Item 1 - BUSINESS
Corporate History
Force Fuels, Inc. was originally incorporated in the State of Nevada on July 15, 2002. Our name was changed from DSE Fishman, Inc. on May 13, 2008. Unless the context otherwise requires, the "Company", "Force Fuels", “we”, “our”, “ours”, and “us” refer to Force Fuels, Inc. and its wholly-owned subsidiary Great American Coffee Company, Inc.
The Company entered into an Assignment and Contribution Agreement with ICE Conversions, Inc. (“ICE”) effective July 31, 2008 (the “Assignment and Contribution Agreement”) whereby ICE transferred assets to the Company in return for 1,000,000 shares of the Company’s common stock and cash payments totaling $400,000, payable in two separate installment payments of $100,000 and $300,000, due on or before March 15, 2009 and June 15, 2009, respectively. The Assignment and Contribution Agreement superseded and renderd void and of no force or effect whatsoever the Joint Venture Agreement entered into May 12, 2008 by and between the Company and ICE.
ICE subsequently agreed to extend the timeline for the payments as follows: Force Fuels shall make eight separate payments of $50,000 each, due on or before the last day of each quarter of Force Fuels’ fiscal year, commencing with the first installment due on or before April 30, 2010. On June 3, 2010 the Assignment and Contribution agreement was amended, effective April 28, 2010, to substitute a non-exclusive license to use the technology, processes, formulations, methods, apparatuses, and know-how related to development, marketing or sale of hydrogen/electric hybrid cars. The previously contributed intellectual property was returned to ICE Conversions, Inc. and ICE Conversions, Inc. canceled the $739,689 owed to it by Force Fuels, Inc.
In the first half of the year, the company began expanding its activities in other energy-related fields with the intention of developing its presence in the traditional and alternative energy fields. The first step toward the implementation of our strategy involved the acquisition of 13 developed oil leases in Southern Kansas through the signing of a purchase agreement with PEMCO, an Oklahoma Oil Field operator. In the last few months, the Company has been finalizing financing, building a technical infrastructure and developing a plan for the refurbishing and development of the oil leases.
Business Description
As the strategic importance of national oil reserves becomes increasingly evident, the full exploitation of existing reserves and low yield wells has come under the spotlight. In the United States, one in six barrels of oil produced comes from a marginal well. Such wells are defined as producing less than 10 barrels of crude per day. In the U.S., marginal wells account for over 80% of all active wells. As new extraction technologies mature and become economically feasible for use on marginal wells, the potential value of these untapped resources increases. In addition, recent economic turmoil and an aging population of independent oil producers has created a convergence of events that, together with projected oil prices increasing, represent an unique opportunity for dynamic new entrants to the industry.
For these reasons, as of the date of this filing the company intends to move its primary focus to property acquisition, exploration, and development activities related to oil, gas and electrical production. These energy-based activities include traditional hydrocarbon-based oil and gas development, as well as “green” or “alternative” energy, which includes solar and wind electrical generation.
In the oil and gas field, the Company will focus on:
1) the purchase of marginally producing shallow oil wells, which are relatively inexpensive to operate and can be optimized with existing technologies;
2) the purchase of leases with potential for additional drilling in proven producing areas; and
3) the acquisition of in-house know-how to further optimize production through stimulation, refurbishing and site optimization.
The strategy of the Company is to invest principally in the acquisition or installation of energy-based assets that can contribute immediately and substantially to cash flow through sales to local energy companies, thus only requiring external or government financing for subsequent acquisitions and not for operating expenses.
In the short term, the Company will focus on maximizing revenue from its recent acquisition of over 2,600 acres of oil producing land leases with 49 oil strippers and 5 natural gas sites located in southern Kansas.
Subsequently, in the field of electrical energy production, the Company will focus solely on the exploitation of proven and established technologies that can generate a positive return on investment and tax benefits applicable to green energy and oil revenues. While naturally taking full advantage of current government assistance and incentives, placing a significant premium on the economic self-sustainability of all our projects and how new technologies and policies may affect us.
The company intends to continue to leverage its Intellectual Property assets through further development, expansion and marketing of the technology licensed from ICE Conversions, Inc. This development will be implemented through the creation of a fully owned subsidiary.
This drive train technology consists of a proprietary, zero emission hydrogen fuel cell/electric battery hybrid drive system. and relies on hydrogen fuel cells to produce electricity and acts as a range extender for electric drive vehicles. The Company is currently in the process of selecting a manufacturer to build the first prototypes. The Company intends to combine components purchased from various suppliers and partner those items with its proprietary technology and integrate all of the parts into complete electric drive vehicles.
Industry Overview
Energy Sector
According to government forecast, the price range, in 2007 dollars, for crude oil for the next 10 years will remain in the range between $80 and $115 per barrel.1 US crude oil production in 2008 was 4,950,000 barrels per day. 21% of electrical energy generated in the US in 2007 was from natural gas. 52% of US households are heated with natural gas. The majority of hydrogen produced in the United States is through reforming of natural gas.
