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EX-14 - EXHIBIT 14 CODE OF CONDUCT - CHERUBIM INTERESTS, INC.f10k083114_ex14.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - CHERUBIM INTERESTS, INC.f10k083114_ex31z1.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - CHERUBIM INTERESTS, INC.f10k083114_ex32z1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


  X .ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2014


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

For the transition period from __________ to __________


Commission file number 333-150061


FALCON CREST ENERGY INC.

(Exact name of registrant as specified in its charter)


Nevada

 

98-0585268

(State of incorporation)

 

(I.R.S. Employer ID No.)


100 King Street West, Suite 5600, Toronto ON, M5X 1C9

(Address of principal executive officers, including Zip Code)

 

(888) 570-3698

(Issuer's Telephone Number)


Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      . No  X .. .


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes      . No  X .


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


Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   X .


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


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


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




State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter:


Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:


As of August 31, 2014, there were 63,100,000 shares of common stock issued, par value $0.001, outstanding.


The aggregate market value of the voting and non-voting equity held by non-affiliates is 7,000,000 shares at .01 a share as of August 31, 2013 for a total market value of $700,000, and a total of 20,000,000 issued and outstanding  .


DOCUMENTS INCORPORATED BY REFERENCE:


None.


Transitional Small Business Disclosure Format: Yes      . No  X .



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TABLE OF CONTENTS

 

 

 

Page No.

 

Part I

 

 

 

 

Item 1.

Business

5

Item 1A.

Risk Factors

9

Item 2.

Properties

10

Item 3.

Legal Proceedings

11

Item 4.

Submission of Matters to a Vote of Securities Holders

11

 

 

 

 

Part II

 

 

 

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

12

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation

14

Item 8.

Financial Statements

F-1

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

17

Item 9a

Controls and Procedures

17

 

 

 

 

Part III

 

 

 

 

Item 10.

Directors and Executive Officers

18

Item 11.

Executive Compensation

20

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

21

Item 13.

Certain Relationships and Related Transactions and Director Independence

21

Item 14.

Principal Accounting Fees and Services

 

 

 

 

 

Part IV

 

 

 

 

Item 15.

Exhibits

22

 

 

 

 

Signatures

23




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PART I


FORWARD LOOKING STATEMENTS


This annual report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management's plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" and the risks set out below, any of which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:


·

the uncertainty of profitability based upon our history of losses;


·

risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern;


·

risks related to our international operations;


·

risks related to product liability claims;


·

other risks and uncertainties related to our business plan and business strategy.


This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.


Forward looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.


Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States\Generally Accepted Accounting Principles.


In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common stock" refer to the common shares in our capital stock.


As used in this annual report, the terms "we", "us", "our", the "Company" and "Innocent" mean Innocent, Inc., unless otherwise indicated.



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ITEM 1. BUSINESS


GENERAL INFORMATION ABOUT OUR COMPANY


Falcon Crest Energy Inc. ("Company") was organized September 27, 2006 under the laws of the State of Nevada for the purpose of selling new food products produced or developed by North American companies to foreign markets. On August 31, 2009, the Company discontinued its involvement in the sales of tea due to a strategic change in business focus by the acquisition of mineral rights as disclosed in the Company's 8-K filed with the SEC on September 2, 2009. The Company currently has limited operations or realized revenues from its planned principle business purpose and, in accordance with ASC 915, "Development Stage Entities", formerly known as SFAS 7, "Accounting and Reporting by Development State Enterprises ." is considered a Development Stage Enterprise.


On April 7, 2010 the Company decided to direct that the initial funding of $880,000 US held in escrow by Dr. Vicente Sanchez Jaramillo a third party of the initial agreement in Ecuador be returned. The company has received such notification that said funds are being returned to the original accounts as received. Global Finishing, Inc. has confirmed in writing that said funds are the property of Falcon Crest Energy Inc. and will be forwarded upon receipt. The company has adjusted the general ledger to reflect said funds as a subscription receivable until received. Falcon Crest Energy Inc. and Global Finishing Inc. agree that the existing agreement on Miranda and as a result of the new mining laws that went into effect on January 1, 2010, it is in the best interest of all parties to renegotiate the contract, whereby Falcon Crest Energy Inc. will be the direct designated benefactor of the Miranda Mineral Rights.


On May 30, 2010 Falcon Crest Energy Inc. entered into an agreement with Global Finish Inc., a Nevada Corporation, to acquire 51% of the issued and outstanding shares of Global Finishing Inc. in a share exchange whereby Falcon Crest Energy Inc. will issue .9 shares of Falcon Crest Energy Inc. rule 144 restricted common stock for one share of Global Finishing Inc. The agreement has been approved by an excess of 51% of the shareholders of both Global Finishing Inc. and Falcon Crest Energy Inc. by majority shareholder consent in lieu of a meeting. The agreement was signed on May 30, 2010 by the Companies with the approval of the Board of Directors. The agreement provides for 10 working days to administer the share exchange which will result in Global Finishing Inc. to exchange 13,975,208 shares of Global Finishing Inc. 27, 402,369 shares issued and outstanding for 12,557,687 shares of Falcon Crest Energy Inc., representing approximately 25.4% ownership of Falcon Crest Energy committed and issued and outstanding shares of common stock. The agreement further provided for the share exchange of the remaining 49% under the same exchange provisions, and that no additional shares of Global Finish Inc. will be issued until such time as the parties execute the 49% exchange or decide that no additional share exchange will take place. The acquisition of the controlling interest in Global Finishing Inc., will allow Falcon Crest Energy Inc. to proceed with its Ecuador mineral interest, although given the time since the initial agreement, the agreement for the Miranda interest must be renegotiated. Global Finishing Inc. currently owns the majority interest in an approved Ecuador subsidiary, Globalfinishing Ecuador S A that can legally operate and own mining interest and register new mineral rights and agreements. Falcon Crest Energy will retain the ownership rights in Companis Minera Monte-Verde S.A. Comimontsa and the 10,000,000 shares issued in the September 1, 2009 agreement will be offset against the 12,557,687 shares of common stock due to be issued to Global Finish Inc., for the 51% interest, leaving a balance of 2,557,687 additional shares to be issued in the share exchange described above.


On August 27, 2010 Globalfinishing Ecuador acquired the Murciealagos Vizcaya and Lilly Rai mining concessions, located in Ecuador's El Oro Province. Falcon Crest Energy Inc. funded the initial purchase with the assumption of majority ownership of Globalfinishing Ecuador via its acquisition agreement for 51% of Global Finishing Inc. the parent of Globalfinihing Ecuador. Due to the cancellation of the share exchange agreement on October 20, 2010 the parties must negotiate the ownership of initial purchase and subsequent funds due. Falcon Crest Energy Inc. has recorded the funds advanced to Global Finishing Inc. as a note receivable until such time as the matter is resolved. Under the terms of the purchase agreement for the mining properties, Globalfinishing Ecuador owes a total sum of $1,200,000 for the properties, with the initial down payment of $250,000 funded by Falcon Crest Energy Inc. Five additional payments totaling $950,000 are due every sixth month thereafter.



5




On October 20, 2010 Falcon Crest Energy Inc. has terminated the agreement with Global Finish Inc., a Nevada Corporation, to acquire 51% of the issued and outstanding shares of Global Finishing Inc. in a share exchange whereby Falcon Crest Energy Inc. would have issued .9 shares of Falcon Crest Energy Inc. rule 144 restricted common stock for one share of Global Finishing Inc. The agreement was approved by an excess of 51% of the shareholders of both Global Finishing Inc. and Falcon Crest Energy Inc. by majority shareholder consent in lieu of a meeting. The agreement was signed on May 30, 2010 by the Companies with the approval of the Board of Directors. The agreement provided for 10 working days to administer the share exchange and this provision was extended until Falcon Crest Energy Inc. issued a demand to conclude the transaction and as of this date decided to cancel the agreement. Falcon Crest Energy Inc. and Global Finishing Inc. were unable to reach an acceptable timely conclusion to the share exchange under the terms of the original agreement. Therefore, the Board of Directors of Falcon Crest Energy Inc. cancelled the share exchange agreement effective October 20, 2010. The parties to the original agreement will meet to resolve the funding and purchase of the Murciealagos Vizcaya and Lilly Rai mining concessions in the Zaruma-Portovelo Mining District of Ecuador's El Oro Province. As a result of this decision Falcon Crest Energy Inc. will cancel the original 10,000,000 shares issued under the $880,000.00 subscription agreement due that was subsequently held for the share exchange that the Board of Directors of Falcon Crest Energy Inc. cancelled. The 10,000,000 shares will be returned to treasury and monies advanced for the Murciealagos Vizcaya and Lilly Rai mining concessions will be recorded as a note payable due Falcon Crest Energy Inc. from Global Finishing Inc. until such time as the parties can agree on the terms and conditions of joint ownership.


