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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, 2011

 

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)



1503 South Coast Dr. Ste. 206      Costa Mesa CA 92626

(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: 8,741,875 shares of Common Stock, as of March 15, 2011.

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-14

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Conditions and Results of Operations

1

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

5

 

 

 

 

 

Item 4.

Controls and Procedures

5

 

 

 

 

PART II - OTHER INFORMATION

5

 

 

 

Item 1.

Legal Proceedings

5

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

6

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

7

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

7

 

 

 

 

 

Item 5.

Other Information

7

 

 

 

 

 

Item 6.

Exhibits

7

 

 

 

 

SIGNATURES

7

   

EXHIBIT INDEX

8



 

 

PART I – FINANCIAL INFORMATION

Item 1.

Unaudited Financial Statements



 

FORCE FUELS, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

October 31, 2010 and 2009
 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Contents

Page(s)

 

 

Consolidated Balance Sheets at January 31, 2011 (Unaudited) and July 31, 2010 

F-2

 

 

Consolidated Statements of Operations for the Three and Six Month Periods Ended January 31, 2011 and 2010, and from Inception on July 15, 2002 through January 31, 2011 (Unaudited)

F-3

 

 

Consolidated Statements of Stockholders’ Equity (Deficit) for the period from July 15, 2002 (inception) through January 31, 2011 (Unaudited)

F-4 - F-5

 

 

Consolidated Statements of Cash Flows for the Six Month Periods Ended January 31, 2011 and 2010, and for the period from Inception on July 15, 2002 through January 31, 2011 (Unaudited)

F-6 - F-7

 

 

Notes to the Consolidated Financial Statements (Unaudited)

F-8 to F-15




  
  
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 

 

F-1

 

FORCE FUELS, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

 

January 31, 2011

July 31, 2010

 

(Unaudited)

 

ASSETS

   

CURRENT ASSETS:

   

     Cash

$

3,000

$

86,842

     Account receivable, net

-

7,451

     Inventory, net

29,689

81,980

     Deposits and prepaid expenses

2,723

10,000

     Note receivable - related

 

2,500

 

-

 

   

          Total Current Assets

 

37,912

 

186,273

 

   
LONG-TERM ASSETS:              

     Deposits

    12,638    

 -

 

     Oil and gas property, net

1,259,070

1,258,292

     Property and equipment, net

 

123,483

 

133,361

               

          Total Long-Term Assets

 

1,395,191

 

1,391,653

               
               Total Assets

$

1,443,103

$

1,577,926

 

   

LIABILITIES AND STOCKHOLDERS' DEFICIT

   

CURRENT LIABILITIES:

   

     Accounts payable and accrued expenses

$

239,772

$

224,258

     Notes payable, net

253,066

139,747

     Convertible notes payable, net

25,000

-

     Notes payable for acquisition of oil and gas property, net

1,352,265

1,368,121

     Accrued officer salaries

 

536,663

 

310,830

 

   

          Total Current Liabilities

2,406,766

2,042,956

     

NON CURRENT LIABILITIES:

   

     Asset retirement obligation

 

37,400

 

36,622

     

          Total Non Current Liabilities

 

37,400

 

36,622

 

   

               Total Liabilities

2,444,166

2,079,578

 

   

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;

   

       8,541,875 and 6,475,129 shares issued, respectively

8,542

6,475

     Additional paid-in capital

3,196,633

2,543,518

     Deficit accumulated during development stage

 

(4,216,238)

 

 

(3,051,645)

 

 

   

          Total Stockholders' Deficit

 

(1,011,063)

 

 

(501,652)

 

 

   

               Total Liabilities and Stockholders' Deficit

$

1,443,103

$

1,577,926



The accompanying notes are an integral part of these consolidated financial statements.

F-2

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

         

For the Period

         

from July 15,

 

For the Three Months Ended

For the Six Months Ended

2002 (inception)

January 31,

January 31,

through January

2011

2010

2011

2010

31, 2011

           

REVENUES:

         

Oil and gas

$

8,909

$

-

$

41,758

$

-

$

49,209

           

COST OF SALES

 

9,712

 

-

 

52,291

 

-

 

52,291

           

GROSS PROFIT (LOSS)

 

(803)

 

 

-

 

(10,533)

 

 

-

 

(3,082)

 

           

OPERATING EXPENSES:

         

 

         

