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 supersedes and renders 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.
Business Description
The Company is a manufacturer of electric drive systems for installation in short-haul commercial trucks.
The Company is currently in the process of building prototypes to market to its potential customers. The Company combines components purchased from various suppliers and partners, integrating all of the parts into complete electric drive systems that the Company intends to both sell direct to end uses such as commercial truck fleets for retro-fit conversion and to truck manufacturers for factory assemblage. The electric drive systems are an alternative to fossil fuels for short-haul commercial truck operators. The drive systems utilize a proprietary battery management system that is intended to prolong the useful life expectancy of the battery packs.
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. The Assignment and Contribution Agreement grants the Company a non-exclusive license for the use of certain electric drive technologies developed by ICE. The Company owes ICE $400,000 for those assets. In the event that the Company defaults in its payment obligation, the Company's principal assets could be foreclosed upon, and the Company would be unable to continue to operate its business.
Industry Overview
Global demand for light hybrid-electric vehicles is expected to grow rapidly through 2013 to 4.5 million units according to a 2008 marketing report by Freedonia. Gains will be driven by rising energy costs, more stringent emissions laws and declining costs relative to other vehicles. The US will be the largest market, followed by Western Europe and Asia/Pacific. Increased attention to environmental concerns, especially air pollution, has initiated additional research into alternative fuels to replace regular diesel especially in states like California.
The alternative energy vehicle industry is an emerging industry characterized by numerous small early stage companies and traditional manufacturers. We compete directly in the short haul, light and heavy-duty commercial electric truck market. The commercial electric truck market is experiencing a strong upward trend, lead in part by recent increases in fuel cost, improvement in battery pack performance, sensitivity to global warming by the business community and medium- and heavy-duty truck makers preparing for the last round of changes to diesel exhaust emission standards to go into effect in 2010
We estimate that in the U.S. alone, that the market for Class 5, 6, 7 & 8 intra-city delivery trucks is about 200,000 conversions a year. The Company believes this is where environmentally friendly trucks can make a big difference in helping clean the air. Short-haul, intra-city diesel delivery trucks make multiple stops and can spend hours each day idling and spewing soot and other pollutants.
The Company’s target market includes short-haul trucking fleets that travel less than 100 miles per day before returning to their dispatch yards. Our primary focus will be on trucks that load and unload and are government mandated and regulated.
Business Strategy
Our strategy is to be a leading provider of electric drive systems for installation in short haul commercial truck vehicles, that will allow them to run 100% on electric battery power. We will install provide retrofit conversion (kits) directly to end-users and supply our electric drive systems to OEMs. Elements of our business strategy include the following:
Initially We are Entering the Local Markets- The Company believes the local Southern California market is perfectly suited to serve as the initial entry point for its marketing and sales effort due to both the Company’s operations being located in the Los Angles area and the large potential customer base. The Company believes this strategy allows for maintaining a high level of customer support, effective deployment of company resources and rapid revenue generation and profitability. The Company will seek nationwide and international expansion in the near future. The Company is in the early planning stages to enter the European market where the economics are better, where fuel prices are considerably higher than in the U.S., and where government policies favor vehicles with low greenhouse gas emissions.
Focus on Short Hauling- Our electric drive systems are a viable alternative energy solution for the short haul trucking industry, delivering both operating cost benefits and zero carbon emissions.
Promoting our Cost Savings Advantages and Environmental Advantages- Our product provides significant operational cost advantages compared with both hybrid and combustion engines. Our product is a zero emission solution for short haul commercial trucks thus providing an advantage to the environment. We plan to emphases the above-mentioned advantages in our marketing, sales and promotional campaigns.
Products
The Company combines components purchased from various suppliers and partners, integrating all of the parts into complete electric drive systems that the Company intends to sell direct both to end uses such as commercial truck fleets for retro-fit conversion and to truck manufacturers for original factory assembly.
The Company’s electric drive systems will be installed in commercial trucks and will run 100% on electric battery power. The Company utilizes a proprietary battery management system, which is intended to extend the useful life of the battery packs.