On October 20, 2010 Falcon Crest Energy Inc. received notification from Ecuador concerning the approval to own an Ecuador Registered Company, “JUST RESOURCES MINAS S.A.” file reference number 732697. This company is 100% owned by Falcon Crest Energy Inc. and will provide the company a structure to acquire and operate mineral interest in Ecuador in accordance with the new mining laws that went into effect in January 2010. Falcon Crest Energy Inc. is in negotiations with a local executive to manage this newly created operating company. While approval has been received, no entity was established.


On November 23, 2010 Falcon Crest Energy Inc. acquired from Sedunda Oportunidad, LLC, the 100% working interest in an Oil and Gas Leasehold Estate including the effective net revenues flowing therefrom. The effective net revenue yield is 82% after the landowner Royalty is paid. The property, Thomas Lease, one well located center of south quarter section 7, Township 24 North Range West, Garfield County, Oklahoma, Book 1955 page 534 on 8/13/09. The parties agreed on a purchase price of $150,000 whereby Falcon Crest Energy Inc. will issue a non interest bearing note payable for the purchase price. The note will be a one year demand note payable. The surrounding property of approximately 300 acres contains approximately 45 wells in various states of operation and non-operation that can be acquired. It is anticipated that an additional $150,000 working capital will be required to return the property to the status of a working well, with most of the expense associated to the pipeline of the gas to the refinery, that is already in process. The well was operational and has historical data but management has decided not to release any estimates until the well is back in operational mode. The acquisition of the Thomas Lease from Oportunidad, LLC, included the 100% rights to the property that currently has one gas well that in the past produced both oil and gas. The leasehold assignment also includes a royalty to the land owner and the contract service that maintains and services the well, which totals 18% of the Gross Revenue, leaving a net yield of 84% of the Gross Revenue to Falcon Crest Energy Inc. The well is in the process of refurbishing and at this time we are not ready to make projections of income. The Initial purchase price of $150,000 by issuance of a note payable and $60,000 to-date for site prep and well refurbishing represent the $210,000 investment.


The company has been dependent upon related party/shareholders for its funding to date and currently lacks funding to complete the opportunities in Ecuador. Although, we plan to pursue the Note Receivable from Global Finishing Inc., instead of a joint ownership of Murciealagos Vizcaya and Lilly Rai mining concessions, there can be no assurances that Global Finishing Inc., will execute a funding plan to complete the acquisition or a plan that will insure that Innocent Inc. is repaid, therefore we have financially reserved the note payable against earnings. In the event Global Finishing Inc. secures the property and/or funding, Innocent Inc., will utilize all remedies available to recover the entire note receivable.


On February 14, 2011 Innocent Inc. Board of Directors approved a letter of intent ("LOI") which constitutes an expression of the intent of Steele Resources, Inc. ("SRI") to enter into a Joint Venture Agreement with Innocent Inc. ("INI") which will govern the exploration and operations of mineral rights within the A&P Patented Claims and the Pony exploration projects jointly referred to as the Mineral Hill Project ("Mineral Hill Project"). The agreement (non- binding LOI) has been funded with the initial payment, completing the initial obligation of Innocent, Inc. as provided in the LOI attached as an exhibit. Innocent, Inc. expects that the second deposit will be funded no later than the end of February 2011, in accordance with the Letter of Intent executed on January 27, 2011. The parties have verbally agreed to extend the funding dates from the original agreement to allow time for the Funder to forward the funds to Innocent, Inc. if necessary. Although the Funder of the initial payment has committed the balance of the funds and we expect that obligation to be met, no guarantee can be issued until such time as the funds are received by the funding source.



6




On February 21, 2011 Innocent Inc., entered into a material definitive agreement with Steele Resources, Inc. (SELR: OTCBB) to acquire 50% of the Mineral Hill Gold Exploration Project. The project is located near Pony Hill, Montana in the Mineral Hill Mining District and consists of 17 patented and 67 unpatented lode mining claims (approximately 1,800 acres). The agreement is a 50/50 Joint Venture under which the two companies will work together to explore and operate the claims. The initial participating interests of Innocent, Inc. and Steele Resources, Inc. in the JV will be 50% and 50%. Under the terms of the agreement, Innocent may contribute up to $5,000,000 in operating funds over one year. In the event those funds are not provided, Innocent will forfeit 10% per $1,000,000 not provided. Steele Resources, Inc. will act as the operating partner and have a commitment to match up to $5,000,000 in funding within one year of Innocent, Inc. contributing its first $1,000,000. Steel Resources, Inc. will forfeit 10% per $1,000,000 not provided under its obligation. Innocent Inc. has made the initial payment of three hundred thousand dollars ($300,000) under the terms of the LOI dated January 27, 2011. The second payment is expected be completed on or before May 31th, 2011.


Pursuant to a non-binding Letter of Intent entered into on January 27, 2011 (the “LOI”), between Steele Resources Corporation (“SRC”) and Innocent, Inc. (“INCT”), INCT and SRC expressed an interest in entering into a Joint Venture in which INCT would provide up to $5,000,000 of funding to explore the Mineral Hill Mining Project located near Pony, Montana. Pursuant to the LOI, INCT was required advance up to $500,000 to SRC’s subsidiary, Steele Resources, Inc. (“SRI”) in order to allow SRI to close on two mineral leases representing the Mineral Hill Mining Project. Pursuant to the LOI, on February 7, 2011, INCT advanced an initial $300,000 which allowed SRI to close on the Pony Project representing 17 patented and 67 unpatented mining claims located in the Pony Mining District of Montana.


Pursuant to the LOI, on February 20, 2011 INCT and SRC entered into a definitive Joint Venture Agreement (the “JV Agreement”) relating to the Mineral Hill Mining Project. Pursuant to the JV Agreement INCT agreed to provide up to $5,000,000 to fund the exploration and development of the Mineral Hill Mining Project. However, the JV Agreement was conditioned upon INCT providing an initial $550,000 to close the Pony Project and the A&P Project, of which $300,000 was provided on February 15, 2011 and the remaining $250,000 was funded on March 23, 2011. In addition, the parties have agreed to amend the JV Agreement to allow INCT to fund an additional $450,000 on or before March 31, 2011. The JV Agreement provides that when INCT provides at least $1,000,000 of financing, then SRC would agree to match INCT’s investment up to $5,000,000 thus providing up to an aggregate of $10,000,000 to explore and, if warranted, develop the Mineral Hill Mining Project. Under the terms of the JV Agreement INCT and SRC would each own 50% of the Joint Venture however the percentage ownership would be reduced by 10% for each $1,000,000 a party failed to contribute to the Joint Venture.


Of the funds received on March 23, 2011, $200,000 will be used to allow SRI to close on the Atlantic and Pacific mining property mineral lease (the “A&P Project”) representing two patented mining claims located next to the Pony Project and together representing the Mineral Hill Mining Project.


