,000,000 shares authorized;
               
none issued or outstanding
    -       -  
Common stock at $0.001 par value: 100,000,000 shares authorized;
               
6,070,129 and 7,682,763 shares issued and outstanding, respectively
    6,070       7,683  
Additional paid-in capital
    603,572       329,750  
Deficit accumulated during development stage
    (1,357,401 )     (769,756 )
                 
Total Stockholders' Deficit
    (747,759 )     (432,323 )
                 
Total Liabilities and Stockholders' Deficit
  $ 388,522     $ 408,649  
 
See accompanying notes to the unaudited consolidated financial statements.
F-2

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
For the Six Months Period ended
   
For the Three Months Period ended
   
For the period from July 15, 2002 (inception) through
 
   
January 31, 2010
   
January 31, 2009
   
January 31, 2010
   
January 31, 2009
   
January 31, 2010
 
                               
OPERATING EXPENSES:
                             
                               
Research and development
  $ -     $ 91,434     $ -     $ 91,434     $ 115,434  
Salary and wages - officers
    72,500       139,137       17,500       63,137       178,000  
Stock based compensation
    335,210       -       410,210       -       530,143  
General and administrative expenses
    175,362       103,681       116,642       69,931       527,230  
                                         
Total operating expenses
    583,072       334,252       544,352       224,502       1,350,807  
                                         
LOSS FROM OPERATIONS
    (583,072 )     (334,252 )     (544,352 )     (224,502 )     (1,350,807 )
                                         
INTEREST EXPENSE
    4,573       20       2,802       20       6,594  
                                         
LOSS BEFORE TAXES
    (587,645 )     (334,272 )     (547,154 )     (224,522 )     (1,357,401 )
                                         
INCOME TAXES
    -       -       -       -       -  
                                         
NET LOSS
  $ (587,645 )   $ (334,272 )   $ (547,154 )   $ (224,522 )   $ (1,357,401 )
                                         
NET LOSS PER COMMON SHARE –
                                       
BASIC AND DILUTED:
    (0.10 )     (0.04 )     (0.10 )     (0.03 )        
                                         
Weighted Average Common Shares Outstanding
                                       
 - basic and diluted
    5,911,967       7,622,763       5,472,541       7,622,763          
 
The weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of potentially dilutive securities is anti-dilutive.
 
See accompanying notes to the unaudited consolidated financial statements.
F-3

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from July 15, 2002 (Inception) through January 31, 2010
(UNAUDITED)
 
                           
Deficit
       
                           
Accumulated
       
   
Common Stock, $0.001 Par Value
   
Additional
         
during the
   
Total
 
   
Number of
         
Paid-in
   
Treasury
   
Development
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Stock
   
Stage
   
Equity (Deficit)
 
                                     
 Balance, July 15, 2002
    -     $ -     $ -     $ -     $ -     $ -  
                                                 
 Sale of common stock
                                               
   in March 2006     175,000       175       425,825       -       -       426,000  
 Adjustment on reverse acquisition
                                               
   in March 2006     1,050,000       1,050       (10,550 )     (235,000 )     -       (244,500 )
                                                 
 Purchase of treasury stock
                                               
   on June 6, 2006     -       -       -       (75,000 )     -       (75,000 )
                                                 
 Net loss
    -       -       -       -       (30,873 )     (30,873 )
                                                 
 Balance, July 31, 2006
    1,225,000       1,225       415,275       (310,000 )     (30,873 )     75,627  
                                                 
 Net loss
    -       -       -       -       (69,804 )     (69,804 )
                                                 
 Balance, July 31, 2007
    1,225,000       1,225       415,275       (310,000 )     (100,677 )     5,823  
                                                 
 Retirement of treasury stock
                                               
   on May 12, 2008     (1,100,000 )     (1,100 )     (308,900 )     310,000       -       -  
                                                 
 Issuance of shares for services
                                               
   on May 12, 2008     3,700,000       3,700       107,300       -       -       111,000  
                                                 
 Issuance of shares for services
                                               
   on June 18, 2008     2,797,763       2,798       81,135       -       -       83,933  
                                                 
 Issuance of shares in connection with
                                               
 assets assignment agreement                                                
   on July 31, 2008     1,000,000       1,000       29,000       -       -       30,000  
                                                 
 Net loss
    -       -       -       -       (269,356 )     (269,356 )
 
 
 

 
 
 Balance, July 31, 2008
    7,622,763       7,623       323,810       -       (370,033 )     (38,600 )
                                                 
 Issuance of shares for services
                                               
   on February 14, 2009     60,000       60       5,940       -       -       6,000  
                                                 
 Net loss for the year
    -       -       -       -       (399,723 )     (399,723 )
                                                 
 Balance, July 31, 2009
    7,682,763       7,683       329,750       -       (769,756 )     (432,323 )
                                                 
 Cancelation, on August 31, of shares
                                               
 previously issued for consulting fees
    (2,500,000 )     (2,500 )     (72,500 )     -       -       (75,000 )
                                                 
 Issuance of shares as signing bonus
    1,000,000       1,000       29,000       -       -       30,000  
                                                 
 Cancelation, on December 9, of shares
                                               
 previously issued for consulting fees
    (700,000 )     (700 )     (20,300 )     -       -       (21,000 )
                                                 
 Cancelation, on December 9, of shares
                                               
 perviously issued in connection with
                                               
 assets assignment agreement
    (600,000 )     (600 )     (17,400 )     -       -       (18,000 )
                                                 
 Issuance of shares, on January 28,
                                               
 for consulting fees
    1,187,366       1,187       355,022       -       -       356,209  
                                                 
 Net loss for the six months
    -       -       -       -       (587,645 )     (587,645 )
                                                 
 Balance,January  31, 2010
    6,070,129     $ 6,070     $ 603,572     $ -     $ (1,357,401 )   $ (747,759 )
See accompanying notes to the unaudited consolidated financial statements.
F-4

FORCE FUELS, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
  
 
For the Six Months Period Ended
   
For the period from July 15, 2002 (inception) through
 
   
January 31, 2010
   
January 31, 2009
   
January 31, 2010
 
  
                 
                   
 CASH FLOWS FROM OPERATING ACTIVITIES:
                 
 Net Loss
  $ (587,645 )   $ (334,272 )   $ (1,357,401 )
  
                       
 Adjustments to reconcile net loss to net cash
                       
 used in operating activities
                       
 Depreciation
    1,734       867       4,335  
 Amortization
    21,500       21,500       64,500  
 Issuance of common stock for services
    386,209       -       587,142  
 Cancelation of common stock for services
    (96,000 )     -       (96,000 )
 Changes in operating assets and liabilities:
                       
Prepaid expenses
    -       -       -  
Accrued expenses
    47,901       32,275       83,776  
                         
 NET CASH USED IN OPERATING ACTIVITIES
    (226,301 )     (279,630 )     (713,648 )
                         
 CASH FLOWS FROM FINANCING ACTIVITIES:
                       
 Amounts received from shareholder
    -       -       -  
 Proceeds from sale of common stock
    -       -       501,000  
 Payment of common stock to be issued
    -       -       (75,000 )
 Purchase of treasury stock
    -       -       (310,000 )
 Proceeds of notes payable
    115,658       -       178,066  
 Amounts received from related parties
    131,750       303,689       464,939  
                         
 NET CASH PROVIDED BY FINANCING ACTIVITIES
    247,408       303,689       759,005  
                         
 CASH FLOWS FROM INVESTING ACTIVITIES:
                       
 Purchase of test equipment
    -       (24,250 )     (24,250 )
                         
 NET CHANGE IN CASH
    21,107       (191 )     21,107  
  
                       
 Cash at beginning of period
    -       191       -  
                         
 Cash at end of period
  $ 21,107     $ -     $ 21,107  
  
                       
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
                 
                         
 Interest paid
  $ 6,545     $ -     $ 6,545  
 Income tax paid
  $ -     $ -     $ -  
                         
 NON-CASH INVESTING AND AND FINANCING ACTIVITIES:
                       
                         
 Issuance of shares and debt for purchase of intellectual property right
  $ -     $ -     $ 430,000  
 Cancelation of shares and debt for purchse of intellectual property right
  $ 18,000     $ -     $ 18,000  
 
 
See accompanying notes to the unaudited consolidated financial statements.
F-5

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
January 31, 2010 and 2009
Notes to the Consolidated Financial Statements
(Unaudited)
 
NOTE 1 - ORGANIZATION AND OPERATIONS

DSE Fishman, Inc. (a development stage company) (“DSE Fishman”) was incorporated under the laws of the State of Nevada in July 2002.  Prior to May 12, 2008, DSE Fishman was inactive.  On May 14, 2008 DSE Fishman changed its name to Force Fuels, Inc. (“Force Fuels” or the “Company”).  The Company believes that the new name will better identify the Company with the business to be conducted in the development, manufacturing and marketing of electric drive systems for installation in short-haul commercial trucks after acquisition of intellectual property right.