Status of Oil Reserves in the United States
In 2007, the United States had 2% more proven reserves than in 2006.2 During the last 10 years, new yearly proven reserves have compensated for 96% of total oil production3 (thus not effectively reducing total available and proven oil reserves significantly).
1 EIA 2009 yearly forecast of crude oil prices. http://www.eia.doe.gov/oiaf/forecasting.html
2 DOE report on current oil and gas reserves 2008
Opportunities for Entry in the sector
A large number of oil and gas wells in the United States are owned by small producers and individuals. The aging of the owner population, the current economic crisis and recent improvements in extracting and stimulation technologies are providing a unique opportunity:
Poorly producing wells and smaller properties often are run without access to technical expertise and are not maintained correctly. Often, production can be increased simply by a small investment in maintenance and updated equipment.
Small property owners looking to “cash out” are too small for large operators.
Producers do not have access to funds for production optimization like stimulation or well depth modification.
Down spacing. Several locations are candidates for higher well densities and increased production, which, combined with a drastic drop in drilling and pumping equipment costs, make established reserves development desirable.
New low cost technologies applicable to low/non-producing small plots. Recent improvement in technologies, once difficult to control, like nitrogen stimulation or, too expensive to implement on a small
Hydrogen/Electric Vehicles
The emerging fuel cell and hydrogen vehicle industry offers a technological option to increasing worldwide energy costs coupled with, the long-term availability of petroleum reserves and environmental concerns.
Fuel cell, bio-diesel, electric and hydrogen hybrid vehicles, as a result of higher efficiency, reduced noise and lower tailpipe emissions, have emerged as a potential alternative to existing conventional internal combustion engine vehicles. Fuel cell industry participants are currently targeting the transportation and hydrogen refueling infrastructure markets. We believe that our hydrogen and hybrid enabling products of fuel storage, fuel delivery, battery and electronic control systems along with our vehicle-level system integration experience can be effectively applied in these markets.
Fuel cell and hydrogen-powered hybrid vehicles are being designed to provide clean, quiet power for a variety of applications in transportation, fleet, industrial, and military vehicles. In the automotive market, each of DaimlerChrysler, Ford, General Motors, Honda, Hyundai, Nissan, and Toyota Motor Corporation have unveiled fuel cell vehicles. General Motors is anticipated to begin close to the end of the decade mass production of fuel cell vehicles; DaimlerChrysler is anticipated to begin by 2012 to 2015; and Toyota is anticipated to begin by 2015. A new study from Pike Research has emerged suggesting that fuel cell vehicles are ripe for an explosive increase in volume. Pike predicts fuel cell vehicles (FCVs) will reach 670,000 in annual sales volume by 2020. Though the predicted volume is much higher than we anticipated, the study suggests that automakers will adopt fuel cell technology at a rapid rate over the next ten years, leading to high annual output. Of the 670,000 in annual sales, the U.S. will lead the way with 134,049 FCVs, China will hold a close second at 129,241 and Germany will round out the top three with 126,783 annual sales of FCVs.
We believe, as this technology of the future is being commercialized, this program has helped expedite the expansion of a hydrogen infrastructure and bridge the technology gap between conventional gasoline vehicles and fuel cell vehicles.
1) Intellectual Property
The emerging fuel cell and hydrogen vehicle industry offers a technological option to increasing worldwide energy costs coupled with, the long-term availability of petroleum reserves and environmental concerns. Fuel cell, bio-diesel, electric and hydrogen hybrid vehicles, as a result of higher efficiency, reduced noise and lower tailpipe emissions, have emerged as a potential alternative to existing conventional internal combustion engine vehicles. Fuel cell industry participants are currently targeting the transportation and hydrogen refueling infrastructure markets. We believe that our hydrogen and hybrid enabling products of fuel storage, fuel delivery, battery and electronic control systems along with our vehicle-level system integration experience can be effectively applied in these markets.
Fuel cell and hydrogen-powered hybrid vehicles are being designed to provide clean, quiet power for a variety of applications in transportation, fleet, industrial, and military vehicles. In the automotive market, each of DaimlerChrysler, Ford, General Motors, Honda, Hyundai, Nissan, and Toyota Motor Corporation have unveiled fuel cell vehicles. General Motors is anticipated to begin close to the end of the decade mass production of fuel cell vehicles; DaimlerChrysler is anticipated to begin by 2012 to 2015; and Toyota is anticipated to begin by 2015. A new study from Pike Research has emerged suggesting that fuel cell vehicles are ripe for an explosive increase in volume. Pike predicts fuel cell vehicles (FCVs) will reach 670,000 in annual sales volume by 2020. Though the predicted volume is much higher than we anticipated, the study suggests that automakers will adopt fuel cell technology at a rapid rate over the next ten years, leading to high annual output. Of the 670,000 in annual sales, the U.S. will lead the way with 134,049 FCVs, China will hold a close second at 129,241 and Germany will round out the top three with 126,783 annual sales of FCVs.