The Company received a notification from its joint venture partner (SRI), that Falcon Crest Energy Inc. was in default on the balance of its funding commitment of the $1,000,000. The Company did not agree with the exact interpretation of the default and Falcon Crest Energy Inc. is seeking the additional capital to fulfill its committed obligation. After further discussion the JV Partners have decided that in consideration of Falcon Crest Energy’s willingness to negotiate, in good faith, a payment plan for the $460,000 currently due from the commitment under the Joint Venture Agreement. Steele Resources is willing to withdraw the default condition established in its letter of notification conditional upon Falcon Crest Energy Inc. entering into a negotiation process with Steele by May 2, 2011. Steele Resources stated that it would not seek any default remediation so long as Falcon Crest Energy negotiates a “good faith” funding solution. The JV Agreement is clear that under the terms of the JV Agreement INCT and SRC would each own 50% of the Joint Venture however the percentage ownership would be reduced by 10% for each $1,000,000 a party failed to contribute to the Joint Venture. The balance of the $460,000 is still due Steele to complete the initial obligation of Falcon Crest Energy. Falcon Crest Energy expected, due to a shareholder nonbinding commitment letter to complete this funding, and as of the date of this Form Q filing the funding has not been completed. The shareholder that issued the nonbinding commitment letter in May has issued a follow up letter stating the intent to complete a private placement in August and September 2011 and explained the delay was due to unavoidable causes. Although the company believes the intent of the Shareholder in reference to a private placement to be a good faith commitment, there can be no guarantee that the funds will received or received in a timely manner to complete the $460,000 obligation since Steele may utilize a third party to secure the funds. Under the terms and conditions of the agreement, Steel is within its right to secure the funds from a third party or advance the funds itself and become the majority shareholder of the JV. The full agreement was filed by Falcon Crest Energy in an 8K filing.



7




On August 30, 2011 Falcon Crest Energy Inc. notified Steele Resources the company no longer felt that the capital committed and necessary for the JV Agreement could be secured by Falcon Crest Energy in a timely manner and Falcon Crest Energy Inc. felt it was in the best interest of the shareholders of both companies to terminate the agreement. The parties to the original agreement terminated the agreement on Aug 31, 2011 in accordance with the terms and conditions that have been filed in an 8K regulatory filing.


The Company has advanced funds totaling $290,010 to Steele Resources with the intention of establishing a joint venture. The venture did not materialize and Steele Resources has agreed to return the funds to the Company. We have not received repayment as of May 31, 2012 but anticipate doing so in the near term. No allowance for bad debt has been established as a result.


On September 6, 2011 Global Finishing Inc. and Falcon Crest Energy Inc. entered into an agreement whereby Global assigned 50% interest of the MURCIELAGOS VIZCAYA and LILLY RAI, Ecuador properties as collateral for the $390,000 outstanding note due Falcon Crest Energy Inc.


On May 31, 2012 Falcon Crest Energy Inc. and Steele Resources Inc., agreed and entered into an Amended Agreement to the August 30, 2011 Termination of Definitive Agreement. The detailed agreement is filed as an 8K event.


On 10/30/2013 Falcon Crest Energy Inc. and Ewing Oil Company LLC, a Colorado, Limited Liability Corporation whose principal place of business is located at P.O. Box 431, Burbank, California 91503 signed an asset purchase agreement. Ewing Oil Company is majority owned by Patrick Johnson, a current Director and COO of Falcon Crest Energy Inc. The agreement includes the sale, assignment, transfer, conveyance and deliver to Falcon Crest Energy Inc. free and clear of all liens, encumbrances, claims, clouds, charges; intellectual property, goodwill, materials, supplies, business records, and other proprietary assets in regards to 2 year Oil And Gas Leases (the “Leases”) located in Texas and Oklahoma. The purchase price of two hundred seventy three thousand five hundred dollars ($273,500) is payable by the issuance of a note payable with the annual interest rate of ten percent (10%). Falcon Crest Energy Inc. will seek the funding to complete the necessary drilling program and secure the leases.


On 11/4/ 2013 the company received official communication that Marcus Mueller, was resigning as a Director of Falcon Crest Energy Inc. to pursue other interest. The Board of Directors then appointed Patrick Johnson to serve as a Director of Falcon Crest Energy Inc.


On 11/13/2013 the Board of Directors appointed Patrick Johnson (37), Chief Operating Officer (COO).


On 11/13/2013 Falcon Crest Energy Inc. signed an exploration agreement with Evergreen Petroleum of Dallas, TX. Evergreen has over 150 years’ experience in the oil and gas industry, and particular with expertise in the state of Wyoming will be the General Manager of the Exploration Project including selection of areas to lease, drilling exploratory wells, drilling development wells, and producing oil and gas found. Evergreen has conducted and will continue to conduct both regional and local geological studies to define prospects that are worthy of acquiring oil and gas leases. Preliminary examinations of title to the minerals in these selected areas and the acquisition of said leases will be carried out for and on behalf of the Parties by Pacer Energy LLC (“Pacer”) of Gillette, Wyoming. The Operator of the drilling venture will be L & J Operating Inc. of Gillette, Wyoming, with the responsibility of obtaining the required bonds, preparation of the Joint Operating Agreement A.A.P.L. Form 610 – 1989. This team will be responsible for the selection of all contractors and suppliers, payment of all invoices, sale of produced oil, payment of Ad Valorem, Conservation, and Severance Taxes and payment to the Parties of their net income on a monthly basis. We will engage engineering and geological consultants as required. All the activities of the Operator shall be under the supervision of the parties to this agreement including daily and other interval reports. Falcon Crest Energy Inc. will be responsible for the funding of this project, with the initial operating funds of twenty-five thousand dollars ($25,000) due in 30 days from the date of the agreement.


On 11/14/2013 the Board of Directors authorized the issuance of five million (5,000,000) shares of rule 144 restricted common stock at a price of .015 per share value paid by the company and issued to Patrick Johnson for accepting the COO position, service as a Director and his efforts to bring a new venture and funding to the company. This issuance represents ownership of 20% of the current authorized and outstanding shares (25,000,000) of Falcon Crest Energy Inc.


On 11/26/2013 the Board of Directors authorized the conversion of old debt into Falcon Crest Energy Inc. Free Trading Common Stock in the amount of thirty three thousand dollars ($33,000) to QuoteBrand at a conversion rate of $.03 cents per share for a total of one million one hundred thousand shares (1,100,000) of Falcon Crest Energy Inc. common stock. This conversion will reduce the QuoteBrand Note Payable, issued on February 15, 2011 for cash funds received by Falcon Crest Energy Inc.



8




On January 6, 2014 the Board of Directors of Falcon Crest Energy Inc. met to review the notification from its auditor, Sam Kan and Company, concerning his issues with the SEC and that he was giving up his PCAOB certification license to perform public audits. The board discussed the work that had been performed by KLJ and Associates, LLP on the last three reporting when Sam Kan and Company, transferred the quarterly reviews to KLJ and Associates, LLP. The Board of Directors approved the following action; On January 6, 2014, the Board of Directors dismissed Sam Kan and Company, its independent registered public accounting firm. On the same date, January 6, 2014, the accounting firm of KLJ and Associates, LLP was engaged as the new independent registered public account firm.


On June 4, 2014 the Board of Directors appointed Patrick Johnson, Chief Executive Officer (CEO).


On June 4, 2014 the Board of Directors appointed Terry Lynch, President and Chairman of the Board.


On June 10, 2014 the Company appointed James Kerr, Chief Financial Officer (CFO).


On July 11, 2014 the Board of Directors authorized the conversion of existing debt into Falcon Crest Energy Inc. Free Trading Common Stock in the amount of thirty three thousand dollars ($81,000) to QuoteBrand at a conversion rate of $.03 cents per share for a total of two million seven hundred thousand shares (2,700,000) of Falcon Crest Energy Inc. common stock. This conversion will reduce the QuoteBrand Note Payable, issued over the past several years for cash funds received by Falcon Crest Energy Inc.with a current balance due of ninety thousand seven hundred forty eight dollars ($90,700) as of August 31, 2014.


Subsequent Events to the August 31, 2013 Financial Reporting


Compliance with Environmental Laws


We are not aware of any environmental laws violations or issues.


Employees


We have no full-time employees at the present time.


Reports to Securities Holders


We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with the disclosure rules for a small business issuer under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements including filing Form 10K annually and Form 10Q quarterly. In addition, we will file Form 8K and other proxy and information statements from time to time as required. We do not intend to voluntarily file the above reports in the event that our obligation to file such reports is suspended under the Exchange Act. The public may read and copy any materials that we file with the Securities and Exchange Commission, ('SEC'), at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.


ITEM 1A. RISK FACTORS


WE MAY BE ADVERSELY AFFECTED BY VALUE OF OUR PRODUCT GIVEN IT IS SET BY WORLD DEMAND AND BEYOND OUR CONTROL


We face risks of losses in inventory value given the nature of the valuation of precious metals. The value of such metals is determined by the demand for them on a global scale and is beyond our control. While we do not anticipate there to be a significant decrease in the value of precious metals, we cannot guarantee any such change in value.