     Well operating costs

15,000

-

30,394

-

55,394

     Depreciation on well operating equipment

4,939

-

9,878

-

9,878

     Research and development

-

-

-

-

115,434

     Salary and wages - officers

120,328

17,500

221,160

72,500

550,740

     Impairment of intellectual property rights

-

-

-

-

344,000

     Stock based compensation

-

410,210

-

335,210

494,933

     General and administrative expenses

 

401,538

 

116,642

 

589,185

 

175,362

 

1,963,533

 

         

          Total operating expenses

 

541,805

 

544,352

 

850,617

 

583,072

 

3,533,912

 

         

NET LOSS FROM OPERATIONS

(542,608)

 

(544,352)

 

(861,150)

 

(583,072)

 

(3,536,994)

 

 

         

OTHER INCOME (EXPENSES) :

         

     Loss on settlement of debt

-

-

(225,000)

 

-

(535,014)

 

     Loss on disposal of assets

-

-

-

-

(19,915)

 

     Interest expense

 

(16,204)

 

 

(2,802)

 

 

(78,443)

 

 

(4,573)

 

 

(124,315)

 

           

          Total other income (expenses)

 

(16,204)

 

 

(2,802)

 

 

(303,443)

 

 

(4,573)

 

 

(679,244)

 

           

NET LOSS BEFORE TAXES

(558,812)

 

(547,154)

 

(1,164,593)

 

(587,645)

 

(4,216,238)

 

 

         

INCOME TAXES

 

-

 

-

 

-

 

-

 

-

 

         

NET LOSS

$

(558,812)

$

(547,154)

$

(1,164,593)

$

(587,645)

$

(4,216,238)

 

         

NET LOSS PER COMMON SHARE

         

- BASIC AND DILUTED:

$

(0.07)

$

(0.10)

$

(0.16)

$

(0.10)

 

 

         

Weighted Average Common Shares Outstanding

         

- basic and diluted

 

7,966,875

 

5,472,541

 

7,508,502

 

5,911,967

 


The accompanying notes are an integral part of these consolidated financial statements.

F-3

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

         

Deficit

 

Accumulated

Total

Common Stock

Additional

During the

Stockholders'

 

Number of

 

Paid-in

Treasury

Development

Equity

 

Shares

Par Value

Capital

Stock

Stage

(Deficit)

                         

Balance at inception on July 15, 2002

 

-

$

-

$

-

$

-

$

-

$

-

                         

Common shares issued in March, 2006 for

                       

   cash at an average price of $2.43 per share

 

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)

 

                         

Treasury stock purchased in June, 2006

 

-

 

-

 

-

 

(75,000)

 

 

-

 

(75,000)

 

                         

Net loss for the period from inception on

                       

   July 15, 2002 through July 31, 2006

 

-

 

-

 

-

 

-

 

(30,873)

 

 

(30,873)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2006

 

1,225,000

 

1,225

 

415,275

 

(310,000)

 

 

(30,873)

 

 

75,627

                         

Net loss for the year ended July 31, 2007

 

-

 

-

 

-

 

-

 

(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 in May, 2008

 

(1,100,000)

 

 

(1,100)

 

 

(308,900)

 

 

310,000

 

-

 

-

                         

Common shares issued in May, 2008 for

                       

   services rendered at $0.03 per share

 

3,700,000

 

3,700

 

107,300

 

-

 

-

 

111,000

                         

Common shares issued in June, 2008 for

                       

   services rendered at $0.03 per share

 

2,797,763

 

2,798

 

81,135

 

-

 

-

 

83,933

                         

Common shares issued in June, 2008 at

                       

   $0.03 per share in connection with assets

                       

   assignment agreement

 

1,000,000

 

1,000

 

29,000

 

-

 

-

 

30,000

                         

Net loss for the year ended July 31, 2008

 

-

 

-

 

-

 

-

 

(269,356)

 

 

(269,356)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2008

 

7,622,763

 

7,623

 

323,810

 

-

 

(370,033)

 

 

(38,600)

 

                         

Common shares issued in February, 2010

                       

   for services rendered at $0.10 per share

 

60,000

 

60

 

5,940

 

-

 

-

 

6,000

                         

Net loss for the year ended July 31, 2009

 

-

 

-

 

-

 

-

 

(399,723)

 

 

(399,723)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2009

 

7,682,763

$

7,683

$

329,750

$

-

$

(769,756)

$

(432,323)



The accompanying notes are an integral part of these consolidated financial statements.

