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EX-31 - EXHIBIT 31 - FORCE FUELS INC.ex31.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
FORM 10-Q /A
 
[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended April 30, 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: 10,441,875 shares of Common Stock, as of June 13, 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-11
       
 
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)
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
Page(s)
   
Consolidated Balance Sheets at April 30, 2011 (Unaudited) and July 31, 2010 
F-2
   
Consolidated Statements of Operations for the Three and Nine Month Periods Ended April 30, 2011 and 2010, and from Inception on July 15, 2002 through April 30, 2011 (Unaudited)
F-3
   
Consolidated Statements of Stockholders’ Equity (Deficit) for the period from July 15, 2002 (inception) through April 30, 2011 (Unaudited)
F-4 - F-5
   
Consolidated Statements of Cash Flows for the Nine Month Periods Ended April 30, 2011 and 2010, and for the period from Inception on July 15, 2002 through April 30, 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
 
             
   
April 30,
   
July 31,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash
  $ 48,647     $ 86,842  
Accounts receivable, net
    -       7,451  
Inventory, net
    29,689       81,980  
Deposits and prepaid expenses
    29,700       10,000  
Notes receivable - related party
    2,500       -  
                 
Total Current Assets
    110,536       186,273  
                 
LONG-TERM ASSETS:
               
Deposits
    12,638       -  
Oil and gas property, net
    879,130       1,258,292  
Property and equipment, net
    118,544       133,361  
                 
Total Long-term Assets
    1,010,312       1,391,653  
                 
Total Assets
  $ 1,120,848     $ 1,577,926  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 248,550     $ 224,258  
Accrued officer salaries
    617,053       310,830  
Convertible notes payable
    117,300       -  
Convertible notes payable - related
    29,200       -  
Notes payable, net
    223,066       139,747  
Notes payable for acquisition of oil and gas property, net
    -       1,368,121  
                 
Total Current Liabilities
    1,235,169       2,042,956  
                 
NON CURRENT LIABILITIES:
               
Asset retirement obligation
    31,979       36,622  
                 
Total Liabilities
    1,267,148       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;
               
9,641,875 and 6,475,129 shares issued, respectively
    9,642       6,475  
Additional paid-in capital
    3,325,433       2,543,518  
Deficit accumulated during development stage
    (3,481,375 )     (3,051,645 )
                 
Total Stockholders' Deficit
    (146,300 )     (501,652 )
                 
Total Liabilities and Stockholders' Deficit
  $ 1,120,848     $ 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)
 
 
                           
From Inception
 
                           
on July 15,
 
   
For the Three Months Ended
   
For the Nine Months Ended
   
2002 Through
 
   
April 30,
   
April 30,
   
April 30,
 
   
2011
   
2010
   
2011
   
2010
   
2011
 
                               
OIL AND GAS REVENUES
  $ -     $ -     $ 41,758     $ -     $ 49,209  
                                         
COST OF SALES
    -       -       52,291       -       52,291  
                                         
GROSS PROFIT (LOSS)
    -       -       (10,533 )     -       (3,082 )
                                         
OPERATING EXPENSES:
                                       
                                         
Well operating costs
    -       -       30,394       -       55,394  
Depreciation on well operating equipment
    4,939       -       14,817       -       24,695  
Research and development
    -       -       -       -       115,434  
Salary and wages - officers
    88,369       96,666       299,336       169,166       628,916  
Impairment of intellectual property rights
    -       -       -       -       344,000  
Stock based compensation
    -       (12,900 )     -       322,310       494,933  
General and administrative expenses
    155,096       119,225       744,282       294,587       2,108,752  
                                         
Total operating  expenses
    248,404       202,991       1,088,829       786,063       3,772,124  
                                         
NET LOSS FROM OPERATIONS
    (248,404 )     (202,991 )     (1,099,362 )     (786,063 )     (3,775,206 )
                                         
OTHER INCOME (EXPENSES) :
                                       
Gain on settlement of debt
    980,481       739,689       755,481       739,689       445,467  
Loss on disposal of assets
    -       -       -       -       (19,915 )
Interest expense
    (7,406 )     (1,875 )     (85,849 )     (6,448 )     (131,721 )
                                         
Total other income (expenses)
    973,075       737,814       669,632       733,241       293,831  
                                         
NET LOSS BEFORE TAXES
    724,671       534,823       (429,730 )     (52,822 )     (3,481,375 )
                                         
INCOME TAXES
    -       -       -       -       -  
                                         
NET LOSS
  $ 724,671     $ 534,823     $ (429,730 )   $ (52,822 )   $ (3,481,375 )
                                         
NET LOSS PER COMMON SHARE
                                       
- BASIC AND DILUTED:
  $ 0.08     $ 0.09     $ (0.05 )   $ (0.01 )        
                                         
Weighted Average Common
                                       
Outstanding - basic and diluted
    9,047,493       6,130,037       7,916,150       5,983,214          
                                         
 