Hydrogen-powered hybrid and other hydrogen vehicles can begin to drive the demand for the refueling infrastructure of this clean fuel, a critical component to fuel cell vehicle commercialization. The South Coast Air Quality Management District located in Diamond Bar, Southern California, is positioning the Los Angeles, Orange and Riverside Counties to be ready for fuel cell vehicles by initiating a hydrogen-powered hybrid program. In January 2006, 30 hydrogen hybrid Toyota Priuses were obtained by fleets located in Southern California. The objective of this effort, funded by the South Coast Air Quality Management District, was to stimulate the early demand for hydrogen, expedite the development of infrastructure, and provide a bridge to fuel cell vehicles. We believe, as this technology of the future is being commercialized, this program has helped expedite the expansion of a hydrogen infrastructure and bridge the technology gap between conventional gasoline vehicles and fuel cell vehicles. We, also, believe that this can be the model for other markets where fuel cell vehicles will emerge, such as North America, Europe and Asia-Pacific. As such, we intend to initially focus our marketing efforts of hydrogen hybrid systems in Southern California.
As the strategic importance of national oil reserves becomes increasingly evident, the full exploitation of existing reserves and low yield wells have come under the spotlight. In the United States, one in six barrels of oil produced comes from a marginal well. Such wells are defined as producing less than 10 barrels of crude per day. In the U.S., marginal wells account for over 80% of all active wells. As new extraction technologies mature and become economically feasible for use on marginal wells, the potential value of these untapped resources increases. In addition, recent economic turmoil and an aging population of independent oil producers has created a convergence of events that, together with projected oil prices well over $70 per barrel, represent an unique opportunity for dynamic new entrants to the industry. For these reasons, the company remains confident that its long term plan to enter the traditional and alternative energy arenas will meet with significant success.
Business Strategy
1) Intellectual Property
We intend to utilize the intellectual property to establish a position as a provider of high performance zero emission sports cars. We will leverage our alternative fuel, electronic control, electric and hybrid electric drive systems, and hydrogen handling and refueling capabilities and experience to select off-the-shelf components for assembly into a variety of hybrid energy vehicles. We will diversify our customer base for these vehicles to include OEMs, OEM dealer networks and other strategic alliance and distribution partners.
Products
1) Intellectual Property
We will focus on marketing zero-emission Vehicles to a variety of alternate energy and green minded individuals, OEM dealer networks, as well as end-user consumers. We are uniquely positioned to leverage our knowledge and experience about alternative fuels, electronic controls, hydrogen and hybrid hydrogen/electric drive systems, and hydrogen handling and refueling. We intend to become part of the truly pollution free or reduced pollution solution and alternative energy conversion systems solution for today’s drivers.
At the present time we are completing a working, proof of concept prototype vehicle suitable for testing and demonstration of performance. The production version concept body pictured below will need to be engineered for DOT crash testing. The body will have to be built and the interior designed. At the present time, third party products exist for the various components that Cheetah intends to install in the production version concept vehicle. We have not made public announcements regarding the availability of our new vehicle. We believe acquisition of supplies, costs of assembly and other costs related to the production of the Vehicles will require the investment of a material amount of our current and future assets. We intend to become a one stop solution to provide a truly pollution free or reduced pollution, alternative energy conversion solution for today’s drivers. To accomplish this we will be producing and marketing the following alternative energies vehicles:
Cheetah EV (Electric Vehicle)
We are designing and will be marketing a battery only, 425 HP, 1,350 FT/LB of torque, zero emission electric Supercar. This plugin battery electric drive system eliminates dependence on gasoline, and eliminates pollution associated with burning fossil fuels. As with other battery only electric vehicles the Cheetah EV will have a limited driving range.
Cheetah HEV (Hydrogen Electric Vehicle)
We will also offer the 425 HP, 1,350 FT/LB of torque, zero emission Supercar powered by the proprietary Cheetah hydrogen/electric hybrid drive system. Hydrogen fuel cells produce electricity on demand and as such are used as range extenders for electric vehicles. All of the performance attributes of the vehicle are determined by the battery dominant power train. The addition of this optional hydrogen/electric hybrid drive system is expected to provide a driving range of greater than 300 miles. This hydrogen/electric hybrid drive system also eliminates dependence on gasoline, and eliminates pollution associated with burning fossil fuels.
Competition
1) Intellectual Property
In the fuel cell and hydrogen industry, our expertise will be in alternative fuel high performance vehicles. We do not manufacture fuel cells or fuel reformers or the parts we will use in our vehicles. We may face competition from traditional automotive component suppliers, such as Bosch, Delphi, Siemens, and Visteon, and from motor vehicle OEMs that develop alternative fuel systems internally. Also, Tesla, Fisker and Quantum are now the leading providers of alternative fuel technologies to the automotive industry and have already established a significant marketplace presence.
We believe that our competitors, such as Tesla, Fisker and Quantum, have technology leadership and integration expertise derived from many years of experience with vehicle development and assembly programs whereas we are a recently formed company with a limited track-record. Our foreseeable competitors typically focus on proprietary components, whereas we will focus on integrating preexisting components into the “best-available composite vehicle”. Also, some offer complete packaged fuel systems based of their own advanced technologies, including gaseous fuel storage, fuel metering and electronic controls.