F-4

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

         

Deficit

 
         

Accumulated

Total

 

Common Stock

Additional

 

During the

Stockholders'

 

Number of

 

Paid-in

Treasury

Development

Equity

 

Shares

Par Value

Capital

Stock

Stage

(Deficit)

             

Balance, July 31, 2009

 

7,682,763

$

7,683

$

329,750

$

-

$

(769,756)

$

(432,323)

                         

Common shares issued in October, 2009

                       

   for signing bonus at $0.30 per share

 

1,000,000

 

1,000

 

299,000

 

-

 

-

 

300,000

                         

Common shares issued in January, 2010

                       

   for services rendered at $0.30 per share

 

1,122,366

 

1,122

 

335,588

 

-

 

-

 

336,710

                         

Common shares issued in March, 2010

                       

   for services rendered at $0.30 per share

 

172,000

 

172

 

51,428

 

-

 

-

 

51,600

                         

Common shares issued in April, 2010

                       

   upon conversion of debt at an average

                       

   price of $4.07 per share

 

138,000

 

138

 

561,476

 

-

 

-

 

561,613

                         

Issuance of shares in June, 2010 for

                       

   as a loan inducement fee

                       

   at $0.89 per share

 

150,000

 

150

 

133,350

 

-

 

-

 

133,500

                         

Common shares issued in July, 2010

                       

   upon conversion of promissory

                       

   note at $0.94 per share

 

10,000

 

10

 

9,390

 

-

 

-

 

9,400

                         

Cancellation of common shares

 

(3,800,000)

 

 

(3,800)

 

 

3,800

 

-

 

-

 

-

                         

Forgiveness of debt by shareholder

 

-

 

-

 

739,689

 

-

 

-

 

739,689

                         

Fair value of warrants granted

 

-

 

-

 

80,047

 

-

 

-

 

80,047

                         

Net loss for the year ended July 31, 2010

 

-

 

-

 

-

 

-

 

(2,281,889)

 

 

(2,281,889)

 

                         

Balance, July 31, 2010

 

6,475,129

 

6,475

 

2,543,518

 

-

 

(3,051,645)

 

 

(501,652)

 

                         

Common shares issued in August, 2010

                       

   for prepaid consulting fees at

                       

   $0.65 per share (unaudited)

 

50,000

 

50

 

32,450

 

-

 

-

 

32,500

                         

Common shares issued in August, 2010

                       

   for consulting services at $1.05 per share (unaudited)

 

31,746

 

32

 

33,300

 

-

 

-

 

33,332

                         

Common shares issued in August, 2010

                       

   for consulting services at $0.65 per share (unaudited)

 

100,000

 

100

 

64,900

 

-

 

-

 

65,000

                         

Common shares issued in September, 2010

                       

   upon default on promissory note at

                       

   $0.45 per share (unaudited)

 

500,000

 

500

 

224,500

 

-

 

-

 

225,000

                         

Common shares issued in September, 2010

                       

   as loan inducement fee at $0.26 per share (unaudited)

 

60,000

 

60

 

15,540

 

-

 

-

 

15,600

                         

Common shares issued in October, 2010

                       

   for prepaid consulting fees at

                       

   $0.45 per share (unaudited)

 

150,000

 

150

 

67,350

 

-

 

-

 

67,500

                         

Common shares issued in October, 2010

                       

   for consulting services at $0.45 per share (unaudited)

 

25,000

 

25

 

11,225

 

-

 

-

 

11,250

                         

Common shares issued in November, 2010

   for consulting services at $0.35 per share (unaudited)

300,000

300

104,700

-

-

105,000

                                 

Common shares issued in December, 2010

 

   for services at $0.20 per share (unaudited)

150,000

150

29,850

-

-

30,000

                                       

Common shares issued in January, 2011

 

   for services at $0.10 per share (unaudited)

700,000

700

69,300

-

-

70,000

                                       

Net loss for the six months ended

                       

   January 31, 2011 (unaudited)

 

-

 

-

 

-

 

-

 

(1,164,593)

 

 

(1,164,593)

 

                         

Balance, January 31, 2011 (unaudited)

 

8,541,875

$

8,542

$

3,196,633

$

-

$

(4,216,238)

$

(1,011,064)

 


The accompanying notes are an integral part of these consolidated financial statements.