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  
Common shares issued in February, 2011
                                               
   for services at $0.15 per share (unaudited)
    200,000       200       29,800       -       -       30,000  
Common shares issued in March, 2011
                                               
   for services at $0.12 per share (unaudited)
    900,000       900       99,000       -       -       99,900  
                                                 
Net loss for the nine months ended
                                               
   April 30, 2011 (unaudited)
    -       -       -       -       (429,730 )     (429,730 )
                                                 
Balance, April 30, 2011 (unaudited)
    9,641,875     $ 9,642     $ 3,325,433     $ -     $ (3,481,375 )   $ (146,300 )


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 Nine Months Ended
   
2002 (inception)
 
   
April 30,
   
through April 30,
 
   
2011
   
2010
   
2011
 
                   
OPERATING ACTIVITIES:
                 
 Net Loss
  $ (429,730 )   $ (52,822 )   $ (3,481,375 )
 Adjustments to reconcile net loss to net cash
                       
 used in operating activities
                       
         Depreciation
    14,817       1,734       24,091  
         Amortization of intangible assets
    -       21,500       86,000  
         Impairment of intellectual property rights
    -       -       344,000  
Expenses paid on behalf of the Company by a related party
    11,000               11,000  
         Gain on settlement of debt
    (755,481 )     -       (445,467 )
         Loss on disposal of assets
    -       -       19,915  
         Amortization of discount on debt
    65,198       -       98,033  
         Stock based compensation
    -       -       300,000  
         Common stock issued for services
    560,083       290,209       1,282,826  
         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
    (34,838 )     -       (34,838 )
         Other current assets
    -       -       -  
         Accounts payable and accrued expenses
    24,291       47,901       239,050  
         Accrued salaries
    306,223       -       617,053  
                         
Net Cash Used in (Provided by) Operating Activities
    (178,695 )     308,522       (847,358 )
                         
INVESTING ACTIVITIES:
                       
  Purchase of test equipment
    -       -       (24,250 )
                         
Net Cash Used in Investing Activities
    -       -       (24,250 )
                         
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
    185,500       115,658       604,066  
 Repayment of notes payable
    (45,000 )     -       (145,000 )
 Due to related parties
    -       131,750       345,189  
                         
Net Cash Provided by Financing Activities
    140,500       247,408       920,255  
                         
Net Change in Cash and Cash Equivalents
  $ (38,195 )   $ 555,930     $ 48,647  
                         
 Cash & Cash Equivalents at Beginning of Period
  $ 86,842     $ -       -  
                         
 Cash & Cash Equivalents at End of Period
  $ 48,647     $ 555,930     $ 48,647  
  
                       
 
 
 
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)
               
From Inception
 
               
on July 15,
 
   
For the Nine Months Ended
   
2002 Through
 
   
April 30,
   
April 30,
 
   
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  
Cancellation of shares and debt for purchase
                       
of intellectual property rights
  $ -     $ 18,000     $ 18,000  
Forgiveness of debt from related party
  $ -     $ -     $ 739,689  
Conversion of notes payable into equity
  $ -     $ 251,000     $ 251,000  
Issuance of promissory note for investment in oil
                       
lease rights and related assets
  $ -     $ 1,400,000     $ 1,400,000  
Non-monetary exchange of assets
  $ -     $ 347,500     $ 347,500  
Sale of working interest in oil and gas leases in
                       
exchange for settlement of notes payable
  $ 380,334     $ -     $ 380,334  
                         

 
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
 April 30, 2011 and July 31, 2010

­­­NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at April 30, 2011, and for all periods presented herein, have been made.

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.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's July 31, 2010 audited financial statements.  The results of operations for the period ended April 30, 2011 is not necessarily indicative of the operating results for the full year.

NOTE 2 - GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

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

Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
 
 
 
F-8

 

 
FORCE FUELS, INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 April 30, 2011 and July 31, 2010

NOTE 4–SALE OF WORKING INTERESTS AND FORGIVENESS OF DEBT

On March 30, 2011 the Company entered into an Agreement Terminating Asset Purchase Agreement (the “Terminating Agreement”) with Pemco, LLC (“Pemco”). The Company and Pemco had previously entered into an Asset Purchase Agreement dated April 23, 2010 (the “Purchase Agreement”) which was disclosed in a Form 8-K filed by the Company on April 26, 2010

The Terminating Agreement served to terminate all obligations of the parties under the Purchase Agreement. As such, the parties released each other from all remaining terms and provisions of the Purchase Agreement.

The Terminating Agreement also provides that the Company will sell to Pemco a fifty percent (50%) interest in four of the thirteen leases originally acquired by the Company under the Purchase Agreement. The Company will sell these interests for all amounts owed by the Company to Pemco and all other parties under the Purchase Agreement. The Terminating Agreement also provides that the Company will sell to Pemco a twenty five percent (25%) interest in the remaining nine leases originally acquired by the Company under the Purchase Agreement. With regard to all leases acquired by the Company, Pemco will become the operator of drilling operations for each of those leases and subject to a separate development agreement to be executed in the future.