Employees
The Company currently has one (1) full-time management employee, and several consultants that provide services on an as needed basis.
Subsidiaries
Great American Coffee Company remains an inactive wholly-owned subsidiary with no current operations.
Item 1A
Item 1A - RISK FACTORS
Risk factors related to concentration of sales.
The company’s future financial condition and results of operations will depend upon prices received for its oil and natural gas as well as the costs of finding, acquiring, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty, and a variety of other factors beyond the Company’s control. These factors include worldwide political instability, especially in the Middle East, the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer product demand and the price and availability of alternative fuels.
No established market for our automotive technology.
There is no established market for our automotive technology. This technology has never been sold before and the risk exists for the establishment of a new market. We are counting on a new market developing and that the new market will accept our technology as opposed to other alternatives. The new market may not develop or may not develop in time to allow us to continue our operations.
The Company’s lack of operating history.
The Company had no operations prior to the transfer to the Company on July 31, 2008 of assets pursuant to the Assignment and Contribution Agreement with ICE, and the acquisition on April 23, 2010 of the business of extracting oil and natural gas from existing oil wells on 2600 acres in the state of Kansas. We have insufficient operating history upon which an evaluation of our future performance and prospects can be made.
Our business plan is unproven.
We have a limited operating history, with no track record to determine if our planned business will be financially viable or successful. Our projected revenues from our business may fall short of our targeted goals and our profit margins may likewise not be achieved. Until we are actually in the marketplace for a demonstrable period of time, it is impossible to determine if our business strategies will be successful.
The Company will need financing which may not be available.
The Company has not established a source of equity or debt financing and will require such financing to establish our business and implement our strategic plan. If we are unable to obtain financing or if the financing we do obtain is insufficient to cover any operating losses we may incur, we may substantially curtail or terminate our operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations.
We have no committed source of financing. Wherever possible, we will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our stock. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, and that dilution may be material.
Force Fuels Common Stock has little prior trading market or liquidity, and there can be no assurances that any trading market will develop.
There is a minimal trading market for our Common Stock. No assurance can be given that an orderly trading market or any trading market will ever develop for our Common Stock.
In addition, Force Fuels common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for the common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Also, the stock market in general has experienced extreme price and volume volatility that has especially affected the market prices of securities of many companies. At times, this volatility has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of the common stock, regardless of the Company’s actual operating performance.
The trading price of Force Fuels Common Stock is likely to be subject to significant fluctuations.
There can be no assurance as to the prices at which Force Fuels common stock will trade, if any trading market develops at all. Until the Common Stock is fully distributed and an orderly market develops, the price at which such stock trades may fluctuate significantly and may be lower or higher than the price that would be expected for a fully distributed issue. Prices for the Common Stock will be determined in the marketplace and may be influenced by many factors, including:
the depth and liquidity of the market,
developments affecting the business of Force Fuels generally and the impact of those factors referred to below in particular,
investor perception of Force Fuels, and
General economic and market conditions.
Item 2
Item 2 - DESCRIPTION OF PROPERTY
The Company signed a 24 month lease beginning October 1,2010 for 2478 square feet of space in a 3 storey office building located at 1503 South Coast Drive, Costa Mesa CA, 92626. The lease agreement has one 24 month option.
Item 3
Item 3 - LEGAL
Item 4
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5
Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol FOFU. The following table sets forth, for the periods indicated, the reported high and low closing bid quotations for our common stock as reported on the OTCBB. The bid prices reflect inter-dealer quotations, do not include retail markups, markdowns, or commissions, and do not necessarily reflect actual transactions.
Holders
We currently have 224 record holders of our common stock.
Dividends
We have never paid any cash dividends on shares of our Common Stock and do not anticipate that we will pay dividends in the foreseeable future. We intend to apply any earnings to fund the development of our business. The purchase of shares of Common Stock is inappropriate for investors seeking current or near term income.
On January 29, 2009 the Company issued 60,000 shares of the Company’s Common Stock, to three individuals in exchange for professional and consulting services rendered, having a value of $6,000.
On October 1, 2009 the company, pursuant to an employment agreement issued 1,000,000 shares, of its common stock to Oscar Luppi. valued at $30,000.
On January 28, 2010 the Company issued 1,187,366 shares of the Company’s Common Stock, to 3 entities for consulting services, valued at $356,210.
On March 16, 2010 the Company issued 22,000 shares of the Company’s Common Stock, to 2 entities, for consulting services, valued at $6,600.
On March 30, 2010 the Company issued 150,000 shares of the Company’s Common Stock, to 2 entities for consulting services, valued at $45,000.
On April 30, 2010 the Company issued 73,000 shares of the Company’s Common Stock to 16 convertible note holders to convert the notes to equity at a contractual value of $2.00 per share
On June 25, 2010 the Company issued 650,000 shares of the Company’s Common Stock, to a lender, valued at $578,500; 150,000 of the shares are for consulting services and 500,000 of the shares are being held by the lender as collateral for a $100,000 loan made to the Company.