F-5

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

     

For the Period

     

from July 15,

 

For the Six Months Ended

2002 (inception)

January 31,

through January

 

2011

2010

31, 2011

       

CASH FLOWS FROM OPERATING ACTIVITIES:

     

 Net Loss

(1,164,593)

 

(587,645)

 

(4,216,238)

 

  

     

 Adjustments to reconcile net loss to net cash

     

 used in operating activities

     

     Depreciation

9,878

1,734

19,152

     Amortization of intangible assets

-

21,500

86,000

     Impairment of intellectual property rights

-

-

344,000

     Loss on settlement of debt

225,000

-

535,014

     Loss on disposal of assets

-

-

19,915

     Amortization of discount on debt

62,463

-

95,298

     Stock based compensation

-

-

300,000

     Common stock issued for services

430,183

290,209

1,152,926

     Fair value of warrants

-

-

40,063

 Changes in operating assets and liabilities:

     

     Accounts receivable

7,451

-

-

     Inventory

52,291

-

52,291

     Deposits and prepaid expenses

(5,361)

 

-

(5,361)

 

     Other current assets

-

-

-

     Accounts payable and accrued expenses

15,513

47,901

230,272

     Accrued salaries

 

225,833

 

-

 

536,663

       

 NET CASH USED IN OPERATING ACTIVITIES

 

(141,342)

 

 

(226,301)

 

 

(810,005)

 

       

 CASH FLOWS FROM INVESTING ACTIVITIES:

     

  Note receivable - related party

(2,500)

 

-

(2,500)

 

  Purchase of test equipment

 

-

 

-

 

(24,250)

 

       

 NET CASH USED IN INVESTING ACTIVITIES

 

(2,500)

 

 

-

 

(26,750)

 

       

 CASH FLOWS FROM FINANCING ACTIVITIES:

     

 Proceeds from sale of common stock

-

-

501,000

 Payment of common stock to be issued

-

-

(75,000)

 

 Purchase of treasury stock

-

-

(310,000)

 

 Proceeds from notes payable

105,000

115,658

523,566

Repayment of notes payable

(45,000)

 

-

(145,000)

 

 Due to related parties

 

-

 

131,750

 

345,189

       

 NET CASH PROVIDED BY FINANCING ACTIVITIES

60,000

247,408

839,755

       

 NET CHANGE IN CASH & CASH EQUIVALENTS

(83,842)

 

21,107

3,000

  

     

 Cash & Cash Equivalents at Beginning of Period

 

86,842

 

-

 

-

       

 Cash & Cash Equivalents at End of Period

 

3,000

 

21,107

 

3,000



The accompanying notes are an integral part of these consolidated financial statements.

F-6

FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

For the Six Months Ended
January 31,

For the period from July 15, 2002 (inception) through
January 31,

   

2011

   

2010

2011

                   

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

                 
                   

   Interest paid

 

$

-

   

$

6,545

$

-

   Income tax paid

 

$

-

   

$

-

$

-

                   

 NON-CASH INVESTING AND AND FINANCING ACTIVITIES:

                 
                   

Issuance of shares and debt for purchase of intellectual property rights

 

$

-

   

 

-

$

430,000

Forgiveness of debt from related party

 

$

-

   

 

-

$

739,689

Issuance of promissory note for investment in oil lease rights and related assets

 

$

-

   

 

-

$

1,500,000



 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-7

FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Force Fuels, Inc. and Subsidiary is presented to assist in understanding the Company’s consolidated financial statements. Collectively, these entities are referred to hereafter as “the Company.” The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their collective integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the Unites States of America, as well as standards of the Public Company Accounting Oversight Board (United States) and have been consistently applied in the preparation of the consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Operating results for the six months ended January 31, 2011 are not necessarily indicative of the results that may be expected for the year ending July 31, 2011.

Organization and Business Activities

Force Fuels, Inc. (“the Company”)(a development stage company) was incorporated under the laws of the State of Nevada in July 2002 as DSE Fishman, Inc.  On May 14, 2008 the Company changed its corporate name to Force Fuels, Inc.  The primary products of the Company are regulated and standardized energy-based products. These energy-based products include traditional hydrocarbon-based oil and gas as well as “green” or “alternative” energy, which includes solar and wind.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, Great American, Inc., Force Fuels Services, Inc., and Cheetah Motor Corporation.  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 ASC 915.  The Company is still devoting substantially all of its efforts to establishing the businesses. 

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.

F-8

FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and equipment, net

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated 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. The capitalized cost of the oil properties will be amortized based on the units-of-production method.  Costs incurred for property acquisition and further development activity will be capitalized and amortized as previously noted.

Revenue recognition

The Company follows the guidance of ASC 605 for revenue recognition.  The Company recognizes revenues when they are 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 of oil purchased from third parties and/or produced by its wells.