Competition
The alternative energy vehicle market is a highly fragmented and competitive, characterized by numerous small and early stage companies. The Company competes directly with short haul truck companies of hybrid electric and all- electric and electric vehicles and suppliers of components and power train systems for commercial truck vehicles that include: UK -based: Smith Electric Vehicle that is investing $ 30 million dollars to launch its vehicles in the United States, Electrorides with their Zero Truck class 4 delivery truck and Balgon which is involved in the marketing of all electric short haul trucks. Others include Electric Truck, LLC, ISE Corp. with their hybrid bus and truck offerings and Azure Dynamics also with a hybrid product.
The Company competes to a lesser extent with major truck manufacturers such as Peterbilt, Mack Trucks, Ford and Volvo. To date their major interest has been on better improved diesel engines or hybrids and partnering with companies like us for alterative vehicles like all electric.
The Company believes that we compete favorably with a peer group of short haul commercial truck companies providing hybrid-electric and all-electric truck vehicles and systems due to our technological advantage that allows for full highway speeds and driving range between recharging of 100 miles.
Employees
The Company currently has two (2) full-time management employees and three (3) part-time employees.
Subsidiaries
Great American Coffee Company remains an inactive wholly-owned subsidiary with no current operations.
Item 1A
Item 1A - RISK FACTORS
The Company has no formal lease on the premises out of which it currently operates.
As of November 2009 the Company is operating out of an office located at 4630 Campus Drive, Ste. 101 Newport Beach, CA and a warehouse facility located at 22525 Pacific Coast Highway Ste 101, Malibu, California. No formal lease exists for either facility. The warehouse space is being provided to the Company by ICE which holds a formal lease to the warehouse premises. The office space has been provided by PMB Securities which holds through December 31, 2009, a formal lease to the office premises..
The Company may be asked to leave and vacate either premise at any time. The Company’s current financial position prevents it from looking for other options to house its operations. If the Company is asked to leave the premises it would be materially detrimental to the Company’s operations.
No established market for our products.
There is no established market for our products. These products have 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 products 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. We have insufficient operating history upon which an evaluation of our future performance and prospects can be made. Pursuant to the Assignment and Contribution Agreement, the Company has refocused its efforts towards the manufacturing of electric drive systems for installation in short-haul commercial trucks. The Company is currently in the process of building prototypes to market to its potential customers.
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 no prior trading market or liquidity, and there can be no assurances that any trading market will develop.
There is no established trading market for our Common Stock. No symbol has been assigned for our securities, and our securities have not been listed or quoted on any securities exchange to date. 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.
We may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required, commencing with our annual report for the fiscal year ending July 31, 2010, to include in our annual report our assessment of the effectiveness of our internal control over financial reporting as of the end of fiscal year 2010. The internal control report must include a statement
Of management's responsibility for establishing and maintaining adequate internal control over our financial reporting;
Of management's assessment of the effectiveness of our internal control over financial reporting as of year end;
Of the framework used by management to evaluate the effectiveness of our internal control over financial reporting; and
that our independent accounting firm has issued an attestation report on management's assessment of our internal control over financial reporting, which report is also required to be filed.
Furthermore, our independent registered public accounting firm will be required to attest to whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we have maintained, in all material respects, effective internal control over financial reporting as of July 31, 2010. We have not yet completed our assessment of the effectiveness of our internal control over financial reporting. We expect to incur additional expenses and diversion of management's time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification and auditor attestation requirements.
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identify other deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Item 2
Item 2 - DESCRIPTION OF PROPERTY
The Company administration currently operates out of a 1516 sq. foot office facility at 4630 Campus Drive, Ste 101, Newport Beach, Ca 92260 and a warehouse facility located at 22525 Pacific Coast Highway Ste 101, Malibu, California. No formal lease exists for either location. The warehouse space is being provided, for $1,000 per month, to the Company, by ICE, which holds a formal lease to the premises.. The office space is being provided, at a cost of $3,850 per month, for the month of December 2009, by PMB Securities, which also provided the months of October and November 2009, at no cost. The company is negotiating a formal 36 month lease with the office building management, to commence January 1, 2010, at an initial rate of $3,850 per month.
Item 3
Item 3 - LEGAL PROCEEDINGS
We are not involved in any litigation. We may from time to time become involved in litigation arising in the ordinary course of our business.