On July 31, 2010 the Company issued 10,000 shares of the Company’s Common Stock, to 1 convertible note holder, to convert a note to equity, valued at the contractual value of $10,000.
Subsequent to July 31, 2010 the Company issued 181,746 shares of the Company’s Common Stock, to 2 entities for consulting services; 50,000 shares were valued at $25,000; 31,746 were valued at $33,333; and 100,000 were valued at $65,000; and 60,000 shares to a lender as partial compensation, for a $30,000 loan, valued at $15,600. Each of the issuances described above was a privately negotiated transaction made in reliance upon the exemption from registration provided in Section 4(2) of the Securities Act of 1933.
As of the close of business on December 15, 2010, there were 7,841,875 shares of our Common Stock, par value $0.001 per share, issued and outstanding,
Item 7
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K includes current beliefs, expectations and other forward looking statements, the realization of which may be adversely impacted by any of the factors discussed or referenced throughout this Form 10-K, including but not limited to, factors under the heading, “Item 1A. Risk Factors” in Part I above.
The Company had no operations prior to the transfer to the Company on July 31, 2008 of assets pursuant to the Assignment and Contribution Agreement with ICE.
Under the terms of the Assignment and Contribution Agreement, the Company has undertaken to raise capital and to make payments to ICE in an aggregate amount of $400,000, $100,000 of which was due on or before March 15, 2009; and $300,000 of which was due on or before June 15, 2009. The payment obligations were to accelerate and become immediately due in the event of any nonpayment or bankruptcy. If the Company fails to raise these funds and pay its obligations to ICE, the Company will be unable to continue to conduct its business. On January 30, 2009 ICE and the Company entered into an extension agreement to extend the timeline for the $400,000 cash payment as follows; force Fuels shall make (8) separate installment payments, each in the amount of $50,000, due on or before the last day of each quarter of Force Fuels’ fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.
The Company has granted ICE a first priority perfected security interest in the Company's business and assets in order to secure the Company’s obligation to pay that $400,000 to ICE. Until payment in full of that amount, the Company also cannot sell, transfer or encumber any such assets without Ices’ prior written consent. Failure to pay the obligation when due would likely result in a foreclosure upon the assets.
Recently issued accounting pronouncements.
In May 2009, the FASB issued ASC 855 (previously SFAS 165, Subsequent Events). ASC 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 will be effective for interim or annual period ending after June 15, 2010 and will be applied prospectively. The Company will adopt the requirements of this pronouncement for the quarter ended June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will have an impact on its consolidated results of operations or consolidated financial position.
In June 2009, the FASB issued ASC 810, (previously SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after June 15, 2010.
In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature. The Company does not believe that this will have a material effect on its consolidated financial statements. In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009 and are not expected to have a significant impact on our consolidated financial statements.
Critical accounting policies
The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.
Because of our limited level of operations, we have not had to make material assumptions or estimates other than our assumption that we are a going concern.
Seasonality.
We do not yet have a basis to determine whether our business will be seasonal.
Item 8
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed as part of this Annual Report on Form 10-K are set forth on the pages through of this report and are incorporated herein by reference.
Item 9
Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On October 6, 2009 Li and Company resigned as the Registrants registered public accounting firm. The reports of Li and Company on the Registrant’s financial statements for the fiscal years ending July 31, 2007 and July 31, 2008 did not contain any adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope or accounting principles other than an explanatory paragraph as to the Company’s ability to continue as a going concern. During the two fiscal years, referred to above, there were no disagreements between the registrant and Li and Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Li and Company would have caused Li and Company to make reference to the matter in its reports on the Registrant’s consolidated financial statements for such years.
On November 17, 2009 the Company engaged Kabani and Company, Inc. as its registered public accounting firm. Kabani and Company resigned on November 15, 2010. There were no significant disagreements between Kabani and the Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures which, if not resolved to the satisfaction of Kabani and Company would have caused Kabani and Company to make reference to the matter in its reports on the Registrants financial statements for such yearts.
On November 16, 2010 the Company engaged Sadler, Gibb and Associates as its registered public accounting firm.
Item 9AT - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Chief Executive Officer, who is also our Chief Financial Officer (the “Certifying Officer”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2009. Based on this evaluation, our Certifying Officer has concluded that our disclosure controls and procedures were ineffective to ensure that information required to be disclosed in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is presented to our management as appropriate to allow timely decisions regarding required disclosure.
The Certifying Officer has further indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Evaluation of Internal Controls over Financial Reporting
The Certifying Officer is also responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.
The Certifying Officer assessed the effectiveness of our internal control over financial reporting as of July 31, 2009. This assessment is based on the criteria for effective internal control described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, he concluded that our internal control over financial reporting as of July 31, 2009 was not effective in the specific areas described in the “Disclosure Controls and Procedures” section above and as specifically described in the paragraphs below.
As of July 31, 2009 the Certifying Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:
Policies and Procedures for the Financial Close and Reporting Process - Currently there are no policies or procedures that clearly define the roles in the financial close and reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Failure to have such policies and procedures in place amounts to a material weakness to the Company’s internal controls over its financial reporting processes.