The Company uses the sales method to account for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on the interest in the properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves. Costs associated with production are expensed in the period incurred.

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.

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.

F-9

FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventory

The Company’s inventory at January 31, 2011 consists of purchased barrels of oil. The inventory is accounted for on a First-In-First-Out (FIFO) basis, and is valued at the lower of cost or market. Inventory is evaluated periodically by management for potential impairment issues.

Oil and Gas Properties, Successful Efforts Method

The Company uses the successful efforts method of accounting for oil and gas producing activities. Under the successful efforts method, costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed as incurred. The Company evaluates its proved oil and gas properties for impairment on a field-by-field basis whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. The Company follows ASC 360 for these evaluations. Unamortized capital costs are reduced to fair value if the undiscounted future net cash flows from our interest in the property’s estimated proved reserves are less than the asset’s net book value.

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.

Under ASC 932, drilling costs for exploratory wells are initially capitalized but generally must be charged to expense unless the wells are determined to be successful within one year after completion of drilling. Circumstances that permit continued capitalization of exploratory drilling costs are addressed by ASC 932. The one-year limitation may be exceeded for an exploratory well only if sufficient reserves have been found to justify its completion and sufficient progress has been made in assessing the reserves and the economic and operating viability of the project. If the exploratory well does not meet both criteria, its capitalized costs are expensed, net of any salvage value. Annual disclosures are required under ASC 932 to provide information about management’s evaluation of capitalized exploratory well costs, including disclosure of (i) net changes from period to period in the costs for wells that are pending the determination of proved reserves, (ii) the amount of any exploratory well costs that have been capitalized for more than one-year after the completion of drilling and (iii) an aging of suspended exploratory well costs and the number of wells affected. 

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income. On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.


FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently issued accounting pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. 

In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167.

In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. 

In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1.

In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.

In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. 


FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently issued accounting pronouncements

In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009.

The Company has reviewed the above pronouncements and does not expect any of the provisions to have a material effect on the financial position, results of operations or cash flows of the Company.

NOTE 2 - 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 and marketing of hydrogen/electric hybrid automobiles, the Company has focused on the process of acquiring oil producing properties and on April 23 entered into an agreement with Pemco, LLC, to acquire thirteen oil producing properties.

As reflected in the accompanying consolidated financial statements, the Company had a deficit accumulated during development stage of $4,216,238 at January 31, 2011 and had a net loss of $1,164,593 for the six months ended January 31, 2011 with minimal revenues since inception.  Although the Company has recorded minimal revenues through January 31, 2011, these revenues pertain to sales of purchased oil and gas inventory, as opposed to oil and gas removed from the ground by the Company.

While the Company is attempting to grow operations and generate a reliable flow of 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.


FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 3 – PURCHASE OF OIL PROPERTIES

On April 23, 2010 the Company entered into an agreement with Pemco LLC to acquire thirteen oil producing properties.  The cost of the properties aggregated $1,500,000 (including all of the associated equipment already in place amounting to $138,300 and approximately one thousand, two hundred seventy one (1,271) barrels of oil in storage amounting to $81,980 which has been considered as inventory. A deposit of $100,000 was paid at closing which reduced the amount due and owing to Pemco to $900,000, to be secured through a collateralized non-interest bearing promissory note to be paid, in equal monthly installments of $100,000,  commencing one month after the initial closing and continuing for nine months. The Company has paid $45,000 on this balance through January 31, 2011.  The remaining balance of $500,000 is to be paid to Energy Recovery Systems. The terms of the agreement with Energy Recovery Systems were not finalized as of the date of this report. Through January 31, 2011 The Company has imputed $55,315 of interest on the promissory notes at the rate of 10% per annum.
 

   

January 31, 2011

    July 31, 2010  

Note payable to ERS, unsecured, due November 30, 2010

 

500,000

 

 

$

500,000

  

Note payable to Pemco, unsecured, due February 23, 2011    

 855,000

     

900,000

 
Discount for imputed interest    

(2,735)

     

(31,879)

 
Net  

1,352,265

   

$

1,368,121

 


NOTE 4 – NOTES PAYABLE

Notes payable at January 31, 2011 and July 31, 2010 consisted of the following:

 

 

January 31, 2011

 

 

July 31, 2010

 

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

 

 

 

10,658

 

Note payable on July 16, 2010, 10% interest, secured by the pledge of 500,000 shares
of the Company’s common stock, due 90 days following the date on which the funds
were delivered.