9




THERE IS SUBSTANTIAL UNCERTAINTY AS TO WHETHER WE WILL CONTINUE OPERATIONS.


If we discontinue operations, you could lose your investment. Our auditors have discussed their uncertainty regarding our business operations in their audit report dated August 31, 2014. This means that there is substantial doubt that we can continue as an ongoing business for the next 12 months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business. As such, we may have to cease operations and you could lose your entire investment.


WE LACK AN OPERATING HISTORY


There is no assurance that our future operations will result in continued profitable revenues. If we cannot generate sufficient revenues to operate profitably, our business will fail. We have very little operating history upon which an evaluation of our future success. We cannot guarantee that we will be successful in generating revenues in the future. Failure to generate revenues will cause us to go out of business.


BECAUSE OUR MANAGEMENT DOES NOT HAVE PRIOR EXPERIENCE IN MINING, OUR BUSINESS HAS A HIGHER RISK OF FAILURE.


Our current directors do not have experience in the mining industry. As a result, we may not be able to recognize and take advantage of opportunities without the aid of qualified marketing and business development consultants. Our directors' decisions and choices may not be well thought out and our operations, earnings and ultimate financial success may suffer irreparable harm as a result.


OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS AND THE FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK


Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker- dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.


In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the National Association of Securities Dealers believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The National Association of Securities Dealers' requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.


ITEM 2. PROPERTIES


The company is currently relocating to 100 King St. E., Suite 5600, Toronto, ON, M5X 1C9 where it rents office space on a month to month basis for $500.00 per month.



10




On August 27, 2010 Globalfinishing Ecuador acquired the Murciealagos Vizcaya and Lilly Rai mining concessions, located in Ecuador's El Oro Province. Falcon Crest Energy Inc. funded the initial purchase with the assumption of majority ownership of Globalfinishing Ecuador via its acquisition agreement for 51% of Global Finishing Inc. the parent of Globalfinihing Ecuador. Due the cancellation of the share exchange agreement on October 20, 2010 the parties must negotiate the ownership of the initial purchase and subsequent funds due. Falcon Crest Energy Inc. has recorded the funds advanced to Global Finishing Inc. as a note receivable until such time as the matter is resolved. Under the terms of the purchase agreement for the mining properties, Globalfinishing Ecuador owes a total sum of $1,200,000 for the properties, with the initial down payment of $250,000 funded by Falcon Crest Energy Inc. Five additional payments totaling $950,000 are due every sixth month thereafter. On September 6, 2011 Global Finishing Inc. and Falcon Crest Energy Inc. entered into an agreement whereby Global assigned 50% interest of the MURCIELAGOS VIZCAYA and LILLY RAI, Ecuador properties as collateral for the $390,000 outstanding note due Falcon Crest Energy Inc. The parties to the agreement expect the repayment within a 90 day period. The specific terms of the agreement have been filed in an 8K filing on September 7, 2011.


On November 23, 2010 Falcon Crest Energy Inc. acquired from Sedunda Oportunidad, LLC, the 100% working interest in an Oil and Gas Leasehold Estate including the effective net revenues flowing therefrom. The effective net revenue yield is 82% after the landowner Royalty is paid. The property, Thomas Lease, one well located center of south quarter section 7, Township 24 North Range West, Garfield County, Oklahoma, Book 1955 page 534 on 8/13/09. It is anticipated that an additional $150,000 working capital will be required to return the property to the status of a working well.


On February 20, 2011 Falcon Crest Energy Inc. entered into a material definitive agreement with Steele Resources, Inc. (SELR: OTCBB) to acquire 50% of the Mineral Hill Gold Exploration Project. The project is located near Pony Hill, Montana in the Mineral Hill Mining District and consists of 17 patented and 67 unpatented lode mining claims (approximately 1,800 acres). The agreement is a 50/50 Joint Venture under which the two companies will work together to explore and operate the claims. The initial participating interests of Falcon Crest Energy, Inc. and Steele Resources, Inc. in the JV will be 50% and 50%. Under the terms of the agreement, Falcon Crest Energy may contribute up to $5,000,000 in operating funds over one year. In the event those funds are not provided, Falcon Crest Energy will forfeit 10% per $1,000,000 not provided. Steele Resources, Inc. will act as the operating partner and have a commitment to match up to $5,000,000 in funding within one year of Falcon Crest Energy, Inc. contributing its first $1,000,000. Steel Resources, Inc. will forfeit 10% per $1,000,000 not provided under its obligation. Falcon Crest Energy Inc. made the initial payment of three hundred thousand dollars ($300,000) under the terms of the LOI dated January 27, 2011. On August 30, 2011 Falcon Crest Energy Inc. notified Steele Resources that the company no longer felt that the capital committed and necessary for the project could be secured by Falcon Crest Energy in a timely manner and Falcon Crest Energy Inc. felt it was in the best interest of the shareholders of both companies to terminate the agreement. The parties to the original agreement terminated the agreement on Aug 31, 2011.


ITEM 3. LEGAL PROCEEDINGS


We are not currently a party to any legal proceedings, and we are not aware of any pending or potential legal actions.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


No matters were submitted to a vote of security holders during the fiscal year ended August 31, 2013.



11




PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.


(a)

Market Information


The common shares of Falcon Crest Energy Inc. are quoted on the OTC.


The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.


We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our intention is to retain future earnings for use in our operations and the expansion of our business.


2013

 

High

 

Low

First Quarter

$

0.01

$

0.01

Second Quarter

$

0.01

$

0.01

Third Quarter

$

0.01

$

0.01

Fourth Quarter

$

0.01

$

0.01

 

 

 

 

 

2014

 

High

 

Low

First Quarter

$

0.02

$

0.04

Second Quarter

$

0.02

$

0.02

Third Quarter

$

0.08

$

0.02

Fourth Quarter

$

0.01

$

0.07


Our shares of common stock commenced quotation on the OTC Bulletin Board under the symbol INCT on June 3, 2008 and currently traade under the symbol FCEN.


(b)

Holders of Common Stock: Currently we have approximately 30 shareholders of record, and 63,100,000 shares issued and outstanding with an approximate float of 6,000,000 shares as of August 31, 2014. Because of our small shareholder base, our stock may not experience high volume trading in the near future. We anticipate more shareholders in the future, but cannot guarantee any such happening.



12




(c)

Dividends: There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend


1.

we would not be able to pay our debts as they become due in the usual course of business; or


2.

our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future.


(d)

Securities Authorized for Issuance under Equity Compensation Plans: There are no outstanding grants or rights or any equity compensation plan in place.


Recent Sales of Unregistered Securities


During the period from September 27, 2006 (inception) to November 30, 2008, the Company issued 4,000,000 shares of common stock at $0.001 per share to its directors for total proceeds of $4,000 and 3,000,000 shares of common stock at $0.010 per share for total proceeds of $30,000. These funds we used for company initial operating expenses.


On September 19, 2009 convertible notes in the amount of $10,000.00 were converted to 10,000,000 shares of rule- 144 restricted common stock. The value of the shares was determined by the Board of Directors at the time the Company secured ten thousand dollars ($10,000.00) in funding from outside parties to fund the company, that funding was completed at .001 per share. The company issued 3,000,000 shares as approved by the Board of Directors to the President and CEO Wayne A Doss, for services valued at $3,000.00 at the same per share basis as the convertible Notes.


During the year ended August 31, 2010 the Company also issued 3,000,000 shares of its common stock to its president for consideration of services provided. These shares were valued at $.001 per share for total consideration of $3,000. Further during the year ended August 31, 2010, the Company issued 10,000,000 shares valued at $.001 for the conversion of a $10,000 note payable. The funds were utilized for company operations. Also during the year ended November 30, 2010 the Company issued 10,000,000 shares of its common stock which were held in escrow pending the close of a share exchange. These shares were rescinded.


On 11/14/2013 the Board of Directors authorized the issuance of five million (5,000,000) shares of rule 144 restricted common stock at a price of .015 per share value paid by the company and issued to Patrick Johnson for accepting the COO position, service as a Director and his efforts to bring a new venture and funding to the company. This issuance represented ownership of 20% of the then authorized and outstanding shares (25,000,000) of Falcon Crest Energy Inc.