Item 4
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 19, 2008, in contemplation of the 1-for-10 reverse split of the Company’s Common Stock which took effect April 17, 2008, shareholders holding a majority of the outstanding shares approved by written consent an Amendment of the Company’s Articles of Incorporation increasing the number of authorized shares of the Company’s Common Stock (“Common Stock”) from to 2,400,000 to 100,000,000 shares to take effect immediately after the 1-for-10 reverse split.
PART II
Item 5
Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no current market for the shares of our Common Stock. No symbol has been assigned for our securities, and our securities have not been listed or quoted on any Exchange to date. There can be no assurance that a liquid market will develop in the foreseeable future or ever. Transfer of our common stock may also be restricted under the securities or blue sky laws of certain states and foreign jurisdictions. Consequently, investors may not be able to liquidate their investments and should be prepared to hold the Common Stock for an indefinite period of time.
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 April 30, 2008, the Company affected a 1-for-10 reverse stock split of the Company’s Common Stock (the “Reverse Split”), thereby reducing the total outstanding common shares from 1,250,000 to shares and reducing the authorized Common Stock from 24,000,000 to 2,400,000.
On April 30, 2008, immediately after the Reverse Split, the Company amended its articles of incorporation to increase its authorized Common Stock to 100,000,000 shares.
On May 12, 2008, the Company entered into a consulting agreement with Lawrence Weisdorn granting him 2,500,000 shares of the Company’s Common Stock in exchange for professional consulting services.
On May 12, 2008, the Company entered into a consulting agreement with Donald Hejmanowski granting him 1,200,000 shares of the Company’s Common Stock in exchange for professional consulting services.
On June 18, 2008, the Company issued a total of 2,797,763 shares of the Company’s Common Stock to a number of individuals for professional and consulting services rendered, all at a value of $.03 per share.
On June 23, 2008, 1,500,000 shares of the Company’s Common Stock were issued to ICE 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. Five hundred thousand of the 1,500,000 shares previously issued to ICE were cancelled effective July 31, 2008, pursuant to the terms of the Assignment and Contribution Agreement.
On 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.
On October 1, 2009 the company, pursuant to an employment agreement issued 1,000,000 shares of its common stock to Oscar Luppi.
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 July 31, 2009, there were 7,932,763 shares of our Common Stock, par value $0.001 per share, issued and outstanding, including 250,000 shares that are pending cancellation. If those shares had been cancelled the number of outstanding shares would be 7,682,763.
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.
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, 2008 and 2009
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Force Fuels, Inc.
We have audited the accompanying consolidated balance sheets of Force Fuels, Inc. (A Development Stage Company) as of July 31, 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended July 31, 2009, and the inception to date statements of operations and cash flows for the period commencing on August 1, 2008 and ending July 31, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The financial statements of Force Fuels, Inc. as of July 31, 2008 and for the year and inception to date periods ended July 31, 2008, were audited by another auditor whose report dated December 23, 2008 (Except Notes 2, 4 and 5 which were dated April 5, 2009) expresses an unqualified opinion on those statements, and included a going concern emphasis paragraph.
We conducted our audits of these statements 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fuels, Inc. as of July 31, 2009, and the results of its consolidated statements of operations, stockholders' equity (deficit), and its cash flows for the year then ended, and as it relates to the inception to date statements of operations and cash flows for the period commencing on August 1, 2008 and ending July 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had incurred cumulative losses of $769,756 and net losses of $399,723 for the year ended July 31, 2009. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Kabani & Company, Inc.
KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
December 23, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Force Fuels, Inc.
(Formerly DSE Fishman, Inc.)
(A development stage company)
Anaheim, California
We have audited the accompanying consolidated balance sheet of Force Fuels, Inc. (formerly DSE Fishman, Inc.) (a development stage company) (the “Company”) as of July 31, 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2008, and the results of its consolidated statements of operations, stockholders’ equity (deficit), and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has earned no revenues since inception, has a working capital deficiency and losses from operations. The Company will require additional working capital to develop its business until the Company either: (1) achieves a level of revenues adequate to generate sufficient cash flows from operations; or (2) obtains additional financing necessary to support its working capital requirements. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/Li & Company, PC
Li & Company, PC
Skillman, New Jersey
December 23, 2008
FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
See accompanying notes to the consolidated financial statements.
FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to the consolidated financial statements.
FORCE FUELS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from July 12, 2002 (Inception) through July 31, 2009
(Unaudited)
See accompanying notes to the consolidated financial statements.