 

 

100,000

   

 

100,000

 

Note payable on September 23, 2010, 1.0% interest, unsecured, convertible into common stock at a price of $0.50 per share, due 90 days from issuance date

   

55,000

     

-

 

Note payable on November 18, 2010, zero percent interest, unsecured, convertible into
Common stock at a 50% discount to market

   

50,000

     

-

 

Discount for beneficial conversion feature

 

 

  -

 

 

  

(33,319)

 

Total

 

$

278,066

 

 

 $

139,747

 



All of the above notes payable are due to unrelated parties. The related interest expense on these notes for the six month period ended January 31, 2011 was $42,264.


FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

On October 1, 2009, the Company issued 1,000,000 shares of its Common Stock to the Company’s chief executive officer as a signing bonus for entering into an Employment Agreement dated October 1, 2009. The shares were valued at $0.30 per share, or $300,000 in the aggregate.

On January 28, 2010, the Company issued 1,122,366 shares to various consultants for services provided to the Company. The shares were valued at $0.30 per share, or $336,710 in the aggregate.

On March 16, 2010 and March 30, 2010 the Company issued 172,000 shares, of its common stock to various consultants for services provided to the Company. The shares were valued at $0.30 per share, or $51,600 in the aggregate.

Between March 1 and April 30, 2010 the Company issued 138,000 shares of common stock upon conversion of convertible promissory notes at an average price of $4.07 per share, or $561,613 in the aggregate.

On June 25, 2010 the Company issued 150,000 shares of common stock as an inducement to an unrelated third-party lender. The shares were valued at at $0.89 per share, or $133,500 in the aggregate.

On July 31, 2010 the Company issued 10,000 shares of common stock upon conversion of convertible promissory notes at a price of $0.94 per share, or $9,400 in the aggregate.

During the year ended July 31, 2010 the Company cancelled 3,800,000 previously issued shares of common stock. 

In August, 2010 the Company issued 50,000 shares of common stock for prepaid consulting services valued at the market rate of $0.65 per share, or $32,500 in the aggregate.

In August, 2010 the Company issued 31,746 shares of common stock for consulting services rendered at $1.05 per share, pursuant to a consulting agreement. The shares were valued at $33,332 in the aggregate.

In August, 2010 the Company issued 100,000 shares of common stock for consulting services at the market rate of $0.65 per share, or $65,000 in the aggregate.

In September, 2010 the Company issued 500,000 shares of common stock upon the default of a note payable. The shares were valued at the market rate of $0.45 per share, or $225,000 in the aggregate.

In September, 2010 the Company issued 60,000 shares of common stock as a loan inducement fee. The shares were valued at the market rate of $0.26 per share, or $15,600 in the aggregate.

In October, 2010 the Company issued 150,000 shares of common stock as payment for prepaid consulting fees valued at the market rate of $0.45 per share, or $67,500 in the aggregate.

In October, 2010 the Company issued 25,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.45 per share, or $11,250 in the aggregate.

In November, 2010 the Company issued 300,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.35 per share, or $105,000 in the aggregate.

In December, 2010 the Company issued 150,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.20 per share, or $30,000 in the aggregate.

In January, 2011 the Company issued 700,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.10 per share, or $70,000 in the aggregate.


FORCE FUELS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 2011 and July 31, 2010

NOTE 6 – FORMATION OF SUBSIDIARIES

On May 5, 2010 the Company formed Force Fuels Services, Inc., a Kansas entity (“FFS”) as a wholly-owned subsidiary of the Company. On September 13, 2010 the Company formed Cheetah Motor Corp., a Nevada entity (“Cheetah”), as a wholly-owned subsidiary. Both FFS and Cheetah were formed so as to allow the Company the opportunity to explore additional business opportunities in the green energy industries.

NOTE 7 – SUBSEQUENT EVENTS

On February 18, 2011 the Company issued 200,000 shares of common stock to an unrelated third-party entity for services rendered. The shares were valued at market, resulting in an aggregate expense of $30,000.

In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and there are no subsequent events to report other than the event listed in the proceeding paragraph.


  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 


Item 2.

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


Plan of Operations

Assignment and Contribution Agreement between the Company and ICE Conversions, Inc.
On July 31, 2008 we 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 consummated 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 issuance 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 issuance 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.

(e) on January 30, 2009 ICE agreed to extend the timeline for the $400,000 cash payment to allow Force Fuels to make eight 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 October 31, 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.