On 11/26/2013 the Board of Directors authorized the conversion of old debt into Falcon Crest Energy Inc. Free Trading Common Stock in the amount of thirty three thousand dollars ($33,000) to QuoteBrand at a conversion rate of $.03 cents per share for a total of one million one hundred thousand shares (1,100,000) of Falcon Crest Energy Inc. common stock. This conversion will reduce the QuoteBrand Note Payable, issued on February 15, 2011 for cash funds received by Falcon Crest Energy Inc.


On 7/11/14 the Board of Directors authorized the conversion of existing debt into Falcon Crest Energy Inc. Free Trading Common Stock in the amount of thirty three thousand dollars ($81,000) to QuoteBrand at a conversion rate of $.03 cents per share for a total of two million seven hundred thousand shares (2,700,000) of Falcon Crest Energy Inc. common stock. This conversion will reduce the QuoteBrand Note Payable, issued over the past several years for cash funds received by Falcon Crest Energy Inc. with a current balance due of ninety thousand seven hundred forty eight dollars ($90,700) as of August 31, 2014.



13




The offer and sale of all Shares of our common stock listed to the previous officers and directors and the selling shareholders identified in the S-1 were affected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Regulation S promulgated under the Securities Act. The Investor acknowledged the following: Subscriber is not a United States Person, nor is the Subscriber acquiring the Shares directly or indirectly for the account or benefit of a United States Person. None of the funds used by the Subscriber to purchase the Units have been obtained from United States Persons. For purposes of this Agreement, "United States Person" within the meaning of U.S. tax laws, means a citizen or resident of the United States, any former U.S. citizen subject to Section 877 of the Internal Revenue Code, any corporation, or partnership organized or existing under the laws of the United States of America or any state, jurisdiction, territory or possession thereof and any estate or trust the income of which is subject to U.S. federal income tax irrespective of its source, and within the meaning of U.S. securities laws, as defined in Rule 902(o) of Regulation S, means:


(i) any natural person resident in the United States; (ii) any partnership or corporation organized or incorporated under the laws of the United States; (iii) any estate of which any executor or administrator is a U.S. person; (iv) any trust of which any trustee is a U.S. person; (v) any agency or branch of a foreign entity located in the United States; (vi) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person; (vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and (viii) any partnership or corporation if organized under the laws of any foreign jurisdiction, and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts. There have been no issuances of preferred stock.


Issuer Purchases of Equity Securities


We did not repurchase any of our equity securities during the years ended August 31, 2014 or 2013.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


Our Current Business


RESULTS OF OPERATIONS


The following is a discussion and analysis of our results of operation for the years ended August 31, 2014 and 2013, and the period of September 27, 2006 (Inception) to August 31, 2014 and the factors that could affect our future financial condition. This discussion and analysis should be read in conjunction with our audited financial statements and the notes thereto included elsewhere in this annual report. Our financial statements are prepared in accordance with United States generally accepted accounting principles. All references to dollar amounts in this section are in United States dollars unless expressly stated otherwise.


 

 

2014

 

2013

Revenue

$

$

Operating Expenses

 

(1,218,037)

 

(348,368)

Other Expenses

 

(520,548)

 

(97,376)

Income from Discontinued Operations

 

 

Net Loss

$

(1,718,555)

$

(445,743)


Revenue


Our gross revenue for the years ended August 31, 2014 and 2013 was $0 and $0 since is the Company is in the process of acquiring and producing oil land lease operations, but currently do not have interest in an operating property.




14




Operating Costs and Expenses


The major components of our expenses for the years ended August 31, 2014 and 2013 are outlined below:


 

 

2014

 

2013

Operating expenses

 

 

 

 

Professional fees

$

362,957

$

70,252

Travel and promotion

 

52,817

 

15,522

Exploration Costs

 

278,500

 

Bad debt/Amortization

 

 

250,000

Other general & admin

 

523,763

 

12,594

Total operating expenses

$

1,218,037

$

348,368


Operating Expenses


The increase in our operating costs for the year ended August 31, 2014, compared to the year ended August 31, 2013, was due to the increase in reserve for bad debt expenses. All these increases are associated with the change in activities and related to implementation of our business plan.


Working Capital


 

 

2014

 

2013

Current Assets

$

11,489

$

11,667

Current Liabilities

 

2,488,490

 

1,736,003

Working Capital Deficiency

 

2,477,001

 

1,724,336


Cash Flow


 

 

2014

 

2013

Cash Used in Operating Activities

$

(318,197)

$

(33,918)

Cash Used in Investing Activities

 

 

(250,000)

Cash Provided by Financing Activities

 

318,019

 

285,690

Net Change in Cash

$

(179)

$

11,667


We had cash of $11,489, accounts receivable of $0, notes receivable of $0 and net of reserves of $0, accounts payable and accrued liabilities of $319,821 derivative liability of $106,785, accrued interest $383,450 related party payable $1,324,848 and notes payable $353,586 of August 31, 2014. Further, we had cash of $11,667, accounts receivable of $0, accounts payable and accrued liabilities of $114,050 and a loans payable of $1,621,953 as of August 31, 2013.


Cash Used In Operating Activities


We used cash in operating activities in the amount of $318,197 and $33,918 during the years ended August 31, 2014 and 2013Cash used in operating activities was funded by cash from financing activities.


Cash From Investing Activities


No use of cash in 2014. In 2013 we used cash of 250,000 to Global Finishing Inc. for joint ownership of mining properties in Ecuador and Steele Resources Inc., for failed joint ventures due to the company inability to secure the balance of the funds necessary to complete these joint ventures. The investing funds are recorded as a Note Receivable due from Global Finishing Inc. and Steele Resources Inc. and fully reserved but the company will continue to monitor both situations and take appropriate action to collect if the opportunity arises.


Cash from Financing Activities


As of August 31, 2014, the Company has mostly funded its initial operations through the issuance of $318,009 in shareholder and other notes payable and interest expense and 285,690 in 2013.



15




Due to the "startup" nature of our business, we expect to incur losses as it expands. To date, our cash flow requirements have been primarily met by equity financings. Management expects to keep operating costs to a minimum until cash is available through financing or operating activities. Management plans to continue to seek other sources of financing on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. In the event Falcon Crest Energy Inc. is unable to generate sufficient profits or unable to obtain additional funds for our working capital needs, we may be forced to cease or curtail operations. Furthermore, there is no assurance the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company's operations. For these reasons, our auditors believe that there is substantial doubt that we will be able to continue as a going concern.


Going Concern


The audited financial statements for the years ended August 31, 2014 and 2013 with cumulative totals from inception, included in this annual report, have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has generated $0 in revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate substantial earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As at August 31, 2014, our company has accumulated losses of $(3,299,871) since inception. As we do not have sufficient funds for our planned operations, we will be required to raise additional funds for operations.


Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the year ended August 31, 2014 our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.


The continuation of our business is dependent upon us raising additional financial support. 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.


Falcon Crest Energy Inc., Steele Resources and the parties to the initial joint venture agreement have decided to mutually terminated the JV Agreement on August 31, 2011 regarding the past due funding of $460,000 and the additional $4,000,000 for the Mineral Hill project.


The company plans to raise additional capital by the use of Notes Payable, Convertible Notes Payable, Private Placements, partnerships, and revenue sharing in future opportunities. This method of funding may lead to stock dilution and changes in control. The company’s operating budget to maintain the public entity reporting requirements is approximately $50,000. We are still in discussion with Global Finishing Inc. concerning Ecuador. The Company has adjusted the amount owing to zero, but still expects to receive some form of compensation. Global has indicated they intend to repay the notes receivable in the amount of $389,000.00.


Future Financings


We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to secure sufficient funding from the sale of our common stock to fund our marketing plan and operations. At this time, we cannot provide investors with any assurance that we will be able to secure sufficient funding from the sale of our common stock or through a loan from our directors to meet our obligations over the next twelve months. We do not have any arrangements in place for any future equity financing.


Off-Balance Sheet Arrangements


We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.



16








FALCON CREST ENERGY INC.


FINANCIAL STATEMENTS

August 31, 2014 and 2013








F-1




[f10k083114_10k001.jpg]


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of Falcon Crest Energy, Inc.