On May 5, 2006, Great American Coffee Company, Inc. (“Great American”) acquired 10,500,000 shares representing 100% of the outstanding shares of the Company.

On May 9, 2006, the Company formed GACC Acquisition Corp (“GACC”), a California corporation and GACC merged into Great American; with Great American as the surviving corporation. The Company exchanged the shares of GACC for 1,000 shares of Great American.

On May 12, 2006 the Company issued 1,750,000 shares of common stock in exchange for 100% of the outstanding shares of Great American.

The results of the transaction were for the Company to own 100% of the outstanding shares of common stock of Great American.

Great American was incorporated in California on April 4, 2005, has not conducted any operations to date and was inactive.

As a result  the ownership interests of the former shareholder of Great American own 100% of the outstanding shares of the Company's common stock, for financial statement reporting purposes, the merger between the Company and Great American has been treated as a reverse acquisition with Great American deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”)(ASC 805).  The reverse merger is deemed a capital transaction and the net assets of Great American (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the combination.  The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Great American which are recorded at historical cost.  The equity of the Company is the historical equity of Great American retroactively restated to reflect the number of shares issued by the Company in the transaction.  The consolidated financial statements include the operations of Fishman from the date of the merger.

Assignment and Contribution Agreement between the Company and ICE Conversions, Inc.
 
On July 31, 2008 the Company entered into an assignment and contribution agreement (“Assignment and Contribution Agreement”) with Lawrence Weisdorn and ICE Conversions, Inc. to operate a business engaged in the development, manufacture and marketing of electric drive systems for installation in short-haul commercial trucks.  The transactions contemplated by the Assignment and Contribution Agreement include:
 
(a) the contribution, transfer and license of certain assets and intellectual property rights of  ICE to the Company;
 
(b) the grant of 1,000,000 shares of Common Stock to ICE;  by subsequent agreement 600,000 of these shares were returned,  to the Company,  for cancelation, on December 9, 2009.
 
(c) confirmation of the previous grant of 2,500,000 shares of Common Stock to Lawrence Weisdorn pursuant to a consulting agreement; by subsequent agreement these shares were returned on, August 31, 2009, for cancelation.
 
(d) cash payment of $400,000 from the Company to ICE, made payable as follows: 100,000 on or before March 15, 2009 and $300,000 on or before June 15, 2009.
 
 
F-6

 
 
(e) on January 30, 2009 ICE agreed to extend the timeline for the $400,000 cash payment to allow Force Fuels to make 8 separate installment payments, each in the amount of $50,000, due on or before the last day of each quarter of Force Fuel’s fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.
 
The Assignment and Contribution Agreement replaced the Joint Venture Agreement dated May 12, 2008.  Five hundred thousand (500,000) of the 1,500,000 shares previously issued to ICE were to be cancelled on July 31, 2008, pursuant to the terms of the Assignment and Contribution Agreement.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full fiscal year.  These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended July 31, 2009 and notes thereto contained in the Company’s Annual Report on amended Form 10-K  2 as filed with the SEC on December 24, 2009.

The consolidated financial statements include the accounts of the Company and Great American.  All inter-company balances and transactions have been eliminated.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.   These reclassifications had no effect on reported losses.

Development stage company

The Company is a development stage company as defined by Statement of Financial Accounting Standards No. 7, Accounting and Reporting by Development Stage Enterprises (“SFAS No. 7”)(ASC 915).  The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced.  All losses accumulated since inception have been considered as part of the Company’ development stage activities.

Use of estimates

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

Cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Property and equipment, net

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over useful lives of 7 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Expenditures for maintenance and repairs are charged to operations as incurred.
 
 
F-7

 
Purchased intellectual property right

The Company has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”)(ASC 350) for purchased intellectual property right.  Under the requirements as set out in SFAS No. 142(ASC 350), the Company amortizes the costs of acquired intellectual property right over the remaining legal lives, or estimated useful lives, or the term of the contract, whichever is shorter.  Purchased intellectual property right is carried at cost and amortized on a straight-line basis over the estimated useful life of ten (10) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

Impairment of long-lived assets

The Company follows Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”)(ASC 360) for its long-lived assets.  The Company’s long-lived assets, which include test equipment and purchased intellectual property right, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts.  Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.  The Company determined that there were no impairments of long-lived assets as of January 31, 2010.

Fair value of financial instruments

The Company follows Statement of Financial Accounting Standards No. 107 “Disclosures about Fair Value of Financial Instruments” (“SFAS No. 107”)(ASC 825) for its financial instruments.  The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.  The carrying amounts of financial assets and liabilities, such as accrued expenses, approximate their fair values because of the short maturity of these instruments.  The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at January 31, 2010.

Revenue recognition

The Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition” (“SAB No. 101”)(ASC 605), as amended by SAB No. 104 (“SAB No. 104”)(ASC 605) for revenue recognition.  The Company will recognize revenues when it is realized or realizable and earned less estimated future doubtful accounts.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.  The Company will derive majority of its revenue from sales contracts with customers with revenues being generated upon the shipment of goods.

Research and development

The Company follows Statement of Financial Accounting Standards No. 2 “Accounting for Research and Development Costs” (“SFAS No. 2”)(ASC 730) and Statement of Financial Accounting Standards No. 68 “Research and Development Arrangements” (“SFAS No. 68”)(ASC 730) for research and development costs.  Research and development costs are charged to expense as incurred.  Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment, material and testing costs for research and development as well as research and development arrangements with unrelated third party research and development institutions.

Stock-based compensation

The Company accounted for its stock based compensation under the recognition and measurement principles of the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123R”)(ASC 718) using the modified prospective method for transactions in which the Company obtains employee services in share-based payment transactions and the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 96-18 “Accounting For Equity Instruments That Are Issued To Other Than Employees For Acquiring, Or In Conjunction With Selling Goods Or Services” (“EITF No. 96-18”) for share-based payment transactions with parties other than employees provided in SFAS No. 123R(ASC 718).  All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
 
 
F-8

 
Income taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS No. 109”)(ASC 740).  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets 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 the statements of operations in the period that includes the enactment date.

Net loss per common share
 
Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period.  Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.  There were no potentially dilutive common shares outstanding as of January 31, 2010 or 2009.

Cash flows reporting

The Company adopted Statement of Financial Accounting Standards No. 95 “Statement of Cash Flows” (“SFAS No. 95”)(ASC 230) for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by SFAS No. 95(ASC 230) to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.

Recently issued accounting pronouncements

In May 2009, the FASB issued ASC 855 (previously SFAS 165, Subsequent Events). ASC 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 will be effective for interim or annual period ending after June 15, 2010 and will be applied prospectively. The Company will adopt the requirements of this pronouncement for the quarter ended June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will have an impact on its consolidated results of operations or consolidated financial position.
 