In June 2010, the agreement was amended effective April 2010.  By virtue of that amendment, the Company returned to ICE all of the intellectual property rights described above and received, in exchange, intellectual property rights for the development of a hydrogen/electric hybrid automobile.  For this non-monetary exchange of assets, the fair value of neither the asset received nor the assets relinquished is determinable within reasonable limits and hence, the new asset was recorded at the book value of the relinquished asset.  In addition, ICE cancelled the $400,000 debt owing to ICE for the acquisition of the above referenced intellectual property rights The Company intends to pursue the development of this new intellectual property, per the discussion below, however, because ofr the inability to determine the fair value of the asset, the specific timing of its development, and the lack of certainty regarding the Company’s ability to fund the project, management fully impaired the asset.

The Company changed the focus of its business plan and on April 23, 2010 signed an agreement with Pemco, LLC to begin the process of engaging in the new direction. The primary products of the Company will be regulated and standardized energy-based products, which do not require a significant marketing or sales force. These energy-based products include traditional hydrocarbon-based oil and gas, as well as “green” or “alternative” energy, which includes solar and wind.

In the oil and gas field, the Company focuses on: 1) the purchase of marginally producing shallow oil wells, which are relatively inexpensive to operate and can be optimized with existing technologies; 2) the purchase of leases with potential for additional drilling in proven producing areas; and 3) the acquisition of in-house know-how to further optimize production through stimulation, refurbishing and site optimization.

The strategy of the Company is to invest principally in the acquisition or installation of energy-based assets that can contribute immediately and substantially to cash flow through sales to local energy companies, thus only requiring external or government financing for subsequent acquisitions and not for operating expenses.

1

In the short term, the Company will focus on maximizing revenue from its recent acquisition of over 2,600 acres of oil producing land leases with 49 oil strippers and 5 natural gas sites located in southern Kansas.

Subsequently, in the field of electrical energy production, the Company will focus solely on the exploitation of proven and established technologies that can generate a positive return on investment and tax benefits applicable to green energy and oil revenues. While naturally taking full advantage of current government assistance and incentives, placing a significant premium on the economic self-sustainability of all our projects and how new technologies and policies may affect us.

The Company intends to continue to leverage its Intellectual Property assets through further development, expansion and marketing of the technology licensed from ICE Conversions, Inc. This development will be implemented through the creation of a fully owned subsidiary.

This drive train technology consists of a proprietary, zero emission hydrogen fuel cell/electric battery hybrid drive system. and relies on hydrogen fuel cells to produce electricity and acts as a range extender for electric drive vehicles. The Company is currently in the process of selecting a manufacturer to build the first prototypes. The Company intends to combine components purchased from various suppliers and partner those items with its proprietary technology and integrate all of the parts into complete electric drive vehicles. 

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 period ended January 31, 2011 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, 2011, we had $3,000 in cash and cash equivalents and our current liabilities consisted of $239,772 in accounts payable and accrued expenses, $253,066 in notes payable and convertible notes, $1,352,265 in notes payable relating to the purchase of oil and gas property, and $536,663 in accrued officer salaries.  

For the six months ended January 31, 2011, net cash used in operating activities was $141,342, inclusive of a $1,164,593 net loss for the six months ended January 31, 2011. Additional significant factors effecting cash flows from operations were depreciation charges of $9,878, common stock issuances for services totaling $430,183, a loss on settlement of debt in the amount of $225,000, amortization of debt discount totaling $62,463, a change in inventory of $52,291, an increase in accrued officer salaries in the amount of $225,833, and a change in accounts payable and accrued expenses amounting to $15,513.

Cash used in investing activities during the six months ended January 31, 2011 totaled $2,500, all of which related to the Company’s note receivable from a related party.  

Net cash provided by financing activities was $60,000 for the six months ended January 31, 2011, resulting primarily from proceeds from notes payable in the aggregate amount of $105,000, partially offset by payments on notes payable in the aggregate amount of $45,000.

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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 terminate 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.

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 January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. 

In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167.

In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166.

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In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1.

In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.

In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued.

In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009.

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 1 – Summary of significant accounting policies for our critical accounting policies.

Oil and Gas Properties, Successful Efforts Method

The Company uses the successful efforts method of accounting for oil and gas producing activities. Under the successful efforts method, costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed as incurred. The Company evaluates its proved oil and gas properties for impairment on a field-by-field basis whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. The Company follows ASC 360 for these evaluations. Unamortized capital costs are reduced to fair value if the undiscounted future net cash flows from our interest in the property’s estimated proved reserves are less than the asset’s net book value.