As a result of the events described above, as of April 30, 2011, the Company reduced notes payable for acquisition of oil and gas properties by $1,355,000, reduced the value of investment in oil and gas leases by $380,334, and recognized a gain on settlement of debt of $980,481.
  
NOTE 5 - NOTES PAYABLE, RELATED PARTIES

During the nine months ended April 30, 2011, the Company borrowed a total of $29,200 from the President of the Company.  The note bears interest at a rate of five percent (5%) per annum and is convertible at the option of the lender into 100,000 common shares of the Company at a strike price of $0.25 per share.  In accordance with ASC 470-20 – Debt with Conversion and Other Options, the Company determined that no beneficial conversion feature need be recognized on convertible note payable due to related parties executed as of April 30, 2010.  As of April 30, 2011, no shares have been authorized or issued by the Company in satisfaction of the convertible note payable.

 
F-9

 
 
 
FORCE FUELS, INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 April 30, 2011 and July 31, 2010


NOTE 6 - NOTES PAYABLE

Notes payable at April 30, 2011 and July 31, 2010 consisted of the following:

   
April 30, 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
    30,000       -  
Note payable on November 18, 2010, zero percent interest, unsecured, convertible into  Common stock at a 50% discount to market
    50,000       -  
Note payable on March 28, 2011, 5% interest, unsecured, convertible into common stock at a price of $0.20 per share at the time of conversion
    27,300       -  
Note payable on February 28, 2011, 8% interest, unsecured, convertible into common stock at a price of $0.25 per share at the time of conversion
    5,000       -  
Note payable on March 2, 2011, 5% interest, unsecured, convertible into common stock at a price of $0.25 per share at the time of conversion
    5,000       -  
Note payable on April 22, 2011, 1% interest, unsecured and due on demand
    50,000       -  
Discount for beneficial conversion feature
    -       (33,310 )
Total
  $ 369,566     $ 139,747  

All of the above notes payable are due to unrelated parties. The related interest expense on these notes for the nine month period ended April 30, 2011 was $85,849.  In accordance with ASC 470-20 – Debt with Conversion and Other Options, the Company determined that no beneficial conversion feature need be recognized on convertible notes payable executed as of April 30, 2010.As of April 30, 2011, no shares have been authorized or issued by the Company in satisfaction of the convertible notes payable.

NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)

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.
 
 
 
F-10

 
 
 
 
FORCE FUELS, INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 April 30, 2011 and July 31, 2010
 
NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)

Common Stock (continued)

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.

In February, 2011 the Company issued 200,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.15 per share, or $30,000 in the aggregate.

In March, 2011 the Company issued 900,000 shares of common stock for services rendered. The shares were valued at the market rate of $0.11 per share, or $99,900 in the aggregate.

NOTE 8 - 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 9 - SUBSEQUENT EVENTS

On May 2, 2011 the Company issued 400,000 shares of common stock to an unrelated third-party entity for services rendered. The shares were valued at market rate at $0.12, resulting in an aggregate expense of $48,000.

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 preceding paragraph.

  
      
 
F-11

 
      



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

Plan of Operations
 
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. On March 31, 2011 the Company and Pemco LLC mutually agreed to terminate agreement dated April 23, 2010 above in exchange for one-half (50%) working interest in the Company’s oil producing revenue. As the result of the Joint Operating Agreement, Pemco, LLC and Energy Recovery Systems released all remaining debts owed by the Company.


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. 

Resignation of Oscar Luppi

On March 22, 2011, the Board of Directors accepted Mr. Oscar Luppi’s voluntary resignation from his positions of Chairman, President, Chief Executive Officer, and Treasurer of the Registrant.  There were no disagreements or misunderstandings relating to the Registrant’s operations, policies or practices between the Board and Mr. Luppi leading to his resignation.  

Appointment of Thomas Hemingway

On March 22, 2010, Thomas C. Hemingway was appointed Chairman, President , Chief Executive Officer and Treasurer of the Registrant. No compensation arrangement has been entered into or is contemplated with respect to Mr. Hemingway’s employment as President, Chief Executive Officer, Treasurer and Interim Chief Financial Officer.

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 April 30, 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 April 30, 2011, we had $48,647 in cash and cash equivalents and our current liabilities consisted of $248,550 in accounts payable and accrued expenses, $369,566 in notes payable and convertible notes, and $617,053 in accrued officer salaries.  

For the nine months ended April 30, 2011, net cash used in operating activities was $178,695, inclusive of a $429,730 net loss for the nine months ended April 30, 2011. Additional significant factors effecting cash flows from operations were depreciation charges of $14,817, common stock issuances for services totaling $560,083, a gain on settlement of debt in the amount of $755,481, amortization of debt discount totaling $65,198, a change in inventory of $52,291, an increase in accrued officer salaries in the amount of $306,223, and a change in accounts payable and accrued expenses amounting to $24,291.
 
Net cash provided by financing activities was $140,500 for the nine months ended April 30, 2011, resulting primarily from proceeds from notes payable in the aggregate amount of $185,500, partially offset by payments on notes payable in the aggregate amount of $45,000.

 
2

 


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.
 

 
3

 



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.