In June 2009, the FASB issued ASC 810, (previously SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after June 15, 2010.
 
 
F-9

 

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 referenced, and all subsequent public filings will reference, the Codification as the sole source of authoritative literature. The Company does not believe that this will have a material effect on its consolidated financial statements. In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management is currently evaluating the potential impact of ASU2009-13 on our financial statements.

 In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Management is currently evaluating the potential impact of ASU 2009-15 on our financial statements.

In December, 2009, under FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 became effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

NOTE 3 - DEVELOPMENT STAGE ACTIVITIES AND GOING CONCERN

The Company is currently in the development stage and has conducted  minimal  operations to date.  While pursuing the development, manufacturing and marketing of electric drive systems for installation in short-haul commercial trucks, the company has also begun the process of acquiring oil producing properties.

As reflected in the accompanying consolidated financial statements, the Company had a deficit accumulated during development stage of $1,357,401 at January 31, 2010 and had a net loss of $587,645 for the interim period ended January 31, 2010, with no revenues since inception.

While the Company is attempting to commence operations and generate revenues, the Company’s cash position is not sufficient enough to support the Company’s operations.  Management intends to raise additional funds by way of a public or private offering.   While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that these efforts will succeed and that the Company will continue as a going concern.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise capital and to generate sufficient revenues.  The consolidated financial statements do not include any adjustments that would be necessary if the Company is unable to continue as a going concern.

NOTE 4 – PROPERTY AND EQUIPMENT, NET

The Company’s property and equipment as of January 31, 2010 and July  31, 2009 are summarized as follows:
 
   
January 31, 2010
   
July 31, 2009
 
Office equipment and computers
 
$
24,250
     
24,250
 
Less: accumulated depreciation
   
(4,335
)
   
(2,601
)
Property and equipment, net
 
$
19,915
     
21,649
 

Depreciation expense for the quarter ended  January 31, 2010 and 2009 were $1,734 and $867, respectively.   
 
NOTE 5 – PURCHASED INTELLECTUAL PROPERTY RIGHT

On July 31, 2008, the company acquired, from ICE, a prototype 2008 Columbia model, electric battery-powered Freightliner and all electric drive components installed or to be installed and associated intellectual property rights (“Purchased Intellectual Property Right”) for (i) 1,000,000 shares of its common stock, and (ii) a cash payment of $400,000, payable as follows: $100,000 payable on or before March 15, 2009, and $300,000 payable on or before June 15, 2009.  The Purchased Intellectual Property Right is collateralized by a first priority perfected lien on all of the Company’s assets in favor of ICE.  The management of the Company determined that this transaction represented the acquisition of an asset, the intellectual property right, instead of a business.  Pursuant to EITF 98-3, a business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors.  A business consists of (a) inputs, (b) processes applied to those inputs, and (c) resulting outputs that are used to generate revenues.  For a transferred set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from the transferor, which includes the ability to sustain a revenue stream by providing its outputs to customers.  
 
 
 
F-10

 
The prototype and related intellectual property right which the Company acquired was a specific application of electric vehicle to Class 8 Trucks, a work in progress, and did not contain any of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from ICE Conversions, Inc., the transferor. The intellectual property right acquired was valued at $430,000 representing (i) an aggregate cash payment of $400,000 from the Company to ICE and (ii) the issuance of 1,000,000 shares of Common Stock to ICE valued at $0.03 per share or $30,000.

On January 30, 2009 ICE extended the timeline for the $400,000 payment in cash to eight (8) separate installment payments of $50,000, due on or before the last day of each quarter of Force Fuel’s fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.

On December 15, 2009 an additional 600,000 of 1,000,000 shares were cancelled by agreement between the parties.

Purchased intellectual property right, at cost, at January 31, 2010 and July 31, 2009, consisted of the following:

 
January 31, 2010
   
July 31, 2009
 
PurcPurchased  intellectual property right at cost
 
$
412,000
   
$
430,000
 
Accumulated amortization
   
(64,500
)
   
(43,000
)
   
$
347,500
   
$
387,000
 

Amortization expense

Amortization expense for the interim period ended January 31, 2010 and 2009 were $21,500 and $21,500, respectively. The Company expects amortization expense for the next five years to be as follows:

Year ending January 31:
     
2010
 
$
41,200
 
2011
   
41,200
 
2012
   
41,200
 
2013
   
41,200
 
Thereafter
   
182,700
 
   
$
347,500
 
 
NOTE 6 – NOTE PAYABLE

Note payable at January 31, 2010 and July 31, 2009 consisted of the following:

   
January 31, 2010
   
July 31, 2009
 
Note payable on January 29, 2009, 10% interest, unsecured and due on demand.
35,960
 
 $
35,960 
 
Note payable on June 1, 2009, 10% interest, unsecured and due on demand.
 
 13,738
   
13,738 
 
Note payable on July 1, 2009, 10% interest, unsecured and due on demand.
 
 12,710
   
12,710 
 
Note payable on October 1, 2009, 10% interest, unsecured and due on demand.
 
 10,658
   
 
Note payable on December 12, 2009, 8% interest, unsecured and due in December 2010
 
10,000
   
-
 
Note payable on December 12, 2009, 8% interest, unsecured and due in December 2010
 
10,000
   
-
 
Note payable on December 12, 2009, 8% interest, unsecured and due in December 2010
 
10,000
   
-
 
Note payable on December 17, 2009, 8% interest, unsecured and due in December 2010
 
30,000
   
-
 
Note payable on January 4, 2010, 8% interest, unsecured and due in December 2010
 
25,000
   
-
 
Note payable on January 7, 2010, 8% interest, unsecured and due in December 2010
 
20,000
   
-
 
Total
178,066
 
 $
62,408 
 


Above note payable are to unrelated parties and interest expense for the interim period ended January 31, 2010 and 2009 was $4,573 and $20, respectively.  
 
NOTE 7 – STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

In March 2006, the original incorporators of the Company contributed $1,000 in exchange for 1,500,000 shares of common stock.

In March 2006, Great American issued 250,000 shares of common stock in exchange for $500,000.  37,500 shares were mutually rescinded in September 2006, and the Company refunded $75,000.

On June 7, 2006, the Company repurchased 500,000 shares of its common stock for $75,000, which were held in treasury and retired during the current year.

On April 30, 2008, the Company effectuated a 1-for-10 reverse stock split of the Company’s Common Stock (the “Reverse Split”), thereby reducing the total outstanding common shares from 1,250,000 to 125,000 shares and reducing the authorized Common Stock from 24,000,000 to 2,400,000.  

On May 12, 2008, the Company entered into a consulting agreement with Lawrence Weisdorn granting him 2,500,000 shares of the Company’s Common Stock in exchange for professional consulting services. By subsequent agreement these shares were returned to the company and canceled on August 31, 2009.

On May 12, 2008, the Company entered into a consulting agreement with Donald Hejmanowski granting him 1,200,000 shares of the Company’s Common Stock in exchange for professional consulting services. 700,000 of these shares were cancelled by agreement between both parties on December 9, 2009.
 
 
F-11

 
On June 18, 2008, the Company issued a total of 2,797,763 of the Company’s Common Stock to a number of individuals for professional and consulting services rendered, all at a value of $.03 per share.

On June 23, 2008, 1,500,000 shares of the Company’s Common Stock were issued to ICE Conversions, Inc. pursuant to a Joint Venture Agreement dated May 12, 2008.  The Joint Venture Agreement was replaced by an Assignment and Contribution Agreement effective July 31, 2008.  500,000 of the 1,500,000 shares previously issued to ICE were cancelled effective July 31, 2008, pursuant to the terms of the Assignment and Contribution Agreement.   On December 9, 2009 an additional  600,000 of these shares were cancelled by agreement between the parties.