We have audited the accompanying   balance sheets of Innocent, Inc. (the “Company”) as of August 31, 2014 and 2013, and the related statements of operations, stockholders’ equity, and cash flows for the years the ended. Falcon Crest Energy, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, based upon our audit the financial statements referred to above present fairly, in all material respects, the financial position of Falcon Crest Energy, Inc. as of August 31, 2014 and 2013 and the results of its operations and its cash flows for the years ended August 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, The Company has not earned revenue, has suffered net losses and has had negative cash flows from operating activities during the years ended August 31, 2014 and 2013. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.



/s/ KLJ & Associates, LLP


KLJ & Associates, LLP

St. Louis Park, MN

December 18, 2014




1660 South Highway 100

Suite 500

St. Louis Park, MN 55416

630.277.2330




F-2




FALCON CREST ENERGY INC.

Balance Sheets


 

 

August 31,

 

 

2014

 

2013

ASSETS

 

 

 

 

Current assets

 

 

 

 

       Cash

$

11,489

$

11,667

       Notes receivable, net of allowance $878,354

 

 

Total current assets

 

11,489

 

11,667

Oil and Natural Gas Property, Unproved (successful efforts method)

 

25,000

 

210,000

 

 

 

 

 

Total assets

 

36,489

 

221,667

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

$

123,770

$

Notes payable

 

353,586

 

768,466

Related party payables

 

1,324,848

 

591,950

Accrued interest

 

383,450

 

261,537

Derivative liability

 

106,785

 

Accrued expenses and other liabilities

 

196,051

 

114,050

Total current liabilities

 

2,488,490

 

1,736,003

 

 

 

 

 

Notes payable (non-current portion)

 

 

Total liabilities

 

2,488,490

 

1,736,003

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 63,100,000 and 20,000,000 issued and outstanding at August 31, 2014 and 2013, respectively

 

63,100

 

20,000

Shares Held in Escrow

 

(10,000)

 

Additional paid in capital

 

794,770

 

27,000

Deficit accumulated during the development stage

 

(3,299,871)

 

(1,561,336)

Total stockholders' deficit

 

(2,452,001)

 

(1,514,336)

 

 

 

 

 

Total liabilities and stockholders' deficit

$

36,489

$

221,667


See accompanying notes to financial statements.



F-3




FALCON CREST ENERGY INC.

Statements of Operations


 

 

Year ended August 31,

 

 

2014

 

2013

 

 

 

 

 

Revenues

$

$

 

 

 

 

 

Operating expenses

 

 

 

 

Professional fees

 

362,957

 

70,252

Travel and promotion

 

52,817

 

15,522

Bad debt

 

 

250,000

Exploration Costs

 

278,500

 

Other general & administrative

 

523,763

 

12,592

Total operating expenses

 

1,218,037

 

348,366

Loss from operations

 

(1,218,037)

 

(348,366)

 

 

 

 

 

Other income (expense)

 

 

 

 

Interest expense

 

 

(97,376)

Debt discount

 

 

Derivative expense

 

 

Impairment of assets

 

 

Loss on extinguishment of debt

 

 

Total other income (expense)

 

 

(97,376)

 

 

 

 

 

Net loss

$

(1,738,535)

$

(445,742)

Basic and diluted loss per common share

$

(0.05)

$

(0.02)

Weighted average shares outstanding, basic and diluted

 

35,358,630

 

20,000,000


See accompanying notes to financial statements.



F-4




FALCON CREST ENERGY INC.

Statement of Changes in Stockholders' Equity (Deficit)


 

 

Common Stock

Additional Paid in

Shares Held in

Subscription

Accumulated

 

 

 

Shares

Amount

($)

Capital

($)

Escrow

($)

Receivable

($)

Deficit

($)

Total

($)

Balance, August 31, 2012

 

20,000,000

20,000

27,000

(1,115,594)

(1,068,594)

Net loss, year ended August 31, 2013

 

(445,742)

(445,742)

Balance, August 31, 2013

 

20,000,000

20,000

27,000

(1,561,336)

(1,514,336)

 

 

 

 

 

 

 

 

 

Common Stock Issued to Directors & Advisors

 

2,000,000

2,000

2,000

Common Stock Issued for Executives

 

27,200,000

27,200

575,050

602,250

Common Stock Issued for Services

 

100,000

100

720

820

Common Stock Issued for Conversion of debt

 

3,800,000

3,800

192,000

195,800

Non-trading Shares set aside for cancellation(Aug 2011)

 

10,000,000

10,000

(10,000)

Net Loss, year ended August 31 2014

 

(1,738,535)

(1,738,535)

 

 

 

 

 

 

 

 

 

Balance, August 31, 2014

 

63,100,000

63,100

794,770

(10,000)

(3,299,871)

(2,452,001)


See accompanying notes to financial statements.



F-5




FALCON CREST ENERGY INC.

Statements of Cash Flows


 

 

Year ended August 31,

 

 

2014

 

2013

Cash flows from operating activities

 

 

 

 

Net loss

$

(1,738,535)

$

(445,742)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

Change in derivative

 

58,335

 

Debt discount

 

48,450

 

Common stock issued for services

 

605,070

 

Impairment loss

 

210,000

 

Stock issued to convert debt

 

114,000

 

Extinguishment of debt

 

81,800

 

Bad debt expense

 

 

250,000

Changes in operating assets and liabilities:

 

 

 

 

Accounts payable

 

123,770

 

(200)

Interest payable

 

121,912

 

97,375

Accrued expenses and other liabilities

 

82,000

 

64,650

Cash provided by (used in) operating activities

 

(293,198)

 

(33,917)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Investment in oil and natural gas property

 

(25,000)

 

Note receivable

 

 

(250,000)

Cash flows used in investing activities

 

(25,000)

 

(250,000)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from related party loan

 

224,678

 

250,500

Repayments of related party loan

 

 

Proceeds from notes payable

 

93,341

 

35,190

Proceeds from sale of stock

 

 

Cash provided by financing activities

 

318,019

 

285,690

Net change in cash

$

(179)

$

1,773

Cash at beginning of period

$

11,667

$

9,894

Cash at end of period

$

11,488

$

11,667

 

 

 

 

 

Supplemental disclosure of non-cash investing activities

 

 

 

 

Common shares issued for conversion of debt

$

114,000

$

 

 

 

 

 

Supplemental cash flow Information:

 

 

 

 

Cash paid for interest

$

$

Cash paid for income taxes

$

$


See accompanying notes to financial statements.



F-6




FALCON CREST ENERGY INC.

Notes to Financial Statements

August 31, 2014 and 2013


NOTE 1 – NATURE OF BUSINESS


The Company was incorporated in the State of Nevada, United States of America on September 27, 2006 and its fiscal year end is August 31. The Company was engaged in sales of new food products produced or developed by North American companies to foreign markets and discontinued that business in August 2009. The Company currently operates in the oil and gas industry, focused on the exploration for and development of oil and gas properties.


NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation


The financial statements present the balance sheet, statements of operations, stockholders' equity and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.


Estimates


The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


Cash


Cash and cash equivalents include short-term, highly liquid investments with maturities of less than three months when acquired.


Oil and Gas Property


The Company applies the successful efforts method of accounting for oil and gas properties. When incurred, exploration costs such as exploratory geological and geophysical costs, delay rentals, and exploration overhead will be charged against earnings as incurred. If an exploratory well provides evidence to justify potential completion as a producing well, drilling costs associated with the well will be initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. Acquisition costs of unproved properties are periodically assessed for impairment and will be transferred to proved oil and gas properties to the extent the costs are ultimately associated with successful exploration activities. Any significant undeveloped leases will be assessed individually for impairment, based on the Company’s current exploration plans, and a valuation allowance is provided if impairment is indicated.


Income taxes


The Company accounts for income taxes under ASC 740 "Income Taxes" which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. 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. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.



F-7




FALCON CREST ENERGY INC.

Notes to Financial Statements

August 31, 2014 and 2013


NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Fair Value of Financial Instruments


The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, accounts payable, notes payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at August 31, 2013.


FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:


Level 1. Observable inputs such as quoted prices in active markets;


Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and


Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.


The Company does not have any assets or liabilities measured at fair value on a recurring basis at August 31, 2014. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a nonrecurring basis during the years ended August 31, 2014 or 2013.