FORCE FUELS, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to the consolidated financial statements.
FORCE FUELS, INC. AND SUBSIDIARY
(A development stage company)
July 31, 2009 and 2008
Notes to the Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND OPERATIONS
Force Fuels, Inc. (a development stage company) (formerly DSE “Fishman” or the “Company”) was incorporated under the laws of the State of Nevada in July 2002 and is inactive and is currently searching for business opportunities.
On May 5, 2006, Great American Coffee Company, Inc. (“Great American”) acquired 10,500,000 shares representing 100% of the outstanding shares of the Company.
On May 9, 2006, the Company formed GACC Acquisition Corp (“GACC”), a California corporation and GACC merged into Great American; with Great American as the surviving corporation. The Company exchanged the shares of GACC for 1,000 shares of Great American.
On May 12, 2006 the Company issued 1,750,000 shares of common stock in exchange for 100% of the outstanding shares of Great American.
The results of the transaction were for the Company to own 100% of the outstanding shares of common stock of Great American.
Great American was incorporated in California on April 4, 2005, has not conducted any operations to date and is inactive.
On May 14, 2008 the Company changed its name to Force Fuels, Inc.
Assignment and Contribution Agreement between the Company and ICE Conversions, Inc.
On July 31, 2008 the Company entered into an assignment and contribution agreement with Lawrence Weisdorn and ICE Conversions, Inc. to operate a business engaged in the development, manufacture and marketing of certain motor vehicles powered by hydrogen fuel cells. The transactions contemplated by the Assignment and Contribution Agreement include:
(a) the contribution, transfer and license of certain assets and intellectual property rights of ICE to the Company;
(b) the grant of 1,000,000 shares of Common Stock to ICE;
(c) confirmation of the previous grant of 2,500,000 shares of Common Stock to Lawrence Weisdorn pursuant to a consulting agreement; on July 28, 2009 Lawrence Weisdorn and the company executed an agreement to memorialize their oral agreement as of July 31,2008 that the shares were cancelled at and as of July 31, 2008 immediately before Lawrence Weisdorn and Force Fuels entered into the Contribution and Assignment Agreement with ICE Conversions, which was a material inducement for Force Fuels to enter into that agreement, and further to rectify any defects in documenting conclusively the cancellation of those shares.
(d) cash payment of $400,000 from the Company to ICE, made payable as follows: 100,000 on or before March 15, 2009 and $300,000 on or before June 15, 2009. On January 30, 2009 the company and ICE agreed to an extension which requires 8 installment payments, each in the amount of $50,000, due on or before the last day of each quarter of the company’s fiscal year, commencing with the first installment due on or before April 30, 2010.
The Assignment and Contribution Agreement replaced the Joint Venture Agreement dated May 12, 2008. Five hundred thousand of the 1,500,000 shares previously issued to ICE were cancelled pursuant to the terms of the Assignment and Contribution Agreement.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include the accounts of the Company and Great American. All material inter-company balances and transactions have been eliminated.
Development stage company
The Company is a development stage company as defined by Statement of Financial Accounting Standards No. 7, Accounting and Reporting by Development Stage Enterprises (“ASC 915”). The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company’ development stage activities.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Due to the limited level of operations, the Company has not had to make material assumptions or estimates other than the assumption that the Company is a going concern.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Fixed assets
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over useful lives of 7 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Expenditures for maintenance and repairs are charged to operations as incurred.
Purchased intellectual property right
The Company has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“ASC 350”) for purchased intellectual property right. Under the requirements as set out in ASC 350, the Company amortizes the costs of acquired intellectual property right over the remaining legal lives, or estimated useful lives, or the term of the contract, whichever is shorter. Purchased formulae is carried at cost and amortized on a straight-line basis over the estimated useful life of ten (10) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Purchased intellectual property right
The Company has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”) for purchased intellectual property right. Under the requirements as set out in SFAS No. 142, the Company amortizes the costs of acquired intellectual property right over the remaining legal lives, or estimated useful lives, or the term of the contract, whichever is shorter. Purchased formulae is carried at cost and amortized on a straight-line basis over the estimated useful life of ten (10) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Impairment of long-lived assets
The Company follows Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“ASC 360”) for its long-lived assets. The Company’s long-lived asset, which includes purchased intellectual property right, is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company determined that there were no impairments of long-lived assets as of July 31, 2009 and 2008.