On February 14, 2009 the Company issued 60,000 shares of its Common Stock to three (3) consultants for professional services rendered, valued at $0.10 per share, or $6,000 in aggregate.

On October 1, 2009, the Company issued 1,000,000 shares of its Common Stock to Oscar Luppi as a signing bonus for entering into an Employment Agreement dated October 1, 2009.

On January 28, 2010, the Company issued 1,187,366 shares to various consultants for services provided to the company.

Stock Option Plan

The Company adopted its 2002 Non-Statutory Stock Option Plan (the “Plan”) on July 15, 2002, as amended on October 24, 2002 and filed with the Securities and Exchange Commission on Form S-8 on January 21, 2003.  The Plan provides for the granting of non-statutory stock options through 2012, to purchase up to 1,500,000 shares of its common stock, subject to adjustment for stock splits, stock dividends, recapitalizations or similar capital changes.  These may be granted to employees (including officers) and directors of the Company and certain of the Company's consultants and advisors.

The Plan is administered by the Company's Board of Directors which determines the grantee, number of shares, exercise price and term.  The Board of Directors also interprets the provisions of the Plan and, subject to certain limitations, may amend the Plan.

One million five hundred thousand (1,500,000) shares were reserved for issuance under the Plan, subject to adjustment for stock splits, stock dividends, recapitalizations or similar capital changes.  Prior to the Reverse Split, options to purchase 1,500,000 shares had already been issued and exercised in full.  Accordingly, there are no additional shares available for future grants under the Plan and no options are outstanding as of January 31, 2010 or 2009.  The number of shares issued under the Plan was 1,500,000 adjusted to 150,000 shares as a result of the Reverse Stock Split.

NOTE 8 – RELATED PARTY TRANSACTIONS
 
On August 31, 2009, in order to complete a previously entered into verbal understanding, Lawrence Weisdorn’s 2,500,000 common shares were returned to the company and canceled.

Advances from related parties

Advances from related parties at January 31, 2010 and July 31, 2009 consist of the following:

   
January 31, 2010
   
July 31, 2009
 
AdvAdvances from ICE and  significant stockholders
 
$
464,939
   
$
333,189
 

The advances bear no interest and have no formal repayment terms.
 
 
F-12

 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Plan of Operations

In addition to continuing its current business of developing electric drive systems for installation in short haul commercial truck vehicles, the Company has recently determined to also implement a new business strategy of acquiring oil and gas wells and applying enhanced recovery systems to such wells.  The Company is currently negotiating to acquire producing oil and gas interests and properties in the US, with the intention of applying enhanced recovery systems to increase production.  The Company has not yet acquired any properties or interests, and has not entered into any definitive agreements.  However, management believes that it will execute definitive agreements and close initial energy acquisition in the second calendar quarter of 2010.  There can be no assurance that the Company will be able to complete such acquisitions.

The Company intends to continue to pursue the business opportunity acquired from ICE, specifically relating to:

 
(i) 
The manufacture of electric drive systems for installation in short haul commercial truck vehicles, that will allow such trucks to run 100% on electric battery power.  We intend to provide retrofit conversion (kits) directly to end-users and supply our electric drive systems to OEMs; and

 
(ii) 
To undertake the design, development and manufacture of hydrogen-powered vehicles.

The Company has revised its agreements with ICE to provide that it has received ownership of the intellectual property required to conduct such business operations.

Going Concern
 
Our registered independent accounting firm expressed substantial doubt as to our ability to continue as a going concern in its report on the accompanying financial statements for the year ended July 31, 2009 based on the fact that we do not have adequate working capital to finance our day-to-day operations.  Our continued existence depends upon the success of our efforts to raise additional capital necessary to meet our obligations as they come due and to obtain sufficient capital to execute our business plan. We intend to obtain capital primarily through issuances of debt or equity or entering into collaborative arrangements with corporate partners. There can be no assurance that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can be obtained on commercially reasonable terms.  If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.  Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Liquidity and Capital Resources

At January 31, 2010, we had $21,107 in cash and cash equivalents and our current liabilities consisted of $93,276 in accounts payable, and $643,005 in loans and advances payable to related parties.  

For the six months ended January 31, 2010, net cash used in operating activities was $226,301 and included our $587,645 net loss for the six months ended January 31, 2010, adjusted for depreciation and amortization charges of $23,234, issued common stock for consulting service of $386,209, cancelation of common stock of  $96,000 and accrued expenses amounted of $47,901.
 
No cash was provided by investing activities during the six months ended January 31, 2009.  During the six months ended January 31, 2009 net cash used in operating activities was $279,630,  adjusted for depreciation and amortization charges of $22,367and accrued expenses amounted of $32,275.
 
 Net cash provided by financing activities was $247,408 for the six months ended January 31, 2010, and resulted from proceeds of $115,658 in convertible notes and $131,750 in proceeds from related parties. Net cash provided by financing activities was $303,689 for the six months ended January 31, 2009, and resulted from the payment of a $303,689 with respect to the ICE Contribution Agreement.
 
In January 2009, the Company commenced a capital formation activity to submit a Registration Statement on Form S-1 to the Securities and Exchange Commission (the “SEC”) to register and sell in a self-directed offering 210,000 shares of newly issued common stock at an offering price of $4.00 per share for proceeds of up to $840,000.  The Registration also registered 1,039,740 of the Company’s outstanding shares of common stock for resale on behalf of selling stockholders, for which the Company would not receive any of the proceeds from sales of these shares.  The Registration Statement on Form S-1 was filed with the SEC on January 30, 2008.   The Company amended the Registration Statement in January 2010 to terminated the public offering and deregistered all shares to be sold by the Company, and reducing the shares being registered for sale by selling shareholders to 938,333 shares . The Company will not offer or sell any additional shares of common stock pursuant to this registration statement.  The 938,333 shares of common stock that were registered for resale by existing shareholders continue to be registered for resale; however, the Company will not receive any of the proceeds of such sales.  The Registration Statement was declared effective on February 26, 2010.
 
We do not have sufficient cash on hand to fund our administrative and other operating expenses or our proposed new business operations to acquire and operate oil and gas interests and properties for the next twelve months.   In order to meet our obligations as they come due and to fund the development of our or business, we will require significant new funding to pay for these expenses. We might do so through loans from current stockholders, public or private equity or debt offerings, grants or strategic arrangements with third parties.  There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain additional funds through bank loans, lines of credit or any other sources.

We have no material commitments or contractual purchase obligations for the next twelve months other than monthly consulting and employment commitments of $30,833, the monthly rental payments of $3,850 on the office lease that is presently month to month.

 
1

 
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
 
Information set forth herein contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may,” “should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that the future results covered by the forward-looking statements will be achieved. The Company cautions readers that important factors may affect the Company’s actual results and could cause such results to differ materially from forward-looking statements made by or on behalf of the Company. These include the Company’s lack of historically profitable operations, dependence on key personnel, the success of the Company’s business, ability to manage anticipated growth and other factors identified in the Company's filings with the Securities and Exchange Commission, press releases and other public communications.

Recently issued accounting pronouncements

In May 2009, the FASB issued ASC 855 (previously SFAS 165, Subsequent Events). ASC 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 will be effective for interim or annual period ending after June 15, 2010 and will be applied prospectively. The Company will adopt the requirements of this pronouncement for the quarter ended June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will have an impact on its consolidated results of operations or consolidated financial position.
 
In June 2009, the FASB issued ASC 810, (previously SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after June 15, 2010.

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature. The Company does not believe that this will have a material effect on its consolidated financial statements. In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management is currently evaluating the potential impact of ASU2009-13 on our financial statements.

 In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Management is currently evaluating the potential impact of ASU 2009-15 on our financial statements.

In December, 2009, under FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

 
2

 
Critical Accounting Policies
 
The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.
 