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Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.

Under ASC 932, drilling costs for exploratory wells are initially capitalized but generally must be charged to expense unless the wells are determined to be successful within one year after completion of drilling. Circumstances that permit continued capitalization of exploratory drilling costs are addressed by ASC 932. The one-year limitation may be exceeded for an exploratory well only if sufficient reserves have been found to justify its completion and sufficient progress has been made in assessing the reserves and the economic and operating viability of the project. If the exploratory well does not meet both criteria, its capitalized costs are expensed, net of any salvage value. Annual disclosures are required under ASC 932 to provide information about management’s evaluation of capitalized exploratory well costs, including disclosure of (i) net changes from period to period in the costs for wells that are pending the determination of proved reserves, (ii) the amount of any exploratory well costs that have been capitalized for more than one-year after the completion of drilling and (iii) an aging of suspended exploratory well costs and the number of wells affected.

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income. On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained. 

Item 3.

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.

Item 4.

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 October 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 reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings


The Company has one outstanding complaint in the amount of approximately $25,000 which it anticipates resolving within the next quarter.

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


During the year ended July 31, 2010, the Company sold convertible promissory notes in the principal amount of $261,000 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. These notes were converted to 148,000 shares.

On October 1, 2009, the Company issued 1,000,000 shares of its Common Stock to the Company’s chief executive officer as a signing bonus for entering into an Employment Agreement dated October 1, 2009. The shares were valued at $0.30 per share, or $300,000 in the aggregate.

On January 28, 2010, the Company issued 1,122,366 shares to various consultants for services provided to the Company. The shares were valued at $0.30 per share, or $336,710 in the aggregate.

On March 16, 2010 and March 30, 2010 the Company issued 172,000 shares, of its common stock to various consultants for services provided to the Company. The shares were valued at $0.30 per share, or $51,600 in the aggregate.

Between March 1 and April 30, 2010 the Company issued 138,000 shares of common stock upon conversion of convertible promissory notes at an average price of $4.07 per share, or $561,613 in the aggregate.

On June 25, 2010 the Company issued 150,000 shares of common stock as an inducement to an unrelated third-party lender. The shares were valued at at $0.89 per share, or $133,500 in the aggregate.

On July 31, 2010 the Company issued 10,000 shares of common stock upon conversion of convertible promissory notes at a price of $0.94 per share, or $9,400 in the aggregate.

During the year ended July 31, 2010 the Company cancelled 3,800,000 previously issued shares of common stock. 

In August, 2010 the Company issued 50,000 shares of common stock for prepaid consulting services valued at the market rate of $0.65 per share, or $32,500 in the aggregate.

In August 2010 the Company issued 31,746 shares of common stock for consulting services rendered at $1.05 per share, pursuant to a consulting agreement. The shares were valued at $33,332 in the aggregate.

In August, 2010 the Company issued 100,000 shares of common stock for consulting services at the market rate of $0.65 per share, or $65,000 in the aggregate.

In September, 2010 the Company issued 500,000 shares of common stock upon the default of a note payable. The shares were valued at the market rate of $0.45 per share, or $225,000 in the aggregate.

In September, 2010 the Company issued 60,000 shares of common stock as a loan inducement fee. The shares were valued at the market rate of $0.26 per share, or $15,600 in the aggregate.

In October, 2010 the Company issued 150,000 shares of common stock as payment for prepaid consulting fees valued at the market rate of $0.45 per share, or $67,500 in the aggregate.

In October, 2010 the Company issued 25,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.45 per share, or $11,250 in the aggregate.

In November, 2010 the Company issued 300,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.35 per share, or $105,000 in the aggregate.

In December, 2010 the Company issued 150,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.20 per share, or $30,000 in the aggregate.

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In January, 2011 the Company issued 700,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.10 per share, or $70,000 in the aggregate.

Item 3.

Defaults Upon Senior Securities


None. 

Item 4.

Submission of Matters to a Vote of Shareholders


None.

Item 5.

Other Information


None. 

Item 6.

Exhibits


Please see Exhibit Index located behind the signature page, which is incorporated herein by this reference.

 

SIGNATURE

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 15, 2011 

By:

/s/ Oscar Luppi

 

 

 

Oscar Luppi

 

 

 

President, Chief Executive Officer

 

 

 

 

 




 

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