Fair value of financial instruments
The Company follows Statement of Financial Accounting Standards No. 107 “Disclosures about Fair Value of Financial Instruments” (“ASC 825”) for its financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.
Revenue recognition
The Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition” (“ASC 605”), as amended by SAB No. 104 (“ASC 605”) for revenue recognition. The Company will recognize revenues when it is realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company will derive majority of its revenue from sales contracts with customers with revenues being generated upon the shipment of goods.
Stock-based compensation
The Company accounted for its stock based compensation under the recognition and measurement principles of the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“ASC 718”) using the modified prospective method for transactions in which the Company obtains employee services in share-based payment transactions and the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 96-18 “Accounting For Equity Instruments That Are Issued To Other Than Employees For Acquiring, Or In Conjunction With Selling Goods Or Services” (“ASC 505-50”) for share-based payment transactions with parties other than employees provided in SFAS No. 123R.Transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
Income taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Net loss per common share
Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive common shares outstanding as of July 31, 2009 or 2008.
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.
NOTE 3 - DEVELOPMENT STAGE ACTIVITIES AND GOING CONCERN
The Company is currently in the development stage and has not conducted any operations to date. The company intends to pursue the development and manufacture of the hydrogen fuel cell products.
As reflected in the accompanying consolidated financial statements, the Company had a deficit accumulated during development stage of $769,756 at July 31, 2009, had a net loss and cash used in operations of $399,723 and $24,250 respectively, for the fiscal year ended July 31, 2009, and has no revenues since inception.
While the Company is attempting to increase revenues, the Company’s cash position is not sufficient to support the Company’s operations. Management intends to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that these efforts will succeed and that the Company will continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise capital and to generate sufficient revenues. The consolidated financial statements do not include any adjustments that would be necessary if the Company is unable to continue as a going concern.
NOTE 4 - FIXED ASSETS
The Company’s property and equipment as of July 31, 2009 and 2008 are summarized as follows:
Depreciation expense for the fiscal year ended July 31, 2009 and 2008 were $2,601 and $0, respectively. The Company expects depreciation expense for the next five year to be as follow:
NOTE 5 - PURCHASED INTELLECTUAL PROPERTY RIGHT
On July 31, 2008, the company acquired, from ICE, a prototype 2008 Columbia model, electric battery-powered Freightliner and all electric drive components installed or to be installed (“Purchased Intellectual Property Right”) for (i) 1,000,000 shares of its common stock, and (ii) a cash payment of $400,000, payable as follows: $100,000 payable on or before March 15, 2009, $300,000 payable on or before June 15, 2009. The Purchased Intellectual Property Right is collateralized by a first priority perfected lien in favor of ICE. The management of the Company determined that this transaction represented the acquisition of an asset, the intellectual property right, instead of a business.
Pursuant to EITF 98-3 (ASC 805), a business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors. A business consists of (a) inputs, (b) processes applied to those inputs, and (c) resulting outputs that are used to generate revenues. For a transferred set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from the transferor, which includes the ability to sustain a revenue stream by providing its outputs to customers. The prototype and related intellectual property right which the Company acquired was a specific application of electric vehicle to Class 8 Trucks, a work in progress, and did not contain any of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from ICE Conversions, Inc., the transferor. The intellectual property right acquired is valued at $430,000 representing (i) an aggregate cash payment of $400,000 from the Company to ICE and (ii) the issuance of 1,000,000 shares of Common Stock to ICE valued at $0.03 per share or $30,000.
Purchased intellectual property right at cost at July 31, 2008 and 2009, consisted of the following:
Amortization expense
NOTE 6 - NOTES PAYABLE
Note payable at July 31, 2009 and 2008 consisted of the following:
Interest expense for the fiscal year ended July 31, 2009 and 2008 were $2,022 and $0, respectively.
NOTE 7 - EQUITY TRANSACTIONS
Common Stock
In March 2006, the original incorporators of the Company contributed $1,000 in exchange for 1,500,000 shares of common stock.
In March 2006, Great American issued 250,000 shares of common stock in exchange for $500,000. 37,500 shares were mutually rescinded in September 2006, and the Company refunded $75,000.