Please refer to Note 2 – Summary of significant accounting policies for our critical accounting policies.
 
 
Quantitative and Qualitative Disclosures About Market Risk
 
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates.  The Company does not undertake any specific actions to limit those exposures.
 
Controls and Procedures
 
Our Chief Executive Officer, who is also our Chief Financial Officer (the “Certifying Officer”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2010. Based on this evaluation, our Certifying Officer has concluded that our disclosure controls and procedures were ineffective to ensure that information required to be disclosed in our periodic reports is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules for each report and that such information is presented to our management as appropriate to allow timely decisions regarding required disclosure.  A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected or is reasonably likely to materially affect our internal controls over financial repo
 
 
PART II - OTHER INFORMATION
 
Legal Proceedings
 
None.
 
Risk Factors
 
Risk Factors Related to Our Electric Drive Business and Industry
 
We have limited experience assembling electric drive conversion kits for commercial short haul vehicles for alt-fuel and electric applications on a commercial basis.  In order to produce Vehicles at affordable prices, we will have to produce Vehicles through high volume automated processes.  We do not know whether we will be able to contract efficient, automated, low-cost assembly capability and processes that will enable us to meet the quality, price, engineering, design and production standards, or production volumes required to successfully mass market our Vehicles.  Even if we are successful in developing our high volume assembly capabilities and processes, we do not know whether we will do so in time to meet our product commercialization schedules or to satisfy the requirements of customers.  Our failure to develop such processes and capabilities could have a material adverse effect on our business, results of operations and financial condition.
 
We may not meet our product development and commercialization milestones.  We have Vehicle development programs that are in the pre-commercial stage.  The success of each Vehicle development program is highly dependent on our correct interpretation of commercial market requirements, and our translation of those requirements into applicable product specifications and appropriate development milestones.  If we have misinterpreted market requirements, or if the requirements of the market change, we may develop a product that does not meet the cost and performance requirements for a successful commercial product. In addition, if we do not meet the required development milestones, our commercialization schedules could be delayed, which could result in potential purchasers of these Vehicles declining to purchase additional systems or choosing to purchase alternative technologies.  Delayed commercialization schedules may also have an impact on our cash flow, which could require increased funding.

 
3

 
Significant markets for electric drive conversion kits for commercial short haul vehicles may never develop or may develop more slowly than we anticipate, which would significantly harm our revenues and may cause us to be unable to recover the losses we have incurred and expect to incur in the development of our products.  Significant markets may never develop for electric drive conversion kits for commercial short haul vehicles and other alternative fuel products or they may develop more slowly than we anticipate. Any such delay or failure would significantly harm our revenues and we may be unable to recover the losses we have incurred and expect to continue to incur in the development and marketing of our Vehicles.  If this were to occur, we may never achieve profitability and our business could fail.  Electric energy products represent an emerging market, and whether or not end-users will want to use them may be affected by many factors, some of which are beyond our control, including:
  • the emergence of more competitive technologies and products, including other environmentally clean technologies and products that could render our products obsolete;
  • the future cost of electricity and other fuels used by our fuel systems;
  • the regulatory requirements of agencies, including the development of uniform codes and standards for electric products, electric recharging and refueling infrastructure and other electric energy products;
  • government support of fuel-electric technology, electricity storage technology and electric recharging technology;
  • the manufacturing and supply costs for the internal electric drive conversion kits;
  • the perceptions of consumers regarding the safety of our products;
  • the willingness of consumers to try new technologies;
  • the continued development and improvement of existing power technologies; and
  • the future cost of fuels used in existing technologies.
Electricity and other alternate fuels may not be readily available on a cost-effective basis, in which case our products may be unable to compete with existing power sources and our revenues and results of operations would be materially adversely affected.  If our customers are not able to obtain electricity and other alternative fuels on a cost-effective basis through market sources or are unable to purchase the needed fuels at locations convenient to them, our products may be unable to compete with existing power sources and our revenues and results of operations would be materially adversely affected.  Significant growth in the use of electric-powered and alt-fuel-powered devices, particularly in the automobile or vehicular market, may require the development of an infrastructure to deliver the electricity. There is no guarantee that such an infrastructure will be developed on a timely basis or at all

Even if electricity and alternative fuel is available for our Vehicles, if the effective price is such that it costs more to use our products than to use products powered by diesel, electricity or power provided through other means, we may be unable to compete successfully with our competition.
 
Our business will suffer if environmental policies change and no longer encourage the development and growth of clean power technologies.  The interest by automobile manufacturers in alt-fuel technology has been driven in part by environmental laws and regulations in California and, to a lesser extent, in New York, Massachusetts and Maine.  There is no guarantee that these laws and regulations will not change and any such changes could result in automobile manufacturers abandoning their interest in alt-fuel powered vehicles. In addition, if current laws and regulations in these states are not kept in force or if further environmental laws and regulations are not adopted in these and other jurisdictions, demand for alternative fuels for vehicles may be limited.  The market for stationary and portable energy-related products is influenced by federal, state and local governmental regulations and policies concerning the electric utility industry.  Changes in regulatory standards or public policy could deter further investment in the research and development of alternative energy sources, including electric production products, and could result in a significant reduction in the potential market demand for our Vehicles.  We cannot predict how changing government regulation and policies regarding the electric utility industry will affect the market for electric powered Vehicles.

Although the development of alternative energy sources, and in particular electric fueled products, has been identified as a significant priority by many governments, we cannot be assured that governments will not change their priorities or that any such change would not materially affect our revenues and our business.  If governments change their laws and regulations such that the development of alternative energy sources is no longer required or encouraged, the demand for alternative energy sources including our Vehicles may be significantly reduced or delayed and our sales would decline.

 
4

 
The development of uniform codes and standards for electric-powered vehicles and related electric recharging infrastructure may not develop in a timely fashion, if at all.  Uniform codes and standards do not currently exist for system components, electric drive conversion kits or for the use of electricity as a vehicle fuel.  Establishment of appropriate codes and standards is a critical element to allow electric fuel system developers, systems component developers, electric drive developers, to develop products that will be accepted in the marketplace.  The development of electric standards is being undertaken by numerous organizations.

We currently face and will continue to face significant competition from other developers and manufacturers of electric fueling technology and equipment.  If we are unable to compete successfully, we could experience a loss of market share, reduced gross margins for our existing products and a failure to achieve acceptance of our proposed products.

Competition in the markets for fuel cell power modules and our Vehicles are significant and will likely persist and intensify over time.  We compete directly and indirectly with a number of companies that provide vehicles and services that are competitive with all, some or part of our Vehicles and related services.  Many of our potential competitors have greater brand name recognition than us and their products may enjoy greater initial market acceptance among our potential customers.  In addition, many of these competitors have significantly greater financial, technical, sales, marketing, distribution, service and other resources than we have and may also be better able to adapt quickly to customers’ changing demands and to changes in technology.

If we are unable to continuously improve our Vehicles and if we cannot generate effective responses to our competitors’ brand power, product innovations, pricing strategies, marketing campaigns, partnerships, distribution channels, service networks and other initiatives, our ability to gain market share or market acceptance for our products could be limited, our revenues and our profit margins may suffer, and we may never become profitable.  We face competition for electric powered products from developers and manufacturers of traditional technologies and other alternative technologies.  Each of our target markets is currently served by existing manufacturers with existing customers and suppliers.  These manufacturers are working on developing technologies that use other types of alternative power technologies, fuel cells, advanced batteries and hybrid battery/internal combustion engines, which may compete for our target customers.  Given that PEM fuel cells have the potential to replace these existing power sources, competition in our target markets will also come from these traditional power technologies, from improvements to traditional power technologies and from new alternative power technologies, including various types of fuel cells.  In addition, we can expect the automobile industry to market cars with more efficient gasoline engines, to get more mileage per gallon of gasoline purchased.  A greater mph gasoline fueled vehicle will cause an effective drop in the cost of fuel for a user of such a vehicle and reduce consumer demand for our conversion kits.