Adequacy of Accounting Systems at Meeting Company Needs - The accounting system in place at the time of the assessment lacks the ability to provide high quality financial statements from within the system, and there were no procedures in place or built into the system to ensure that all relevant information is secure, identified, captured, processed, and reported within the accounting system. Failure to have an adequate accounting system with procedures to ensure the information is secure and accurately recorded and reported amounts to a material weakness to the Company’s internal controls over its financial reporting processes.
Segregation of Duties - The Certifying Officer has identified a significant general lack of definition and segregation of duties throughout the financial reporting processes. Due to the pervasive nature of this issue, the lack of adequate definition and segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.
In light of the foregoing, once we have the adequate funds, management plans to develop the following additional procedures to help address these material weaknesses:
The Company will create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to review by other members of management as well as the Company’s outside accountant. In addition, we plan to enhance and test our month-end and year-end financial close process. Additionally, our board of directors will increase its review of our disclosure controls and procedures. We also intend to develop and implement policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process. We believe these actions will remediate the material weaknesses by focusing additional attention and resources in our internal accounting functions. However, the material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. The Certifying Officer’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.
This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section , and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
PART III
Item 10
Item 10 - DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
On October 1, 2009 the Board of Directors accepted Mr. Lawrence Weisdorn voluntary resignation from his positions of Director, President, Chief Executive officer and Chief Financial Officer of the Registrant. There were no disagreements or misunderstandings relating to the Registrant’s operation, policies or practices between the Board and Mr. Weisdorn leading to his resignation. Mr. Weisdorn cancelled, effective May 1, 2009 the October 21, 2009 employment agreement entered into between himself and the Registrant and agreed to cancel all wages accrued but unpaid as of April 30, 2009.
The following table sets forth the name, age and position of our executive officers, certain non-executive officers and directors:
Name
Age
Position and Offices with the Company
Oscar Luppi (1)
Chairman of the Board, President, Chief Executive Officer, and Director
Donald Hejmanowski (2)
Secretary, and Director
Thomas C. Hemingway (3)
Interim Treasurer, Director
________________________________
(1)
Pursuant to an employment agreement dated October 1, 2009,Oscar Luppi was appointed Chairman of the Board, President and Chief Executive Officer, and was elected as a director concurrently therewith.
(2)
Pursuant to an employment agreement dated October 21, 2008,Donald Hejmanowski was appointed Secretary and Vice President of Business Development. Mr. Hejmanowski was elected as a director concurrently therewith. On October 1, 2009 Mr. Hejmanowski cancelled the employment agreement effective May 1, 2009 and agreed to cancel all unpaid wages accrued but unpaid as of April 30, 2009.
(3)
Thomas C. Hemingway resigned from his positions as President, Chief Executive Officer and Chief Financial Officer effective October 21, 2008. On October 1, 2009 Mr. Hemingway, resigned his position of Chairman of the board, and without compensation, was appointed interim Treasurer.
Biographies
Oscar Luppi (46) - Mr. Luppi has served as the President, Chief Executive Officer and Chairman of the Board of Directors of the Registrant from October 1, 2009 to the present. From May 1990 to the present, Mr. Luppi has served as President of International Patent, Manufacturing and Services, Inc., a private investment company. From March 2001 through October 2007, Mr. Luppi also served as President of Phonica SpA., an Italian telecom company.
Donald Hejmanowski (50) - Mr. Hejmanowski has served as the Secretary, Vice President of Business Development and Director of the Registrant from October 21, 2008 to the present. Mr. Hejmanowski serves as the Vice President of Finance and Director of Ice Conversions, Inc., a California corporation from November 2005 to the present. Ice Conversions, Inc. is in the business of developing electric drive systems for installation in short-haul commercial trucks. Mr. Hejmanowski has served as the Secretary, Treasurer and Director of H Y D, Inc., a Nevada corporation from 2002 to the present. H Y D, Inc. is in the business of providing consulting services. Mr. Hejmanowski has also served as a Director of US Farms, Inc., a Nevada corporation from 2006 to present. US Farms, Inc. is a diversified commercial farming and nursery company. Previously, from 2006 to 2007, Mr. Hejmanowski served as a Director of Cyclone Energy, Inc. Cyclone Energy, Inc. develops, distributes, and markets alternative and hydrogen fuels and offers closed-loop pollution-free transportation solutions. Mr. Hejmanowski also served as a Director of LitFunding Corp. from 2005 to 2006. LitFunding Corp. provides funding for litigation primarily for plaintiffs’ attorneys. From 2002 to 2005, Mr. Hejmanowski served as a consultant to American Water Star, Inc. a water bottling and distribution company.