On June 7, 2006, the Company repurchased 500,000 shares of its common stock for $75,000, which were held in treasury and retired during the current year.
On April 30, 2008, the Company effectuated a 1-for-10 reverse stock split of the Company’s Common Stock (the “Reverse Split”), thereby reducing the total outstanding common shares from 1,250,000 to 125,000 shares and reducing the authorized Common Stock from 24,000,000 to 2,400,000.
On May 12, 2008, the Company entered into a consulting agreement with Lawrence Weisdorn granting him 2,500,000 shares of the Company’s Common Stock in exchange for professional consulting services.
On May 12, 2008, the Company entered into a consulting agreement with Donald Hejmanowski granting him 1,200,000 shares of the Company’s Common Stock in exchange for professional consulting services.
On June 18, 2008, the Company issued a total of 2,797,763 shares of the Company’s Common Stock to a number of individuals for professional and consulting services rendered, all at a value of $.03 per share.
On June 23, 2008, 1,500,000 shares of the Company’s Common Stock were issued to ICE Conversions, Inc. pursuant to a Joint Venture Agreement dated May 12, 2008. The Joint Venture Agreement was replaced by an Assignment and Contribution Agreement effective July 31, 2008. 500,000 of the 1,500,000 shares previously issued to ICE were cancelled effective July 31, 2008, pursuant to the terms of the Assignment and Contribution Agreement.
On February 14, 2009 the Company issued 60,000 shares of the Company’s Common Stock to three individuals in exchange for professional and consulting services rendered.
Stock Option Plan
The Company adopted its 2002 Non-Statutory Stock Option Plan (the “Plan”) on July 15, 2002, as amended on October 24, 2002 and filed with the Securities and Exchange Commission on Form S-8 on January 21, 2003. The Plan provides for the granting of non-statutory stock options through 2012, to purchase up to 1,500,000 shares of its common stock, subject to adjustment for stock splits, stock dividends, recapitalizations or similar capital changes. These may be granted to employees (including officers) and directors of the Company and certain of the Company's consultants and advisors.
The Plan is administered by the Company's Board of Directors which determines the grantee, number of shares, exercise price and term. The Board of Directors also interprets the provisions of the Plan and, subject to certain limitations, may amend the Plan.
One million five hundred thousand (1,500,000) shares were reserved for issuance under the Plan, subject to adjustment for stock splits, stock dividends, recapitalizations or similar capital changes. Accordingly, such amount was adjusted to 150,000 shares as a result of the Reverse Stock Split. Prior to the Reverse Split, options to purchase 1,500,000 shares had already been issued and exercised in full. Accordingly, there are no additional shares available for future grants under the Plan and no options are outstanding as of July 31, 2009 or 2008.
NOTE 8 - INCOME TAXES
The Company will file a consolidated tax return. At July 31, 2009, the Company has available for federal and state income tax purposes a net operating loss (“NOL”) carry-forwards of approximately $358,000 that may be used to offset future taxable income through the fiscal year ending July 31, 2029. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying consolidated financial statements since the Company believes that the realization of its net deferred tax assets of approximately $358,000 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowance of $208,000. Also, due to a change in the control after the reverse acquisition of Fishman by Great American, the Company's past accumulated losses to be carried forward may be limited.
Pursuant to Internal Revenue Code Sections 382 and 383, the use of the Company's net operating loss and credit carry-forwards may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. The annual limitation may result in the expiration of net operating losses and credits before utilization.
Components of deferred tax assets as of July 31, 2009 and 2008 are as follows:
NOTE 9 - RELATED PARTY TRANSACTION
(i) Management service provided by its stockholders
For the fiscal year ended July 31, 2008, the Company accrued $39,500 payable to its current CEO. For the fiscal year ended July 31, 2009 the company accrued an additional $180,000 payable to its current President and $38,637.99 to its Secretary. The president was paid $145,000 and effective May 1, 2009 both the President and Secretary agreed to cancel their respective employment agreements and forgive the balance of $113,137 that was previously accrued but not yet paid.
(ii) Due from a stockholder
The Company advanced $7,000 to a stockholder in May 2007, all of which was repaid during the fiscal year ended July 31, 2008. The advance was unsecured, due on demand and non-interest bearing.