We are dependent upon third party suppliers for key materials and components for our products.  If these suppliers become unable or unwilling to provide us with sufficient materials and components on a timely and cost-effective basis, we may be unable to assemble our Vehicles cost-effectively or at all, and our revenues and gross margins would suffer.

We rely upon third party suppliers to supply key materials and components for our Vehicles.  A supplier’s failure to supply materials or components in a timely manner, or to supply materials and components that meet our quality, quantity or cost requirements, or our inability to obtain substitute sources for these materials and components in a timely manner or on terms acceptable to us, may harm our ability to manufacture our products cost-effectively or at all, and our revenues and gross margins might suffer.  In particular, components that we integrate in our Vehicles need to be compatible with electric and/or alternate fuels.  To the extent materials need to be tested and replaced to ensure compatibility, we may experience delays in shipping our kits to potential customers.  
 
To the extent that we are unable to develop and patent our own technology and manufacturing processes, and to the extent that the processes which our suppliers use to manufacture materials and components are proprietary, we may be unable to obtain comparable materials or components from alternative suppliers, and that could adversely affect our ability to produce commercially viable products.

We will need to recruit, train and retain key management and other qualified personnel to successfully expand our business.  Our future success will depend in large part upon our ability to recruit and retain experienced research and development, engineering, manufacturing, operating, sales and marketing, customer service and management personnel.  We compete in a new market and there are a limited number of people with the appropriate combination of skills needed to provide the services that our customers will require.  Due to the emerging demand for qualified personnel in this industry, we expect to experience difficulty in recruiting qualified personnel.  If we do not attract such personnel, we may not be able to expand our business.  In addition, new employees generally require substantial training, which requires significant resources and management attention.  Our success also depends upon retaining our key management, research, product development, engineering, marketing and manufacturing personnel.  Even if we invest significant resources to recruit, train and retain qualified personnel, we may not be successful in our efforts.

We may not be able to manage successfully the expansion of our operations.  The pace of our expansion in facilities, staff and operations will place significant demands on our managerial, technical, financial and other resources.  We will be required to make significant investments in our logistics systems and our financial and management information systems, as well as retaining, motivating and effectively managing our employees.  Our management skills and systems currently in place may not enable us to implement our strategy or to attract and retain skilled management, engineering and production personnel.  Our failure to manage our growth effectively or to implement our strategy in a timely manner may significantly harm our ability to achieve profitability.

If we do not properly manage foreign sales and operations, our business could suffer.  We do not expect, initially, to invest our resources in foreign operations. However, as the price of gasoline is higher in many foreign countries than in the United States, we may determine to explore opportunities in foreign markets if we believe that a substantial portion of our future revenues could be derived from foreign sales of our kits and products.  Such international activities may be subject to inherent risks, including regulatory limitations restricting or prohibiting the provision of our products and services, unexpected changes in regulatory requirements, tariffs, customs, duties and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, fluctuations in currency exchange rates, foreign exchange controls that restrict or prohibit repatriation of funds, technology export and import restrictions or prohibitions, delays from customs brokers or government agencies, seasonal reductions in business activity and potentially adverse tax consequences resulting from operating in multiple jurisdictions.  As a result, if we do not properly manage foreign sales and operations, our business could suffer.

 
5

 
We intend to acquire technologies or companies in the future, and these acquisitions could disrupt our business and dilute our shareholders’ interests.  We intend to acquire other companies (and may acquire additional technologies) in the future and we cannot provide assurances that we will be able to successfully integrate their operations or that the cost savings we anticipate will be fully realized.  Entering into an acquisition or investment entails many risks, any of which could materially harm our business, including:
  • diversion of management’s attention from other business concerns;
  • failure to effectively assimilate the acquired technology, employees or other assets of the company into our  business;
  • the loss of key employees from either our current business or the acquired business; and
  • assumption of significant liabilities of the acquired company.
If we complete additional acquisitions, we may dilute the ownership of current shareholders.  In addition, achieving the expected returns and cost savings from our past and future acquisitions will depend in part upon our ability to integrate the products and services, technologies, research and development programs, operations, sales and marketing functions, finance, accounting and administrative functions, and other personnel of these businesses into our business in an efficient and effective manner.  We cannot ensure that we will be able to do so or that the acquired businesses will perform at anticipated levels.  If we are unable to successfully integrate acquired businesses, our anticipated revenues may be lower and our operational costs may be higher.

We have no experience manufacturing or assembling our products on a large scale basis, and if we do not develop adequate manufacturing and assembly processes and capabilities to do so in a timely manner, we may be unable to achieve our growth and profitability objectives.  We have manufactured and assembled only a limited number of products for prototypes and initial sales, and we have no experience manufacturing or assembling Vehicles on a large scale.  Although we will rely on third party manufactured, off-the-shelf components for our Vehicles, in order to produce certain of our Vehicles at affordable prices in the future we may have to manufacture certain, or all, of our components, in which case we would need to incur the costs associated with developing and operating a manufacturing facility.  In such case, we may not be able to develop efficient, low-cost manufacturing capabilities and processes that will enable us to meet the quality, price, engineering, design and production standards or production volumes required to successfully mass market such Vehicles.  Even if we are successful in developing our manufacturing capabilities and processes, we do not know whether we will do so in time to meet our Vehicle commercialization schedule or to satisfy the requirements of our customers and the market.  Our failure to develop these manufacturing processes and capabilities, if necessary, in a timely manner could prevent us from achieving our growth and profitability objectives.
 
Risk Factors Related To Our Vehicles and Technology
 
W e may never complete the development of commercially viable electric drive conversion kits for commercial short haul vehicles and/or other alternative energy applications, and if we fail to do so, we will not be able to meet our business and growth objectives. We expect install third party produced/manufactured electric drive systems for installation in our Vehicles.  To date, we have no such sales (and only one such system installed and operational) and have only been engaged in the business of assembling and marketing electric Vehicles for a short period of time.

Because our business and industry are still in the developmental stage, we do not know whether, or when, third party produced/manufactured products will be suitable for our intended uses, and whether or not we will be required to complete research and development of commercially viable products in order to meet our business objectives.  If we are unable to find third party produced/manufactured products suitable for our business objectives, we will be unable to meet our business and growth objectives.  If we determine to participate in the development of commercially viable products in order to meet our business goals, and refocus our energies on development and research, and are unsuccessful, we will be unable to meet our business and growth objectives.  Even if we were to be successful, the time to meeting our objectives would be increased substantially.

We expect to face unforeseen challenges, expenses and difficulties as a developing company seeking to be a reseller of third party designed, developed and manufactured new products in each of our targeted markets.  Our future success also depends upon our ability to effectively market electric fuel Vehicles.

We must work at all times to lower the cost of our electric Force Fuels kits (and installation costs) and demonstrate their reliability, or consumers will be unlikely to purchase our products and we will therefore not generate sufficient revenues to achieve and sustain profitability.  The ultimate cost of electric technology and electric fuel-based products is not fully tested and known.  The prices of electric generation products are dependent largely upon material and manufacturing costs.  We cannot guarantee that we will be able to lower these costs to a level where we will be able to produce and/or sell a competitive product or that any product we produce using lower cost materials and manufacturing processes will not suffer from lower performance, reliability and longevity.  If third party providers are unable to produce and distribute electric and/or alternative fuel generation products that are competitive with other technologies in terms of price, performance, reliability and longevity, consumers will be unlikely to buy our Vehicles.  Accordingly, we would not be able to generate sufficient revenues with positive gross margins to achieve and sustain profitability.