Thomas Hemingway (52) - Mr. Hemingway has served as the Chairman of the Registrant from May 9, 2006 to the present and has previously served as the Chief Executive Officer and Chief Financial Officer of the Registrant from May 9, 2006 to October 21, 2008. Mr. Hemingway has served as the Chairman, Chief Operating Officer and Secretary of NextPhase Wireless, Inc., a broadband connectivity solutions provider from January 2007 to the present. On June 13, 2008, Mr. Hemingway became Interim Chief Financial Officer of NextPhase Wireless, Inc. and on September 4, 2008, Mr. Hemingway was named Chief Executive Officer. Mr. Hemingway has also served as the President and Chief Executive Officer of Redwood Investment Group, an investment banking trust, from June 2003 to the present. Mr. Hemingway previously served as Chairman and Chief Executive Officer of Oxford Media, a next generation media distribution company, from 2004 to 2006; and as Chairman and Chief Executive Officer of Esynch Corporation, developer and marketer of video-on-demand services and video streaming through the Internet, from 1998 to 2003.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934, as amended (the “EXCHANGE ACT”), requires the Company’s executive officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Company with copies of these reports.
To the Company’s knowledge, based solely on its review of the copies of Section 16(a) forms and other specified written representations furnished to the Company, the following table shows all of the late filings by the Company’s officers, directors or greater than ten percent beneficial owners known to the Company of a Form 3 or any Forms 4 during or with respect to fiscal years 2008 or 2007.
BENEFICIAL OWNER
FORM 3
FORM 4
Thomas C. Hemingway
Lawrence Weisdorn
Donald Hejmanowski
Gary Cohee
Item 11
Item 11 - EXECUTIVE COMPENSATION
On October 21, 2008, the Company experienced a change in management as reported to the Securities Exchange Commission on the Company’s Form 8-K filed October 23, 2008. Such filing is heretofore incorporated by reference. On October 1, 2009 the Company had a further management change, reported to the Securities Exchange Commission on the Company’s Form 8-K filed October 2, 2009. Such filing is heretofore incorporated by reference.
Listed in the table below are the Company’s recently appointed officers as well as the Company’s prior management. There have been no stock options granted to employees or management during the years covered in the table below, and no employee stock options are currently outstanding.
SUMMARY COMPENSATION TABLE
Name and Principal Position
FiscalYear
Salary
($)
Stock Awards
($)
All Other Compensation
($)
Total Compensation
($)
Lawrence Weisdorn (1),
$39,500 (2)
$75,000 (3)
--
$114,500
Ex-President, CEO, CFO,
$180,000 (2)
$180,000
and director
Donald Hejmanowski (4),
--
$36,000 (5)
--
$36,000
Secretary and director
$38,637 (6)
$41,137
Thomas C. Hemingway) (7)
--
$25,500 (8)
--
$25,500
Ex-President, CEO, CFO,
-
-
and Chairman
Oscar Luppi (9)
Chairman, President and Chief
Executive Officer
-
-
-
-
__________________________________
(1)
Pursuant to an employment agreement effective October 21, 2008, Lawrence Weisdorn was appointed President, Chief Executive Officer and Chief Financial Officer of the Company. On October 1, 2009, Mr. Weisdorn resigned from all of those positions.
(2)
Accrued salary pursuant a consulting agreement entered into on May 12, 2008, and replaced by an employment agreement dated October 21, 2008. $145,000 was paid against these accrued items and the remaining balance of $74,500, by agreement was forgiven and written off.
(3)
Grant of 2,500,000 shares valued at $0.03 per share pursuant to a consulting entered in to May 12, 2008. These shares were subsequently returned to the transfer agent on August 31, 2009, for cancellation.
(4)(6)
Pursuant to an employment agreement effective October 21, 2008, Donald Hejmanowski was appointed Secretary and Vice President of Business Development of the Company and was entitled to remuneration of $6,500 per month. That fee was accrued through April 30, 2009. The employment agreement was cancelled effective May 1, 2009 and the accrued amount of $38,637 was written off.
(5)
Grant of 1,200,000 shares valued at $0.03 per share pursuant to a consulting agreement entered into May 12, 2008.
(7)
Thomas C. Hemingway served as the Company’s President, Chief Executive Officer and Chief Financial Officer from May 9, 2006 to October 21, 2008 and served as the Company’s Chairman through September 30, 2009.
(8)
Grant of 850,000 shares valued at $0.03 per share for services rendered to the company.
(9)
On October 1,2009 Mr. Luppi entered into an employment agreement with the company where-by he was appointed Chairman, President and Chief Executive Officer receiving an annual base salary of $250,000 and a signing bonus of 1,000,000 shares of the company’s common stock and 1,000,000 options to purchase the Registrant’s Common Stock at a 20% discount to market.
DIRECTOR COMPENSATION
Our current directors received no compensation for their services as director during fiscal years 2008 and 2009. There were no stock options granted to directors during fiscal years 2008 and 2009, other than those referred to, in Item 11(9), above and no other director stock options are currently outstanding.
Item 12
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the number and percentage of the shares of the Company’s Common Stock owned as of July 31, 2009 by all persons known to the Company who own more than 5% of the outstanding number of such shares, by all directors of the Company, and by all officers and directors of the Company as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned.