Depreciation, Depletion, and Amortization


Upon beginning exploratory activities, costs of drilling and equipping successful wells, costs to construct or acquire facilities, associated asset retirement costs, and capital lease assets used in oil and gas activities will be depreciated using the unit-of-production (UOP) method based on total estimated proved developed oil and gas reserves. Costs of acquiring proved properties, including leasehold acquisition costs transferred from unproved properties and associated asset retirement costs, will be depleted using the UOP method based on total estimated proved developed and undeveloped reserves. Mineral properties will also deplete using the UOP method. All other properties are stated at historical acquisition cost, net of impairments, and are depreciated using the straight-line method over the useful lives of the assets, which range from 3 to 15 years for furniture and equipment, up to 40 years for buildings, and up to 47 years for gathering facilities.


Earnings Per Share Information


FASB ASC 260, “Earnings Per Share” provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Basic and diluted loss per share were the same, at the reporting dates, as there were no common stock equivalents outstanding.


Share Based Expenses


ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123, which prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. , may be classified as either equity or liabilities.



F-8




FALCON CREST ENERGY INC.

Notes to Financial Statements

August 31, 2014 and 2013


NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Share Based Expenses (continued)


The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions ofASC 505-50 "Equity - Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or inConjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.


Revenue recognition


The Company recognizes revenue when services are rendered on the accrual basis of accounting in accordance with generally accepted accounting principles in ASC 605. The Company does not recognize revenue until all four of the following criteria are met: (1) Persuasive evidence of an arrangement exists, (2) Services have been rendered, (3) The seller’s price to the buyer is fixed and (4) Collectability is reasonably assured. We have not yet recognized revenue since inception on September 27, 2006.


Recent Accounting Pronouncements


On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements


NOTE 3 – GOING CONCERN


The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. The Company has accumulated deficit since inception of $2,345,215.We have negative working capital of $2,370,215 as of August 31, 2014. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company has minimal cash and no material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The officers and directors have committed to advancing certain operating costs of the Company.


NOTE 4 – STOCKHOLDERS' EQUITY


The total number of common shares authorized that may be issued by the Company is 200,000,000 shares with a par value of $.0001per share and no other class of shares is authorized.


On November 5, 2013 5,000,000 shares issued to a consultant for services performed.


On November 26, 2014 1,100,000 shares were issued related to a debt conversion of $33,000 of principle the market price per share was $0.07


On June 20, 2014 500,000 Shares were issued to advisory board member



F-9




FALCON CREST ENERGY INC.

Notes to Financial Statements

August 31, 2014 and 2013


NOTE 4 – STOCKHOLDERS' EQUITY (CONTINUED)


On June 20, 2014 100,000 Shares were issued to vendor for services performed


On June 20, 2014 14,000,000 shares were issued to executives of the company for services performed.


On July 1, 2014 6,150,000 shares were issued to executives of the company for services performed.


On July 11, 2014 2,000,000 shares were issued to executives of the company for services performed.


On July 11, 2014 2,700,000 shares were issued related to a debt conversion of $81,000 of principle the market price per share was $0.044


On August 20, 2014 1,500,000 Shares were issued to advisory board members for services performed.


NOTE 5 – CONVERTIBLE NOTES PAYABLE


On August 5th, 2014, the Company issued a convertible promissory note in the amount of $32,500. The note is due on May 7th, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58%multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date.


On August 5th, 2014, the Company issued a convertible promissory note in the amount of $36,750. The note is due on August 5th, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 55% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date.


On August 12th, 2014, the Company issued a convertible promissory note in the amount of $25,000. The note is due on August 12th, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the fifteen (14) trading day period ending on the latest complete trading day prior to the conversion date.


NOTE 6 – DERIVATIVE LIABILITIES


In accordance with AC 815, the Company has bifurcated the conversion feature of their convertible notes and recorded a derivative liability on the date each note became convertible. The derivative liability was then revalued on each reporting date. The Company uses the Black-Scholes option pricing model to value the derivative liability. Included in the model to value the derivative liabilities of the above loans are the following assumptions: stock price at valuation date of $0.037 - $0.041, exercise price of $0.015 - $0.015, dividend yield of zero, years to maturity of 0.504 – .474, a risk free rate of 0.06% - .05%, and annualized volatility of 263% - 272%. The above loans were all discounted in full based on the valuations and the Company recognized an additional derivative expense of $94,376 upon recording of the derivative liabilities. Once the loans are fully converted, the remaining derivative liability is reclassified to equity as additional paid-in capital. As of August 31, 2014, unamortized debt discount totaling $94,250 remained.


ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the above convertible debt. During the period ended August 31, 2014, the Company recorded a total change in the value of the derivative liabilities of $12,418.


From inception to August 31, 2013 the Company has not granted any stock options.



F-10




FALCON CREST ENERGY INC.

Notes to Financial Statements

August 31, 2014 and 2013


NOTE 7 – INCOME TAXES


We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. Under ACS 740 “Income Taxes,” when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carryforwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carryforward period.


The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the period ended August 31, 2013, applicable under ACS 740. As a result of the adoption of ACS 740, we did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.


The provision for federal income tax consists of the following:


Federal income tax benefit attributable

 

2014

 

2013

Current operations

$

608,487

$

156,010

Valuation allowance

 

(608,487)

 

(156,010)

Net deferred tax asset

$

$


A reconciliation of income taxes computed at the 35% statutory rate to the income tax recorded is as follows:


 

 

2014

 

2013

Net operating loss carry forward

$

1,138,505

$

530,017

Valuation allowance

 

(1,138,505)

 

(530,017)

Net deferred tax asset

$

$


The Company did not pay any income taxes during the years ended August 31, 2014 or 2013.


The net federal operating loss carry forward will expire in 2032. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.


NOTE 8 – RELATED PARTY TRANSACTIONS


The Company has current loans totaling $1,324,848 to fund operations which carry varying interest rates. As of August 31, 2014 and 2013, the Company owed $1,324,848 and $591,950 of principal plus accrued interest of $383,450 and $261,537. The loans are unsecured and due on demand and as such are included in current liabilities. A portion of the related party transactions were reclassified in 2014 to properly reflect the relationship with the company.


NOTE 9 – NOTE RECEIVABLE


The Company has advanced funds totaling $540,010 to Steele Resources with the intention of establishing a joint venture. The venture did not materialize and Steele Resources has agreed to return the funds to the Company. We have not received repayment as of August 31, 2014 and have established a full reserve against the balance as a result.


The Company has advanced funds totaling $338,344 to Global Finishing with the intention of establishing a joint venture. The venture did not materialize. We have not received repayment as of August 31, 2014 and have established a full reserve against the balance as a result.



F-11




FALCON CREST ENERGY INC.

Notes to Financial Statements

August 31, 2014 and 2013


NOTE 10 – OIL AND NATURAL GAS PROPERTY


In December 2010, the Company entered into an agreement granting it the working interest in a currently non-operating oil well in exchange for $150,000 and $60,000 in improvements to the well for a total investment of $210,000. The reserves related to this property are unproved; as such the entire $210,000 is not subject to depreciation. This asset was fully impaired in 2014.


NOTE 11 – SUBSEQUENT EVENTS


On September 8th, 2014, the Company issued a convertible promissory note in the amount of $32,500. The note is due on June 10th, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 42% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date.


On October 20, 2014 The company, through its agents Pacer Energy Acquisitions LLC and Pahasapa Petroleum LLC received assignment of a 75% Working Interest Position in approximately 585 Acres in Crook County, Wyoming from the United States Bureau of Land Management (BLM).


On October 21, 2014 1,000,000 Shares were issued to Cloud Solutions LLC for services


On October 29, 2014 3,000,000 Shares were issued to Corporate Ads LLC for services


On October 19, 2014 James Kerr resigned as the Company’s Chief Financial Officer.


The Company has evaluated subsequent events from the balance sheet date through the date of this filing, and determined there are no additional events to disclose.




F-12




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE


None.


ITEM 9A. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls


(a)

Evaluation of Disclosure Controls and Procedures


The Company's Chief Executive Officer, who is its principal executive and chief financial officer, completed an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15 (e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period (August 31, 2014) covered by this Form 10-K. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company's Chief Executive Officer & CFO, has concluded the Company's disclosure controls and procedures, as of the end of the fiscal year covered by this Form 10-K were ineffective because of comments from the SEC that required additional disclosure and restatement of other disclosed information.