Any failures or delays in field tests of our products could negatively affect our customer relationships and increase our manufacturing costs.  We intend to regularly field test our Vehicles and we plan to conduct additional field tests in the future.  Any failures or delays in our field tests could harm our competitive position and impair our ability to sell our Vehicles.  Our field tests may encounter problems and delays for a number of reasons, including the failure of our technology, the failure of the technology of others, the failure to combine these technologies properly, operator error and the failure to maintain and service the test prototypes properly.  Many of these potential problems and delays will be beyond our control.  In addition, field test programs, by their nature, may involve delays relating to product roll-out and modifications to product design, as well as third party involvement.  Any problem or perceived problem with our field tests, whether it originates from our technology, our design, or third parties, could hurt our reputation and the reputation of our Vehicles and limit our sales.  Such field test failures may negatively affect our relationships with customers, require us to extend field testing longer than anticipated before undertaking commercial sales and/or require us to develop further our technology to account for such failures prior to the field tests, thereby increasing our manufacturing costs.

 
6

 
The components of our products may contain defects or errors that could negatively affect our customer relationships and increase our development, service and warranty costs.  Our products are complex and must meet the stringent technical requirements of our customers.  The software, electrical circuitry and other components used in our conversion kits may contain undetected defects or errors, especially when first introduced, which could result in the failure of our products to perform, damage to our reputation, delayed or lost revenue, product returns, diverted development resources and increased development, service and warranty costs.

Our business may become subject to additional future product certification regulations, which may impair our ability to market our products.  We must obtain product certification from governmental agencies, such as the U.S. EPA and the CARB, to sell certain of our Vehicles in the United States and internationally.  A significant portion of our future sales will depend upon sales of Vehicles that are certified to meet existing and future air quality and energy standards.  We cannot assure you that our products will continue to meet these standards.  The failure to comply with these certification requirements could result in the recall of our products or in civil or criminal penalties.
 
The development of uniform codes and standards for electric fuel cell vehicles and related electric refueling infrastructure may not develop in a timely fashion.  Uniform codes and standards do not currently exist for the use of electric as a vehicle fuel.  Establishment of appropriate codes and standards is a critical element to allow alt-fuel system developers, fuel cell component developers and electric storage and handling companies to develop products that will be accepted in the marketplace.

All fuels, including electric, pose significant safety hazards, and electric vehicles have not yet been widely used under “real-world” driving conditions.  Ensuring that electric fuel is safe for use by the driving public requires that appropriate codes and standards be established that will address certain characteristics of electric and the safe handling of electric fuels.  The development of electric fuel applicable standards is being undertaken by numerous organizations, including the American National Standards Institute, the American Society of Mechanical Engineers, the European Integrated Electric Project, the International Code Council, the International Standards Organization, the National Fire Protection Association, the National Electric Association, the Society of Automotive Engineers, the Canadian Standards Association, the American National Standards Institute and the International Electrotechnical Commission. Given the number of organizations pursuing electric and fuel cell codes and standards, it is not clear whether universally accepted codes and standards will result and, if so, when.  Although many organizations have identified as a significant priority the development of codes and standards, we cannot assure you that any resulting codes and standards would not materially affect our revenue or the commercialization of our products.

We anticipate that regulatory bodies will establish certification procedures and impose regulations on electric enabling technologies, alt-fuel technologies and hybrid fuel technologies and products which may impair our ability to distribute, install and service our Vehicles.  Any new government regulation that affects fuel technologies, whether at the foreign, federal, state or local level, including any regulations relating to installation and servicing of these systems, may increase our costs and the price of our Vehicles.  As a result, these regulations may have a negative impact on our business, results of operations and financial condition.

Failure to comply with applicable environmental and other laws and regulations could adversely affect our business and harm our results of operations.  Our product and component suppliers use hazardous materials in research and development and manufacturing processes, and as a result are subject to federal, state, local and foreign regulations governing the use, storage, handling and disposal of these materials and hazardous waste products that are generated.  It is possible that the materials used in assembling the Vehicles may also generate hazardous waste products.  Although we believe that our procedures for using, handling, storing and disposing of hazardous materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials and we may incur liability as a result of any such contamination or injury.  In the event of an accident, including a discharge of hazardous materials into the environment, we could be held liable for damages or penalized with fines, and the liability could exceed our insurance and other resources.  We may incur expenses related to compliance with environmental laws.  Such future expenses or liability could have a significant negative impact on our business, financial condition and results of operations.  Further, we cannot assure you that the cost of complying with these laws and regulations will not materially increase in the future.

We are also subject to various other federal, state, local and foreign laws and regulations.  Failure to comply with applicable laws and regulations, including new or revised safety or environmental standards, could give rise to significant liability and require us to incur substantial expenses and could materially harm our results of operations.

New technologies could render our existing Vehicles obsolete.  New developments in technology may negatively affect the development or sale of some or all of our Vehicles or make our Vehicles obsolete.  A range of other technologies could compete with fuel cell, electric or alternative fuel technologies on which our automotive OEM business is currently focused, including electric vehicles, and methanol-based fuel cell vehicles that require fuel reformation.  Our success depends upon our ability to design, develop and market newer Vehicles.  Our inability to enhance existing Vehicles in a timely manner or to develop and introduce new Vehicles that incorporate new technologies, conform to increasingly stringent emission standards and performance requirements and achieve market acceptance in a timely manner could negatively impact our competitive position. New Vehicle development or modification is costly, involves significant research, development, time and expense and may not necessarily result in the successful commercialization of any new Vehicles.

Changes in environmental policies could hurt the market for our products.  The market for alternative fuel vehicles and equipment and the expected demand for our Vehicles will be driven, to a significant degree, by local, state and federal regulations that relate to air quality, greenhouse gases and pollutants, and that require the purchase of motor vehicles and equipment operating on alternative fuels. Similarly, foreign governmental regulations may also affect our international business, if any.  These laws and regulations may change, which could result in transportation or equipment manufacturers abandoning or delaying their interest in alternative fuel and fuel cell powered vehicles or equipment.  In addition, a failure by authorities to enforce current domestic and foreign laws or to adopt additional environmental laws could limit the demand for our products.  Although many governments have identified as a significant priority the development of alternative energy sources, and fuel cells in particular, we cannot assure you that governments will not change their priorities or that any change they make would not materially affect our revenue or the development of our Vehicles.
 
 
7

 
Rapid technological advances or the adoption of new codes and standards could impair our ability to deliver our Vehicles in a timely manner and, as a result, our revenues would suffer.  Our success depends in large part on our ability to keep our Vehicles current and compatible with evolving technologies, codes and standards.  Unexpected changes in technology or in codes and standards could disrupt the development of our Vehicles and prevent us from meeting deadlines for the delivery of Vehicles.  If we are unable to keep pace with technological advancements and adapt our Vehicles to new codes and standards in a timely manner, our products may become uncompetitive or obsolete and our revenues would suffer.

We depend upon intellectual property and our failure to protect that intellectual property could adversely affect our future growth and success.  Failure to protect our intellectual property rights may reduce our ability to prevent others from using our technology.  We will rely on a combination of patent, trade secret, trademark and copyright laws to protect our intellectual property, which at this stage consists primarily of trade secrets regarding the configuration of off-the-shelf components and energy management technology.  Some of our intellectual property is currently not covered by any patent or patent application.  Patent protection is subject to complex factual and legal criteria that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent. Accordingly, we cannot be assured that:
  • any of the United States, Canadian or other trade secrets and/or patents owned by us in the future or third party trade secrets and/or patents licensed to us will not be invalidated, circumvented, challenged, rendered unenforceable, or licensed to others; or
  • any of our future patent applications will be issued with the breadth of protection that we seek, if at all.
In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited, not applied for or unenforceable in foreign countries.