Name and Address of Beneficial Owner (1)
Number of Shares Beneficially Owned (1)
Percent of Class
Thomas C. Hemingway
4630 Campus Dr. Ste. 101
Newport Beach CA 92660
900,000
(2)
11.71%
Lawrence Weisdorn
22525 Pacific Coast Hwy, Suite #101
Malibu, CA 90265
2,500,000
(2)
32.54%
Donald Hejmanowski
22525 Pacific Coast Hwy, Suite #101
Malibu, CA 90265
1,200,000
(2)
15.62%
All Directors and Officers as a group (3 persons)
4,600,000
(2)
59.87%
ICE Conversions, Inc. (3)
22525 Pacific Coast Hwy, Suite #101
Malibu, CA 90265
1,000,000
(4)
13.02%
Gary Cohee
PMB Securities
4630 Campus Dr. Suite 101
Newport Beach, CA 92660
900,000
11.71%
___________________________________________
(1)
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of July 31, 2009.
(2)
For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within such a date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except community property laws, the Company believes, based on information supplied by such persons, that the persons named in this table have sole voting and investment power with respect to all shares of common stock which they beneficially own.
(3)
Lawrence Weisdorn resigned from all executive and Board positions effective October 1, 2009. Both he and Donald Hejmanowski both currently serve as officers and directors of ICE Conversions, Inc.
(4)
These are the number of shares outstanding after the 1,500,000 shares are cancelled and replaced by the issuance of 1,000,000 shares pursuant to the terms of the Assignment and Contribution Agreement.
Item 13
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Thomas C. Hemingway and Gary Cohee were co-founders of Great American Coffee Company, Inc. which, for accounting purposes, acquired the Company effective May 9, 2006. In connection with the Merger, Messrs. Hemingway and Cohee each acquired beneficial ownership of 500,000 prior to reverse split shares of the Company's Common Stock. Mr. Hemingway and Mr. Cohee were granted 850,000 shares each for services rendered to the Company.
Lawrence Weisdorn was granted 2,500,000 shares of Common Stock and had accrued, as of July 31, 2009, $219,500 in compensation pursuant to a consulting agreement dated May 12, 2008 which was subsequently replaced by an employment agreement dated October 21, 2009 and was appointed President, Chief Executive Officer and Chief Financial Officer of the Company, and elected as a director of the Company concurrently therewith. Mr. Weisdorn subsequently resigned from all executive and board positions, terminated the employment agreement as of May 1, 2009 and forgave any accrued but unpaid salary as of April 30, 2009.
Donald Hejmanowski was granted 1,200,000 shares of Common Stock pursuant to a consulting agreement dated May 12, 2008. This consulting agreement was replaced by an employment agreement dated October 21, 2008, whereby Mr. Hejmanowski was appointed Secretary and Vice President of Business Development. Mr. Hejmanowski was elected as a director of the Company concurrently therewith. Mr. Hejmanowski terminated the employment agreement as of May 1, 2009 and forgave any accrued but unpaid salary as of April 30, 2009.
Mr. Weisdorn and Mr. Hejmanowski both currently serve as officers and directors of ICE. On June 23, 2008, 1,500,000 shares were issued to ICE pursuant to a Joint Venture Agreement dated May 12, 2008. The Joint Venture Agreement was replaced by an Assignment and Contribution Agreement effective July 31, 2008 whereby ICE transferred certain assets and intellectual property rights to the Company in exchange for Common Stock of the Company and a cash payment totaling $400,000. The Company has granted ICE a first priority perfected security interest in the Company's business and assets in order to secure the Company’s obligation to pay that $400,000 to ICE. Until payment in full of that amount, the Company also cannot sell, transfer or encumber any such assets without Ice’s prior written consent. Failure to pay the obligation when due would likely result in a foreclosure upon the assets. Pursuant to the Assignment and Contribution Agreement, Five hundred thousand of the 1,500,000 shares previously issued to ICE were cancelled.
Item 14
Item 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountants, Li & Company, PC billed us approximately $12,000 for professional services rendered in connection with our Quarterly Reports on Form 10-Q for the periods ended October 31, 2007, January 31, 2008 and April 30, 2008 and for the audit of our consolidated financial statements included in our Annual Reports on Form 10-K for the fiscal year ended July 31, 2008.
Our principal accountants did not bill us any fees for tax compliance, tax advice and tax planning for our fiscal years ended July 31, 2008 and 2009.
PART IV
Item 15
Item 15 - EXHIBITS
Please see the Exhibit Index located behind the signature page
FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
July 31, 2009 and 2010
Financial statements to be filed by amendment.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EXHIBIT INDEX
_____________________
* This exhibit references a Management Compensation Plan or Arrangement
(1)
Filed with the Securities and Exchange Commission in the Exhibits to Form 10-SB filed on September 9, 2002, and is incorporated by reference herein.
(2)
Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on May 06, 2008, and is incorporated by reference herein.
(3)
Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on June 16, 2008, and is incorporated by reference herein.
(4)
Filed with the Securities and Exchange Commission in the Exhibits to Form S-8 filed on January 21, 2003.
(5)
Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on May 27, 2008, and is incorporated by reference herein.
(6)
Filed with the Securities and Exchange Commission in the Exhibits to Form 10-K/A filed on December 30, 2008, and is incorporated by reference herein.