(iii) Free office space from the Chief Executive Officer and a stockholder
Previous to November 1, 2009 the Company has been provided office space by its Chief Executive Officer at no cost. The management determined that such cost was nominal and did not recognize the rent expense in its financial statements.
Entry into employment agreement with President, Chief Executive Officer and Chief Financial Officer
On October 21, 2008, the Company entered into an employment agreement with its President, Chief Executive Officer and Chief Financial Officer for the initial term of three (3) years and renewable by the mutual consent of the Parties. In consideration of the services rendered by the Executive, the Company agreed to compensate the Executive as follows: (a) Base Compensation. The Executive’s monthly base compensation initially shall be Twenty Thousand Dollars ($20,000) and shall be payable in accordance with the salary policies of the Company in effect from time to time but no less frequently than monthly. (b) Salary Increases. The Company shall annually review the Executive’s Performance and compensation. The Executives base compensation will be increased annually by not less than five percent (5%). Executive’s annual base compensation shall not be reduced below the base compensation as from time to time adjusted, unless agreed upon in writing. (c) Incentive Bonuses. The Board of Directors shall grant Executive such annual bonuses as the Board of Directors, in its discretion, may determine to be appropriate in light of the Company’s performance and the Executive’s performance and contribution to the Company’s success. (d) Automobile Allowance. The Executive shall receive an automobile allowance not to exceed $750 monthly for the purpose of leasing and maintaining insurance on an automobile of the Executive’s choice. If the Executive uses his/her own vehicle instead of leasing, a flat rate of $500.00 per month shall be paid to the Executive as an automobile allowance. Effective May 1, 2009 the Executive agreed to terminate the employment agreement and to forgive $74,500 of unpaid salary.
Entry into employment agreement with Secretary and Vice President of Business Development
On October 21, 2008, the Company entered into an employment agreement with its Secretary and Vice President of Business Development for the initial term of three (3) years and renewable by the mutual consent of the Parties. In consideration of the services rendered by the Executive, the Company agrees to compensate the Executive as follows: (a) Base Compensation. The Executive’s monthly base compensation initially shall be Six Thousand Five Hundred Dollars ($6,500) and shall be payable in accordance with the salary policies of the Company in effect from time to time but no less frequently than monthly. (b) Salary Increases. The Company shall annually review the Executive’s Performance and compensation. The Executives base compensation will be increased annually by not less than five percent (5%). Executive’s annual base compensation shall not be reduced below the base compensation as from time to time adjusted, unless agreed upon in writing. (c) Incentive Bonuses. The Board of Directors shall grant Executive such annual bonuses as the Board of Directors, in its discretion, may determine to be appropriate in light of the Company’s performance and the Executive’s performance and contribution to the Company’s success (d) Automobile Allowance. The Executive shall receive an automobile allowance not to exceed $750 monthly for the purpose of leasing and maintaining insurance on an automobile of the Executive’s choice. If the Executive uses his/her own vehicle instead of leasing, a flat rate of $500.00 per month shall be paid to the Executive as an automobile allowance. Effective May 1, 2009 the Executive agreed to terminate the employment agreement and to forgive $38,637.99 of unpaid salary.
NOTE 10 - SUBSEQUENT EVENTS
On October 1, 2009 the Company entered into an employment agreement with Oscar Luppi pursuant to which Mr. Luppi became Chairman of the Board, President and Chief Executive Officer. The annual base compensation initially shall be Two Hundred Fifty Thousand Dollars ($250,000), payable in accordance with the salary policies of the Company in effect from time to time but no less frequently than monthly, however Executive agrees to accumulate base compensation at his discretion during the first year. The base compensation will increase on October 1, 2010 to $350,000. The Company shall annually review the Executive’s performance and compensation. The Executive’s base compensation will be increased annually by not less than five percent (5%). Executive’s annual base compensation shall not be reduced below the base compensation as from time to time adjusted, unless agreed upon in writing. As a signing bonus the Company issued one million (1,000,000) shares of the Company’s Common Stock and an additional one million (1,000,000) options to purchase the Company’s Common Stock upon the Company’s Common Stock becoming listed on the OTC Bulletin Board at a 20% discount off the stock price quoted on the first opening trade, with a five year cashless exercise to the Executive.
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
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* 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.