Conclusions


Based upon the evaluation of our controls, the chief executive officer/CFO has concluded that, the disclosure controls and procedures are ineffective providing reasonable assurance that material information relating to the company activity is communicated in sufficient detail. Although, changes have been made to provide the level of detail that is required in the company filings based upon the SEC comments, the company is not prepared at this time to remove the ineffective status of the disclosure controls and procedures. The company will continue to work in these deficiencies.


(b)

Management's Annual Report on Internal Control over Financial Reporting


The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act and for assessing the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer/ Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management evaluates the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – “Integrated Framework.” Management, under the supervision and with the participation of the Company’s Chief Executive Officer/ Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2014 and concluded that it is ineffective in assuring that the financial reports of the Company are free from material errors or misstatements.


Management has identified material weaknesses and is taking action to remedy and remove the weakness in its internal controls over financial reporting:


Lack of an independent board of directors with financial experience for Audit Committee and Financial Disclosure. The current Board of Directors is evaluating expanding the board of directors to include additional independent directors with financial Experience. The company, as financial resources are available plans to utilize outside CPA or other professional services to review the company financial reporting.




17




Lack of Segregation of Duties, as the same Officer/Director is responsible for initiating and recording transactions, thereby creating segregation of duties weakness. The company is working on funding and/or joint ventures and acquisitions which will lend support to the current sole officer of the corporation.


Comment letters from the SEC to expand/clarify information submitted in the prior filings. The company has addressed the initial comment letters from the SEC and is in the process of amending the related filings. The company will continue to review/research the SEC guidelines in insure future filings contain the necessary information and proper classification.


The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


This Annual Report on Form 10K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Annual Report on Form 10-K.


Conclusions


Based upon the evaluation of our controls, the chief executive officer/CFO has concluded that, the internal control over financial reporting are ineffective providing reasonable assurance that material information relating to the company activity is communicated in sufficient detail. Although, changes have been made to provide the level of detail that is required in the company filings based upon the SEC comments, the company is not prepared at this time to remove the ineffective status of the internal control over financial reporting The Company will continue to work in these deficiencies.


(c)

Changes in Internal Control over Financial Reporting


There were no changes in the Company's internal control over financial reporting that occurred during the period ended August 31, 2013 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting


PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE


All directors of our company hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. The officers of our company are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.


Our directors, executive officers and other significant employees, their ages, positions held and duration each person has held that position, are as follows:


Name

 

Position Held with the Corporation

 

Age

 

Date First Elected / Appointed

Patrick Johnson

 

CEO, Director

 

38

 

November 14, 2013

Terry Lynch

 

President, Director

 

55

 

June 14, 2014




18




Business Experience


Our directors, executive officers and control persons have not been involved in any of the following events during the past ten years except as noted below:


1.

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; except Terry Lynch our Chairman was director and later CEO of TSX listed Firstgold Inc. which filed for bankruptcy in 2010


2.

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);


3.

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or


4.

being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.


Falcon Crest Energy Inc. does not have any committees of the board of directors at this time. The board of directors does not have a nominations committee because there is two directors and shareholder suggestions would be known to the entire board. As such, the board of directors believes there will be sufficient communication by shareholders with the board about matters and nominees to be brought to its attention.


Falcon Crest Energy Inc. directors functions as an audit committee and performs some of the same functions as an audit committee including: (1) selection and oversight of the Company's independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (3) engaging outside advisors. Falcon Crest Energy Inc., board of directors has determined that its directors are not an "audit committee financial expert" within the meaning of the rules and regulations of the SEC. Falcon Crest Energy Inc., board of directors has determined, however, that its directors are able to read and understand fundamental financial statements and has business experience that results in that member's financial sophistication. Accordingly, the board of directors have directed that, in light of the material weaknesses identified in our disclosure controls and procedures and internal control over financial reporting, that the CEO become more familiar with the SEC Filing requirements and the company will seek additional outside assistance as funding becomes available to provide such a service.


The directors will serve as directors until our next annual shareholder meeting or until a successor is elected who accepts the position. Directors are elected for one-year terms. Officers hold their positions at the will of the Board of Directors, absent any employment agreement. There are no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of Falcon Crest Energy's affairs.




19




Code of Ethics


The Board of Directors adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers and employees, including our CEO and senior officers. A copy of our Code of Ethics is attached hereto as an Exhibit 14. Shareholders may also request a copy of the Code of Ethics from: Falcon Crest Energy Inc., Investor Relations, 100 King Street West, Suite 5600, Toronto ON, M5X 1C9.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of our common stock. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.


Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied.


ITEM 11. EXECUTIVE COMPENSATION.


Summary Compensation Table


The following table sets forth information concerning all compensation paid or accrued by us to our President and Chief Executive Officer and Chief Financial Officer and Director during the fiscal period ended August 31, 2014.


 

 

 

 

Annual Compensation

 

Long Term Compensation Awards Stock Options

Name and Principal Position

 

Fiscal Year

 

Salary

 

Stock

 

Granted

 

 

 

 

 

 

 

 

 

Patrick Johnson – CEO/CFO, Director

 

2013

$

150,000

$

15,000,000

$

 

 

 

 

 

 

 

 

 

Terry Lynch President, Director

 

2014

$

150,000

$

11,000,000

$


On September 1, 2009 Wayne A. Doss CEO/CFO, was issued 3,000,000 shares of rule-144 restricted common stock for services.


Option Grants in 2013

 

No options were granted during 2014 or 2013.


Aggregated Option Exercises in 2014 and 2013 Year-End Option Values


No options were exercised by our Officers or Directors during 2014 or 2013.


Stock Incentive Plan - Awards in 2014


During 2013 or 2012, no shares, options or other rights were granted to any of our employees or Officers.


Director Compensation


No options were granted or payments made in compensation for services rendered to any Falcon Crest Energy directors.



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


The following table sets forth information regarding the beneficial ownership of our shares of common stock at August 31, 2013, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, (ii) each of our directors, (iii) our executive officers, and (iv) by all of our directors and executive officers as a group. Each person named in the table, has sole voting and investment power with respect to all shares shown as beneficially owned by such person and can be contacted at our executive office address.


Title of Class

 

Name of Owner

 

Amount and Nature of Beneficial Ownership

 

Percent of Class (%)

Common

 

Patrick Johnson

 

15,000,000

 

23.8%

Common

 

Terry Lynch

 

11,000,000

 

17.4%

Common

 

Global Finishing

 

10,000,000

 

15.8%

Common

 

Alliance Strategic

 

5,000,000

 

7.9%

Common

 

Bay Street Capital

 

3,875,000

 

6.1%


The percent of class is based on 20,000,000 shares of common stock issued and outstanding as of the date of this annual report.


The Company has no securities authorized for issuance under equity compensation plans.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


During the fiscal year ended August 31, 2013:


The President of the Company provides management services to the Company. During the year ended August 31, 2013 accrued management services of $60,000 were charged to operations.


Otherwise, no director and officer, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to all of our outstanding shares, nor any promoter, nor any relative or spouse of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us.


RELATED PARTY NOTE HOLDERS:


NAME

 

AMOUNT

 

OFFICER/ DIRECTOR

 

SHAREHOLDER

A. Krioukov

 

22,130

 

 

 

YES

John Gingerich

 

250,000

 

YES

 

 

Ewing

 

273,500

 

YES

 

YES

Geotech Bus

 

15,000

 

 

 

YES

QuoteBrand

 

90,700

 

 

 

YES

Marcus Mueller

 

11,000

 

 

 

YES

P. Johnson

 

5,128

 

YES

 

YES

Ian Nuttall

 

315,000

 

 

 

YES

Wayne Doss

 

500

 

 

 

YES




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Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee's policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. Our audit committee approved all services that our independent accountants provided to us in the past two fiscal years.


PART IV


ITEM 15. EXHIBITS


(a)

The following exhibits are included as part of this report:


Exhibit Number

 

Title of Document

 

 

 

14

 

Code Of Conduct

31.1

 

Sec.302 Certification of CEO/CFO

32.1

 

Sec.906 Certification of CEO/CFO




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SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Falcon Crest Energy Inc.



/s/ Patrick Johnson

Patrick Johnson

CEO/CFO, and Director

Dated: December 17, 2014



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Falcon Crest Energy Inc.



/s/ Patrick Johnson

Patrick Johnson

CEO/CFO, and Director

Dated: December 17, 2014



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