We may enter into third party licenses, which by their terms may limit or preclude us, as the case may be, in the exploitation of certain intellectual property rights.  Although we expect to retain sole ownership of the intellectual property we develop, any alliance with third parties may provide for shared intellectual property rights in certain situations.  Where intellectual property is developed pursuant to our use of technology licensed from a third party, we may be required to commit to provide certain exclusive or non-exclusive licenses in favor of said party, and in some cases the intellectual property may be jointly owned.  We may also enter into agreements with other customers and partners that involve shared intellectual property rights.  Any developments made under these agreements would be available for future commercial use by all parties to the agreement.

We depend on our intellectual property, and our failure to protect that intellectual property could adversely affect our future growth and success.  Our failure to protect our existing and/or future intellectual property rights may result in the loss of exclusivity or the right to use our technologies.  If we do not adequately ensure our freedom to use certain technology, we may have to pay others for rights to use their intellectual property, pay damages for infringement or misappropriation, and/or be enjoined from using such intellectual property.

We have not conducted formal evaluations to confirm that our technology and Vehicles do not or will not infringe upon the intellectual property rights of third parties.  As a result, we cannot be certain that our technology and products do not or will not infringe upon the intellectual property rights of third parties.  If infringement were to occur, our development, manufacturing, sales and distribution of such technology or products may be disrupted.

Some of our proprietary intellectual property is not protected by any patent or patent application, and, despite our precautions, it may be possible for third parties to obtain and use such intellectual property without authorization.  We intend to seek to protect proprietary intellectual property in part by confidentiality agreements and, if applicable, inventors’ rights agreements with strategic partners and employees, although such agreements have not been and may not be put in place in every instance.  We cannot guarantee that these agreements will adequately protect our trade secrets and other intellectual property or proprietary rights.  In addition, we cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships.  Furthermore, the steps we have taken and may take in the future may not prevent misappropriation of our solutions or technologies, particularly in respect of officers and employees who are no longer employed by us or in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

We may seek to protect our proprietary intellectual property through contracts including, when possible, confidentiality agreements and inventors’ rights agreements with our customers and employees.  We cannot be sure that the parties that enter into such agreements with us will not breach them, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships.  If necessary or desirable, we may seek licenses under the patents or other intellectual property rights of others.  However, we cannot be sure that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us.  Our failure to obtain a license from a third party for intellectual property we use in the future could cause us to incur substantial liabilities and to suspend the manufacture and shipment of products or our use of processes which exploit such intellectual property.
 
 
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Our failure to obtain or maintain the right to use certain intellectual property may negatively affect our business.  Our future success and competitive position depends in part upon our ability to obtain or maintain certain proprietary intellectual property used in our principal products.  This may be achieved, in part, by prosecuting claims against others who we believe are infringing our rights and by defending claims of intellectual property infringement brought by others.  While we are not currently engaged in any intellectual property litigation, in the future we may commence lawsuits against others if we believe they have infringed our rights, or we may become subject to lawsuits alleging that we have infringed the intellectual property rights of others.  For example, to the extent that we have previously incorporated third-party technology and/or know-how into certain products for which we do not have sufficient license rights, we could incur substantial litigation costs, be forced to pay substantial damages or royalties, or even be forced to cease sales in the event any owner of such technology or know-how were to challenge our subsequent sale of such products (and any progeny thereof).  In addition, to the extent that we discover or have discovered third-party patents that may be applicable to products or processes in development, we may need to take steps to avoid claims of possible infringement, including obtaining non-infringement or invalidity opinions and, when necessary, re-designing or re-engineering Vehicles.  However, we cannot assure you that these precautions will allow us to successfully avoid infringement claims.  Our involvement in intellectual property litigation could result in significant expense to us, adversely affect the development of sales of the challenged Vehicle or intellectual property and divert the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor.  In the event of an adverse outcome in any such litigation, we may, among other things, be required to:
  • pay substantial damages;
  • cease the development, manufacture, use, sale or importation of products that infringe upon other patented intellectual property;
  • expend significant resources to develop or acquire non-infringing intellectual property;
  • discontinue processes incorporating infringing technology; or
  • obtain licenses to the infringing intellectual property.
We cannot assure you that we would be successful in any such development or acquisition or that any such licenses would be available upon reasonable terms, if at all.  Any such development, acquisition or license could require the expenditure of substantial time and other resources and could have a material adverse effect on our business, results of operations and financial condition.

Our involvement in intellectual property litigation could negatively affect our business.  Our future success and competitive position depend in part upon our ability to obtain or maintain the proprietary intellectual property used in our principal products.  In order to establish and maintain such a competitive position we may need to prosecute claims against others who we believe are infringing our rights and defend claims brought by others who believe that we are infringing their rights.  Our involvement in intellectual property litigation could result in significant expense to us, redirect our energies and resources, adversely affect the sale of any Vehicles involved or the use or licensing of related intellectual property and divert the efforts of our technical and management personnel from their principal responsibilities, regardless of whether such litigation is resolved in our favor. If we are found to be infringing on the intellectual property rights of others, we may, among other things, be required to:
  • pay substantial damages;
  • cease the development, manufacture, use, sale or importation of Vehicles that infringe upon such intellectual property rights;
  • discontinue processes incorporating the infringing technology;
  • expend significant resources to develop or acquire non-infringing intellectual property; or
  • obtain licenses to the relevant intellectual property.
We cannot offer any assurance that we will prevail in any such intellectual property litigation or, if we were not to prevail in such litigation, that licenses to the intellectual property that we are found to be infringing upon would be available on commercially reasonable terms, if at all.  The cost of intellectual property litigation as well as the damages, licensing fees or royalties that we might be required to pay could have a material adverse effect on our business and financial results.

Our products use flammable fuels that are inherently dangerous substances and could subject us to product liabilities.  Our financial results could be materially impacted by accidents involving either our Vehicles or those of other manufacturers, either because we face claims for damages or because of the potential negative impact on demand for electric fuel products.  Some of our Vehicles will use commercially produced/sold electric, which is typically generated from gaseous and liquid fuels such as propane, natural gas or methanol in a process known as reforming.  While our Vehicles do not use these fuels in a combustion process, natural gas, propane and other hydrocarbons are flammable fuels that could leak and then combust if ignited by another source.  In addition, certain of our OEM [original equipment manufacturer] partners and customers may experience significant product liability claims. As a supplier/buyer of products, components and systems to/from these OEMs, we may face an inherent business risk of exposure to product liability claims in the event that their/our products, or the equipment into which their/our products are incorporated, malfunction and result in personal injury or death.  
 
 
 
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We may be named in product liability claims even if there is no evidence that our systems or components caused the accidents.  Product liability claims could result in significant losses from expenses incurred in defending claims or the award of damages.  Since our products have not yet gained widespread market acceptance, any accidents involving our systems could materially impede acceptance of our products. In addition, although our management believes that the company will at all times be able to maintain liability coverage in an amount adequate to cover these risks, we may be held responsible for damages beyond the scope of our insurance coverage.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
During the six months ended January 31, 2010, the Company sold convertible promissory notes in the principal amount of $115,658 in unregistered sales to accredited investors.  Such sales were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and Regulation D.  The proceeds of the convertible notes were used for working capital and developing the Company's new business plan.
 
Defaults Upon Senior Securities
 
None.
 
Submission of Matters to a Vote of Shareholders
 
None.
 
Other Information
 
None.
 
Exhibits
 
Please see Exhibit Index located behind the signature page, which is incorporated herein by this reference.
 
 
 
 
 
 
 
 
 
 
 
 
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
FORCE FUELS, INC.
 
       
Date: March 22, 2010
By:
/s/ Oscar Luppi
 
   
Oscar Luppi
 
   
President, Chief Executive Officer
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Exhibit No.
 
Description
     
10.1
 
Amendment to Assignment and Contribution Agreement with ICE Conversions dated December 15, 2010
     
31
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
  

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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